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Will European state bonds continue to push higher?
The US employment report was surprisingly upbeat last week, but many investors are betting that Friday's sale will only be a break.
The appointment of Christine Lagarde as President of the European Central Bank has been hailed by bond investors, who have bet that it would extend a very easy money era and mbadive badet purchases.
But eurozone bond yields, which plunged into new depths in many countries after the announcement of the IMF president's selection, have been restored after many readings of the US job market.
While US traders, many of whom have been counting on a 0.5 percentage point cut by the Federal Reserve this month, may have taken the lead, it is not the same. for bond market investors in the eurozone, said Lyn Graham, an badyst at Rabobank-Taylor. Bond yields should resume their decline, given the expectations of a new wave of QE quantitative easing, he said.
"It does not change the situation as a whole. The euro area is struggling to generate any inflation and additional QE is expected, "he said. "The market has not yet taken all its potential in terms of price."
Even so, lower expectations for aggressive rate cuts in the US could also fuel doubts that another round of QE is a difficult process. accomplished fact.
"Restarting QE is not inevitable," said Ario Emami Nejad, fixed income portfolio manager at Fidelity International. "Although we do not doubt that the ECB will resume QE in the event of signs of deteriorating macroeconomic data, European indicators have recently shown signs of stabilization." Tommy Stubbington
Is the yen about to break out of its tight trading range?
Tokyo traders left their office Friday in anticipation of an important week for the yen, as the election campaign begins this month. The poll – to determine the composition of the House of Councilors, the upper house of the Japanese parliament – could make life difficult for Prime Minister Shinzo Abe and what is left of his Abenomics reform program.
After its big flicker in mid-June, when the yen flirted with the ¥ 106 level against the dollar, it went back down to the ¥ 108 / $ area – proof, let's say, that just about anything else. one will throw at the Japanese currency these days, he will soon return to the same range of ¥ 108-112 that he has been keeping for two years. But maybe not for long. At a big call last week, Morgan Stanley has revised its yen dollar forecast significantly lower, badysts now expecting a much higher value of 102 yen by the end of the year. 2019 and 94 ¥ / $ by the end of 2020.
The call was issued with a warning that the current economic environment "was reminiscent of the beginning of 2016," when inflation expectations had fallen faster than nominal yields and the yen had tumbled from 121 to 99 ¥ in the space of a few months.
Markets will spend the beginning of this week testing the implications of this call, traders said. Mansoor Mohi-uddin, a strategist at NatWest Markets, believes the yen will likely retain its preferred financing currency status, which is a preferred currency of choice – if the Fed cuts rates twice this year in paris – potentially pushing it closer to the US dollar. level ¥ 115. Leo Lewis
What future for US interest rates?
Investors will be looking for additional clues about the future direction of US interest rates when Federal Reserve Chairman Jay Powell will be speaking to Congress this week.
Powell will present his bi-annual report on monetary policy to the House Financial Services Committee on Tuesday, followed by a testimony before the Senate Banking Committee the next day.
The Fed chairman has already opened the door to a possible interest rate cut, while maintaining that the central bank's decision would depend on the strength of the economic data during the July meeting, the growth of the Fed. Employment being at the center of the objectives of decision-makers. In that sense, Friday's high number of jobs should have dispelled expectations of a quick and aggressive move by Powell.
"The most important impact can be to provide ammunition to Federal Reserve people looking to stay on a key rate break," said Rick Rieder, Global Fixed Income's investment director at BlackRock.
Others have accepted. "It will be important to see if Mr. Powell exposes in his testimony a strong case for short-term monetary easing," noted Ryan Wang, US economist at HSBC. "Although Fed policymakers generally agree that global economic risks and controlled inflation deserve careful oversight, a few have recently indicated that it may be too early to take a breakthrough. decision on rate cuts. " Joe Rennison
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