Global yields continue to drift lower

Arne Lohmann Rasmussen Danske Bank A/S

Market movers today

Today we get final PMI services including the Swedish, Spanish and Italian ones.

In Sweden, we get service production for June and the preliminary GDP numbers for Q2 that are widely expected to be historically weak. In Norway we get house price data.

In the euro area, retail sales for June are due out 11:00 CEST, which are expected to show another solid increase in line with retail sales on a country level.

In the US, the ADP jobs report will attract attention, as the high-frequency data showed that the US recovery stagnated in July. Just note that the ADP jobs report does not have a good track record forecasting the official jobs report on Friday. ISM non-manufacturing at 16:00 CEST is expected to remain above 50 despite the recovery stalling in July.

Besides that we keep monitoring the US negotiations on the next stimulus bill and new COVID-19 cases in particular in Europe where infections have been on the rise lately although it is too early to call them second waves in most countries.

Selected market news

European periphery bond markets continued to perform yesterday as record-low US yields, ECB buying, EU fiscal support schemes and hunt for yield pushed investors towards 'high-yielding' Italy and Spain. Yield on 10Y BTP dropped below 1% and 30Y Spain to 1.05%. US 10Y treasury yields dropped to 0.505%, the lowest level ever as market expectations of Fed keeping rates low 'for ever' and rapidly falling rates volatility added to treasury demand. Bloomberg also reported that the recent weakening of the US dollar according to market sources had triggered currency unhedged treasury buying from Asian investors.

In the US, the equity markets ended the day slightly higher as markets were focusing on the possibility of a new round of fiscal stimuli and more easing through stronger Fed forward guidance or yield curve control. Energy producers took the lead as the explosion in Lebanon reignited geopolitical fears in the Middle East region, though it remains unclear what caused the explosion. Brent oil moved approximately one dollar higher to USD44.5 a barrel on the news. Asian stock markets are mixed this morning.

There is still high uncertainty whether a deal on a new US stimulus package can be reached in the US. However, both Treasury secretary Mnuchin and Nancy Pelosi from the Democratic Party said that they expected to reach an agreement this week.

On the virus numbers we note that California reported the fewest new infections since June and both Florida and Arizona saw lower numbers.

The relationship between China and the US continues to worsen. Yesterday, Chinese state-run media said that the demand for a sale of the US operation of TikTok is a theft and called the Trump demand for a payment to the US government an 'open robbery'.

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Arne Lohmann Rasmussen

Danske Bank A/S

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