Global core bonds saw some gains ahead of the release of US retail sales data. UK gilts performed slightly better than Bunds and Treasuries as investors prepare for the upcoming June CPI numbers. There is an expectation of further easing, with a potential drop of less than 2% in the headline reading that could lead to the first Bank of England rate cut in August. Currently, money markets are pricing in a 50% probability of a rate cut, with a total of 50 basis points expected to be cut by 2024. The UK 2-year yield tested the 4% reference for the first time this year, while German and US yields eased across the curve. The focus in Europe was on the ECB’s quarterly lending survey, and currency markets remained relatively stable.
Following the release of US retail sales data, it was reported that June turnover was stronger than expected. The headline number remained flat compared to the estimated decline, with core gauges showing positive growth. Sales rose in most categories, although motor vehicles & parts and gasoline stations saw declines. Despite the positive retail sales data, money market expectations for the Fed remained largely unchanged. The dollar strengthened against the euro, while USD/JPY and cable (GBP/USD) also saw movements in the market.
In other news, the IMF raised its 2024 growth forecasts for China, India, and the euro area, while slightly adjusting the forecast for the US downwards. The IMF warned about inflation, stating that stubborn wage-driven service prices could lead to higher interest rates for a longer period. The IMF’s new forecasts suggest that global inflation may not return to 2% until the end of next year.
Additionally, the ECB’s quarterly bank lending survey showed a slight tightening of credit standards for loans to corporates in Q2, with expectations for further tightening in Q3. Demand for loans declined but is expected to increase in the next quarter. Credit standards for loans to households showed mixed results, with an easing for housing loans and a tightening for consumer credit. Canadian headline inflation fell in June, with core inflation remaining flat. Canadian sovereign bond yields followed the global trend, and the Canadian dollar weakened against a stronger US dollar.
Looking at market trends, USD/CAD tested the 1.37 level after the CPI miss, indicating a potential second rate cut by the Bank of Canada. The UK 2-year yield approached the 4% level ahead of the CPI release, and the Nasdaq continued to develop within an upward trend. EUR/USD experienced some fluctuations following the retail sales data release.
Overall, the global markets are reacting to various economic data releases and forecasts, with central banks and investors monitoring closely for potential policy changes and market movements. It is essential for investors to stay informed and adapt their strategies accordingly to navigate the ever-changing financial landscape.