Last week the yield on the 10-year UST rose 15bps to 0.71% and the US Treasury curve bear-steepened following better than expected US CPI readings for June and importantly, lacklustre demand for the bumper USD112bn bond offerings. The UST 30-year, USD 26bn, 1.406% auction saw the worst bid-to-cover ratio so far this year, this week will witness a USD25bn, 20-year offering. UST yields may therefore remain at these levels to accommodate the onslaught of auctions. Meanwhile, equity markets remained supported, the S&P Index was up ~0.65%. The DXY Index fell a further 0.36% last week and is currently hovering just above 93. Brent Crude has ticked higher, gaining just under 1% last week and is currently floating just below $45pb; ahead of the OPEC gathering this week. Sentiment is expected to remain mixed at the start of the week following the indefinite postponement of the US-China Phase 1 deal’s six-month review (due to be held over the weekend).
With the UK-China relations also showing signs of strain, it will be interesting to see how markets react to any further negative western rhetoric against China. It does appear, however, that equity markets have so far broadly dismissed tension concerns and the fact that the US’ USD 1tn fiscal stimulus deal is still hanging in the balance as the pandemic continues to weigh on the economy. As the coronavirus continues to spread many areas across the globe are still faced with the threat of further lockdown. Meanwhile, Russia, the first country to approve a Covid vaccine, will be unleashing it for mass inoculation this month. Having already given it to his daughter, Putin said the vaccine “works effectively enough”, however, health experts have highlighted their concerns over the effectiveness and safety of the vaccine, given it has not completed the critical and late-stage testing.
This week kicked-off with Japan’s Q2’20 GDP reading, at -7.8%qoq, the worst reading on record. Interestingly, Japan’s output still outperformed that of the US and Europe. The US Empire Manufacturing print may be of interest this afternoon. Later today we will hear from both Joe Biden and his chosen running mate Kamala Harris at the Democratic National Convention; Biden will give his acceptance speech, with Harris due to give her acceptance speech on Wednesday. Tuesday’s highlights include the UK-EU Brexit talks and OPEC+ meeting. US housing starts and building permits readings for July could give more clues on economic recovery, aided by record low-borrowing costs. A relatively quiet day on Wednesday will see the UK inflation print and release of the FOMC minutes from the July meeting, and Richmond Fed President Barkin will discuss the economic outlook. The ECB will publish the mid-July monetary policy meeting account on Thursday. Friday’s EuroArea and UK PMIs will be of interest as will UK retail sales prints.
Have a great week, and we hope your shower heads are sufficient enough for ‘perfect’ hair.