Stockholm (Ekonamik) – This week saw further consolidation of the Fed’s dovish stance, inflation statistics, rising oil prices and a tentative renormalisation of the US Treasury yield curve were the main stories this week. In the world of finance, Deutsche Bank continued to pay the price for a decade of mismanagement.
Fed Increasingly Dovish, ailing Deutsche and The Fed‘s report and Chairman Powell‘s testimony to Congress were the dominant news this week, leaving analysts and investors hopeful for an imminent rate cut. We have a handy figure to illustrate the increasingly dovish turn of the Fed, which you can see here. North of the border, the BoC also sang a dovish tune, but analysts felt the Canadian central bank sounded less accommodating than its global counterparties.
In Europe, the minutes of Riksbanken‘s July 5th meeting showed it to be among the most hawkish central banks, with discussions among board members still focusing on “when it might be appropriate to raise the rate next time”(emphasis added).
Among market participants, the week was dominated by the continued woes of Deutsche Bank, which announced it would cut 18,000 jobs and basically get out of the equities sales and trading business. It also announced the creation of a “bad bank” where it will shift €74 billion of troubled assets.
Data-wise, the focus was on inflation. In China, CPI inflation for June was reported at 2.7%, constant vis-a-vis May. It was dominated by food prices (up by 8.3%) and consumer goods (up by 2.3%). In the USA, annualised inflation was reported at 1.6% for June, down from 1.8% in May, according to the Bureau of Labor Statistics. Inflation figures for Germany in June were the same as in the USA, up from 1.4% in May, while they were somewhat lower in France at 1.2% up from 0.9% in May. Coincidentally, Spain‘s own inflation for June was measured at 0.9%, up from 0.8% in May. In Brazil, the Institute for Geography and Statistics reported annualised inflation of 3.37%, below the target of 4.25%. On a monthly basis, Brazilian inflation was 0.1%, the lowest November 2018.
Gold on Hold as Oil Rises
Following recent buoyant US payroll figures gold seems to have ended its recent surge. Since the end of June, gold seems to have stabilised within the US$1400-US$1420 band, falling considerably short of the US$1,550 hopes expressed during the recent rally. Regardless of Ekonamik’s less dovish expectations, the narrative that the gold rally was motivated by the increased likelihood of a rate cut due to the poor US job figures seems less convincing given gold prices’ recent stability despite continued rate cut hype. More positively for investors, ICE Brent Crude Oil was up over the week, likely as a response to the production cut extension announced by OPEC last week.
Global Equity markets had a mixed performance. The S&P 500 index, Italy’s FTSE MIB and Portugal’s PSI 20 were up over the week. Stockholm’s OMX 30, the UK’s FTSE 100 and Germany’s DAX were down, while France’s CAC 40 was relatively stable.
In bond markets, the US Treasury yield curve continued to steepen up with the 10yr-3month term spread increasing from -21bps to -2bps. In China, the opposite took place with the yield curve flattened from both ends with the term spread decreased from 113bps to 111bps over the week.
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