News and Views Around the Global Markets

The US Treasury market experienced a rally on Friday, triggered by an Employment Cost Index that had a lower-than-anticipated rise in the previous quarter. This, along with a less-than-expected core PCE deflator and a reduced U. of Michigan consumer sentiment, resulted in yields dropping between 2.9 to 6.4 basis points, with short-term bonds outperforming. German yields initially opened higher in alignment with the US but saw the 2-year yield drop over 4 basis points following slower-than-expected July CPI in several Eurozone countries, including France and Germany. Despite this, equities remained strong with the Nasdaq and EuroStoxx50 increasing by 1.9% and 0.4% respectively. The euro also rallied against the dollar, pushing the EUR/USD above 1.10 during the day.

In Asia-Pacific, stocks showed positive movement, including in China, despite data indicating a slowdown in the services sector. Hopes for consumption support measures by authorities persist, even though China’s recent policy document primarily focused on enhancing the goods supply. In Japan, the Bank of Japan’s unexpected bond-buying operation led to a further yield rally, particularly for long-term bonds. However, the yen did not strengthen, and the US dollar showed a minor increase.

As the new week begins, core bonds showed a slight dip, setting the stage for an interesting economic calendar ahead. In the US, the Senior Loan Officer Opinion Survey (SLOOS) will be eyed as Fed Chair Powell noted the tightening campaign’s potential impact on credit demand. The Eurozone is set to release Q2 GDP growth and July inflation numbers, with expectations of a modest 0.2% growth and a slight decline in inflation. Key events for the week include the US ISM, payrolls, and central bank meetings in Australia, Czechia, and the UK.

China started Q3 with a softer economy, as the composite PMI dropped to 51.1 in July due to a slowdown in the services sector. Despite this, there are signs of a modest recovery in the manufacturing sector. The Chinese yuan faced minor selling pressure, causing USD/CNY to rise to 7.148.

Lastly, the Bank of Japan undertook an unscheduled bond-buying operation, purchasing JPY 300 billion of 5 to 10-year notes at market yields. This followed their announcement of a more flexible approach in their yield curve program, setting a new cap at 1% for the 10-year yield. The yen continued to weaken, pushing USD/JPY closer to the 142 mark.