Welcome to the final day of July. We will include our usual monthly asset performance review in tomorrow’s EMR but with the exception of the European peripheral complex July is shaping up to be a positive month for most risk assets largely helped by expectations of some form of ECB intervention in the coming days. Indeed these policy hopes have continued to build and has helped European risk assets higher over the last 24 hours. The latest optimism was fuelled further by the joint statement from Geithner and Schaeuble after a meeting at the Island of Sylt yesterday as they acknowledged the comments last week by European leaders to take whatever steps needed to safeguard the euro area stability.
the same period. In Italy the 10-year yield rallied off its pre-auction highs of 6.06% yesterday but still closed +7bp higher on the day at 6.027%. Italy’s auction was just short of the maximum target (EU5.48bn v 5.50bn across 2015-2022 maturities) although it paid a lower yield for the 10-year than last month’s auction.
(which Madrid is still resisting) a decision by eurozone leaders to let their bailout fund buy bonds at auction, and a German court ruling on the legality of the euro zone’s permanent rescue fund (due on 12 September). The article also noted that some colleagues on the ECB’s Governing Council were surprised by Draghi’s “do whatever it takes” comments last Thursday. The market will need explicit policy actions from the authorities this week to back up all the pro-euro commentary we’ve heard since the middle of last week.
Moving on to the US, the S&P 500 (-0.05%) was little changed overnight although as it consolidated after a +3.6% rally in the two days prior. The very disappointing Dallas Fed Manufacturing survey (-13.2 v +2.0 expected) didn’t help as the market prepare itself for today’s Chicago PMI which is expected to ease slightly, to 52.5 in July from 52.9 in June. This would be an important print today ahead of tomorrow’s ISM manufacturing. In other markets it was a quiet day for US credit which saw the CDX IG close 1bp wider at 106.25bp on relatively low volumes.
to print. The Shanghai Composite (-0.07%) is the underperformer overnight as the index trades at the lowest since 3 March 2009 on growth concerns despite China’s plans to boost railway investments for the second time in a month.
up to EU1.5bn of 2015 bonds today. In the US, today also brings personal income and spending stats for the month of June on top of the important Chicago PMI reading as mentioned above.