Bond yields drift lower, helping ease sentiment

A largely positive start for European markets today, with the DAX leading the push higher after an Asian session that saw major volatility across Chinese and Japanese indices. Notably, the recent rise in bond yields cooled over the past 24-hours, with a relatively orderly 30-year Japanese bond auction helping to lessen concerns after seeing yields rise to record highs earlier in the week. The focus on rising long-term yields had pushed the pound lower this week, with fears surfacing around the fiscal position of the government as borrowing costs brought expectations of higher taxes and slower growth. The pullback in UK yields has brought the 30-year back below Monday’s low, reversing the rise that brought about a 27-year high of 5.75% on Wednesday. Notably this has helped lift the pound, with EURGBP falling to a new low for the week.

In Europe, a largely quiet economic calendar has seen the latest Swiss inflation metric provide one particular area of interest. For a country that has been largely devoid of inflation, the monthly figure of -0.1% takes the annual figure to a measly 0.2%. Notably, despite the lack of inflation, it has been the Swiss France that has been one of the strongest currencies as the haven role of both the yen and dollar come into question. Meanwhile, eurozone retail sales fell -0.5% for the month of July. This marked the steepest decline in retail sales volumes for almost two years, dragged down by a 1.7% fall in automotive fuel sales and a 1.1% drop in food, drinks, and tobacco. Among the bloc’s largest economies, retail activity contracted by 1.5% in Germany and slipped 0.4% in Spain.

Markets are gearing up for a fresh batch of economic data out of the US today, with the ADP payrolls release expected to maintain the negative narrative around the jobs market given yesterday’s JOLTS job opening figure. The decline in us job openings saw a 176k decline, falling to the lowest level since September 2024 (7.18 million). Notably, the revisions seen over the past month highlight how the ADP payrolls figure has actually been a better guide of the final revised NFP figure than the initial release. As such, this provides additional importance to today’s ADP figure, with markets expecting to see a decline to the 65k mark. Should we continue this trend of weakness in the jobs market, markets will likely look towards gold and EURSD as potential benefactors.