Japanese retail sales are down 0.6%

Market movers today

• Main event today will be a meeting between EU ambassadors aiming to close a deal on so-called phase 3 sanctions against Russia that involves the financial, defence and high-tech energy sector. The new sanctions could come into force within 24 hours of a deal being reached according to an EU spokesperson. If new sanctions are agreed on, it could lead to a further decline in risk sentiment.

• On the data front the US releases consumer confidence for June from Conference Board, which is expected to rise to 86 (consensus 85.5) from 85.2 in May. It would mark a new six-year high for consumer confidence currently boosted by stronger job growth and robust wealth gains.

• US data on house prices from Case-Shiller for May are expected to show a further gain of 0.3% m/m in May. House price increases have come off from the strong levels last year but are still rising at a 7-8% level on a three-month annualised basis.

Selected market news

It has been a calm session overnight with markets in wait-and-see mode ahead of the important events later this week with the FOMC meeting (Wednesday) and non-farm payrolls (Friday) being the focal points.

Risk sentiment recovered overnight with US equities ending the session more or less unchanged. The S&P500 ended the session just 0.4% from the all-time high from earlier this month. Asian stock indices are trading in positive territory this morning with Hang Seng up 0.2% and Nikkei up by 0.5%, despite weaker-than-expected Japanese retail sales that showed an increase of 0.4% m/m versus an expected increase of 0.8% m/m. Japanese retail sales are down 0.6% compared to a year ago as the sales tax increase from 5% to 8% from April is hurting consumption.US fixed income sold off with the 3Y Treasury yield closed at 99bp – the highest level since May 2011. US 10Y Treasuries has increased 3bp to 2.49%.

Yesterday’s European session was characterised by mixed sentiment with European equities down while the rally in the peripheral government bond market continued. The move was led by 5Y Portugal with the yield dropping 16bp following the upgrade by Moody’s, see Portugal upgraded by Moody’s that downplays BES concerns, 27 July.

The 10Y yield in Ireland, Spain and Italy hit a new all-time low as we entered the week at 2.20%, 2,49% and 2.67%, respectively. The ‘hot potato effect’ that has been catalysed by ECB’s negative deposit rate has caused a collapse in the 2Y yields with Ireland, Spain and Italy at 4bp, 26bp and 42bp, respectively. Needless to say – these are also new all-time lows. 2Y Ireland is now just 1bp higher than the German Schatz. For comparison, the 2Y yield ‘hovered’ at 44bp, 70bp and 74bp, respectively, before the 5. June ECB meeting. EUR60bn in coupon and redemptions out of Italy and Spain has been a supportive factor for the move lower.