Euro zone bond yields stay near highs as policy trumps politics
Euro zone bond yields stayed near recent highs as expectations on global growth and tighter monetary policy overshadowed any concerns prompted by a troubled meeting of world leaders over the weekend. Leaders from the world’s leading economies broke with U.S. President Donald Trump on climate policy at a G20 summit on Saturday, in a rare public admission of disagreement and blow to multilateral cooperation. However, a strong set of U.S. employment data on Friday has added to a feeling that central banks across the world have more reason then ever to continue to unwind the loose policy stance of the post-crisis era. In Europe, a recent speech by European Central Bank chief Mario Draghi led investors to believe that the bank will reduce extraordinary stimulus sooner rather than later and saw Germany’s 10-year borrowing costs double in little over a week. Meanwhile, the Bank of Japan offered its most optimistic view of the country’s regional economies in more than a decade on solid exports and private consumption, underscoring its conviction a steady recovery is gathering momentum.
China’s June factory price inflation subdued on modest raw materials recovery
China’s producer price inflation was unchanged in June and remained well off highs seen earlier this year, amid lingering oversupply issues in the steel sector and as signs of economic weakness weighed on the outlook for prices. The producer price index (PPI) rose 5.5 percent in June from a year earlier, the National Bureau of Statistics (NBS) said on Monday. This was in line with analyst forecasts and unchanged from the previous month. Prices of raw materials are making a modest recovery, helped by stronger futures prices in China over the past few weeks, after an earlier hit taken from a broader cooling in economic activity since March. China’s June consumer prices rose 1.5 percent from a year earlier, in line with market expectations and May’s reading, the NBS said, with food prices continuing their declines albeit at a slower pace. There are some concerns among analysts that price pressures could weaken throughout the rest of the year as economic fundamentals soften. “The upshot is that, having eased in previous months, price pressures appear to have stabilized in June,” Julian Evans-Pritchard from Capital Economics in Singapore wrote in a note. “Nonetheless, with slowing credit growth likely to weigh on economic activity in coming quarters we think that, volatility in food prices aside, inflation still has further to fall. This will disappoint those hoping for a sustained period of reflation that could help to erode corporate debt burdens.”
Dollar stands tall after solid U.S. jobs back Fed tightening plans
The dollar was on solid footing on Monday, after a bigger-than-expected increase in U.S. jobs suggested the Federal Reserve would stick with its tightening plans for the rest of this year. U.S. job growth surged more than expected in June and employers increased hours for workers, suggesting the Fed could stick to its plan for its third interest rate hike this year and begin to reduce its balance sheet despite sluggish wage gains and tepid inflation. Against the yen, the dollar was 0.2 percent higher at 114.16 , after notching a high of 114.21, its loftiest level since May 11. The dollar index, which gauges the greenback against a currency basket, was steady at 96.012. “The solid jobs report gives us more reason to expect the Fed to announce that it’s prepared to start trimming its balance sheet,” said Mitsuo Imaizumi, Tokyo-based chief foreign exchange strategist for Daiwa Securities. “By contrast, the Bank of Japan is nowhere near a policy exit, and it’s taking steps that weaken the yen,” he said. On Friday, the BOJ sought to keep Japanese government bond yields near its policy target, embarking on a special market operation as well as increasing the size of its regular JGB purchase operations.