Weekly fixed income review

Market review: Week to September 6, 2019

  • Economic data releases were mixed, with the eurozone manufacturing PMI at 47.0 (46.5 July). France’s manufacturing PMI was revised slightly up to 51.1 (49.7 July), while Germany’s was revised slightly down to 43.5 (43.2 July). 10-year German bund yields rose by 10bp over the week. The US saw weak ISM manufacturing data at 49.1 (vs. 51.3 expected), the weakest reading since January 2016; however, strong ISM non-manufacturing was better than expected, with the August reading rising to 56.4 (vs. 54.0 expected). Non-farm payrolls released today climbed less than expected, to 130,000 (vs. 158,000 expected).
  • Sentiment around trade tensions appeared to improve mid-week, as China’s Vice Premier Liu He agreed to a visit in early October to Washington. 10-year Treasury yields rallied around 10bp on the week.
  • Brexit dominated UK headlines. On Wednesday, the House of Commons passed legislation, introduced by anti no-deal MPs, aimed at forcing the prime minister to ask the EU for an extension to the 31 October Brexit deadline. The government also introduced a motion to hold a general election, but failed to achieve the required two-thirds majority. A deal was agreed on Thursday that Conservatives in the House of Lords would not filibuster the anti-no deal bill, which was then set to pass through the Lords on Friday. Subsequently, the government announced another vote on whether to hold a general election: the vote will take place on Monday, before Parliament is prorogued until mid-October. Against this unpredictable backdrop, sterling weakened before rebounding, while 10-year gilt yields rose c.7bp.
  • There was a substantial amount of primary market activity in both Europe and the US, with the latter seeing 49 new deals that issued a record $74 billion of debt. Continued demand from overseas given low yields overseas has helped buoy the market. In Europe, investors are focused on the upcoming European Central Bank policy meeting, scheduled for 12 September, to find out whether the bank will restart asset purchases.
  • Hong Kong was downgraded to AA with a negative outlook by Fitch, following several months of civil unrest over a controversial extradition bill that would have seen criminal suspects extradited to mainland China. Chief Executive of Hong Kong Carrie Lam withdrew the bill on Thursday, in a decision which she said had the full support of Beijing.

Chart of the Week: Sterling strengthened versus the US dollar as the probability of a no-deal Brexit appeared to wane somewhat

 chart-of-the-week_-sterling-strengthened-versus-the-us-dollar-as-the-probability-of-a-no-deal-brexit-appeared-to-wane-somewhat_6_Sep_2019

Source: Bloomberg. Data as at September 6, 2019.

Bloomberg table 6 September 2019 

Source: Bloomberg, September 6, 2019

Economic calendar

9 September: UK – July GDP, industrial production, manufacturing production; Germany – July trade balance; Japan – July current account balance
10 September: China – August CPI, PPI; UK – July unemployment; Italy – July industrial production; France – July industrial production
11 September: US – weekly MBA mortgage applications, August PPI, final July wholesale inventories
12 September: US – August CPI; Euro area – ECB policy decision and President Draghi press conference; Euro area – July industrial production; Germany – final August CPI; France – final August CPI; Italy – Q2 unemployment; Japan – August PPI; Turkey – Central Bank of Turkey policy decision
13 September: US – August retail sales; Euro area – July trade balance; Japan – July capacity utilization, final July industrial production

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