The ECB left rate settings unchanged, as widely expected. On PEPP, the message is still that the emergency program will run at least through the end of March 2022, while bond buying will continue at a “significantly” faster pace than in the first months of the year. So far – so unchanged and expected. The main focus today was on the forward guidance and the statement now reads that:

“the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.”


So the bar for rate hikes has been raised, but apparently that wasn’t enough for Bunds, which have extended losses. Still, Eurozone spreads remain narrower and the 1.2 bp rise in the German 10-year still compares to a 2.0 bp pick up in the UK 10-year rate. Treasury yields are currently 2.5 bp higher at 1.31%; during Monday’s collapse they went under 1.13%.

US initial jobless claims unexpectedly jumped 51,000 to 419,000 in the week ended July 17 after dropping -18,000 in the July 10 week to 368,000 (was 360,000). There may be some impact as many states ended the extra Federal unemployment benefits. This figure takes on extra importance as it coincides with the BLS survey week. The 4-week moving average edged up to 385,300 after falling to 384,500 (was 382,500) previously. Continuing claims declined -29,000 to 3.236 million in the week of July 10 after sliding -102,000 to 3.265 million (was 3.241 million) previously. The insured unemployment rate was unchanged at 2.4%.  A disappointing miss across the board, as the figures reversed recent positive claims surprises, but the data remains consistent with a July Non-Farm payroll (August 6) estimate of around 600,000.

The Dollar edged lower following the jobless claims outcome, where both initial and continuing claims were higher than consensus. USDJPY dipped to 110.11 from over 110.20, while EURUSD topped at 1.1790, up from near 1.1770, having been as high as 1.1812 following the ECB announcement. However, as US markets open flat, EURUSD is posting a new high for the day at 1.1825 and USDJPY trades at down to test 110.00 again.

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

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