• Trump’s threats extended to Germany, warning it against supporting Russia’s gas pipeline while the stalemate in US-China trade talks continued the US Commerce Secretary played down expectations of any US-China deal on the sidelines of the G20 summit on June 28/29.
  • Additionally, US initial jobless claims rose unexpectedly last week ended June 8 to 222k, while the consensus estimated a drop from previous week’s level of 219k (see). The weak outturn support the markets implied probability of two Fed rate cuts of 82% in July. In this context, investors will keep an eye on next Wednesday’s FOMC meeting for policy cues.
  • In Europe, industrial production for the Eurozone declined further, by 0.5% m/m in April in line with expectations, led mainly by lower consumer durables production (-1.7% m/m), besides a drop in capital and intermediate goods. Within the bloc, the decline in IP was led by the UK (-2.7% m/m) and Germany (-2.3% m/m), which offset a pick up in Ireland (+3.6% m/m) and Portugal (+2.9% m/m).
  • Safe-haven bond yields inched down, while peripheral bonds benefitted from ‘search for yield’ strategies. Italy’s risk premium narrowed significantly ahead of today’s Eurogroup meeting, where the EU reinforced the pressure over Italy to rein in debt at the arriving of the EU meeting. Meanwhile, yields on UK Gilts fell sharply on renewed fears of a disorderly Brexit after the rejection of bid to block no-deal.
  • In FX markets, the DXY index was flat while the CHF appreciated against the backdrop of escalating uncertainties. The GBP reverted its early losses despite Boris Johnson, a hard-line Brexiteer, leading the race to be the next British Prime Minister (see). In EM markets, the TRY weakened post Turkey’s unwillingness to withdraw its purchase of Russian missile defence systems despite US warning. Moreover, crude oil prices rallied, reverting yesterday’s losses, following a tanker incident in the Gulf of Oman which the US blamed on Iran, in turn stocking fears of a military confrontation.
  • Equity markets oscillated in a narrow band given the cautious undertone marked by heightened trade frictions and a rise in geopolitical risks alongside weak economic outturns from the US.

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