Market movers today

US retail sales for June are the key release for markets today. May figures already pointed towards an increasing shift away from goods spending more towards services and focus will be on whether this trend accelerated even further in June. University of Michigan consumer sentiment for July will also be released and developments in inflation and employment expectations will be of particular interest.

In the euro area, final HICP figures for June will reveal more of the drivers behind the recent acceleration in goods price inflation and the weakness in services prices.

The 60 second overview

BoJ: As expected Bank of Japan (BoJ) kept its QQE with yield curve control policy unchanged this morning. Following fresh restrictions in Tokyo, the growth outlook for the new fiscal year 2021 (ending in March 2022) was revised slightly down to 3.8%, indicating pandemic stimulus will not be withdrawn any time soon. The BoJ's new scheme to boost funding for activities related to climate change will be launched this year and last until fiscal 2030. Here the BoJ will invest in green bonds and sustainability-linked bonds and offer funds to banks that extend green and sustainability-linked loans. Transition finance loans will also be applicable.

China: We got strong data out of China yesterday with Q2 GDP growth broadly in line with expectations but June retail sales and industrial production surprising to the upside. Overall the numbers do not change our forecast of a gradual decline in manufacturing PMI in H2.

Equities: This morning the tech-heavy Japanese Nikkei index declined 1.1% following yesterday's 0.7% drop in Nasdaq. The Japanese market is weighed down by a new surge in COVID-19 infections with numbers hitting the highest level since May yesterday. The Shanghai Composite index is broadly unchanged today.

FI: US government bond yields continue to decline as Federal Reserve Chairman Powell continued the dovish approach at the second day of the hearing in the US congress. He was pressed on the inflation outlook during the Q&A session, but again he stated that they are watching whether the inflation is transitory or more persistent. Given the comments and the uncertainty regarding the growth outlook combined with the weak sentiment in the equity market, 10Y US Treasury yields fell below 1.30% on the back of the comments from Powell and the US curve continued to flatten from the long-end as there was limited movement in the 2Y segment.

FX: Souring risk appetite and hawkish Bank of England remarks have left USD and GBP the outperformers in FX majors space in recent sessions. At the same time the commodity cluster in NOK, AUD, NZD and even CAD has traded on the back foot. Yesterday we published the summer update of our FX forecasts. In short, we have made few changes and continue to pencil in more USD strength and weaker scandies in H2. 

Credit: Credit indices correlated somewhat to weak equity market sentiment on Thursday. iTraxx Xover widened 3.8bp (closed at 237.2bp) and iTraxx Main widened 0.6bp (closed at 47.4bp). HY cash bonds were slightly wider (+0.8bp) IG cash bonds were roughly unchanged (+0.5bp).

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