Treasury Market Summary | May 14

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The June 10-year Bund future is down -12 ticks at 173.75 and the 10-year Treasury yield has fallen back -1.8 bp to 0.64%, after dismal jobless numbers out of Australia overnight added to downbeat comments from the Fed’s Powell yesterday. The jobless rate jumped to 6.2% and a very large number exited the labour market, which means the real impact of virus measures was even worse than the data suggests.

Developments will be similar in other countries and the numbers only highlighted again that the global economy is facing a very deep recession this year, exacerbated by the risk of further waves of infections.

Against that background BoJ’s Kuroda and RBNZ’s Orr stressed again their willingness to do more if needed. Stock markets continued to sell off in Asia, after a broadly lower close in Asia. Topix and Nikkei are currently down -1.5% and -1.4% respectively. The Hang Seng has dropped -1.3% and the CSI 300 -0.8%, while the ASX lost -1.4%. US futures are also in the red.

Risk aversion is back in vogue as the economic fallout from lockdown measures becomes apparent. BoE’s Bailey stressed yesterday that data showed the UK is heading for a deep recession and hinted the BoE is willing to do more to help the government finance the necessary expenditure that will be needed to restart the economy going forward.

In the Eurozone, ECB’s Panetta was the latest to suggest that the central bank doesn’t have to answer to Germany’s constitutional court, but is subject to the jurisdiction of the EU’s top court instead. At the same time, he stressed the need to avoid economic fragmentation. GER30 and UK100 futures are currently down -0.8% and -0.9% respectively, underperforming versus US futures, which are down -0.1 to 0.3% after a broad move lower across Asian markets.

In the FX markets: AUD was pressured by the employment numbers. JPY strengthened as risk aversion spiked and USDJPY fell back to 116.86, although the Dollar strengthened against most other currencies. GBP fell back to 1.1292 against the EUR and 1.2207 against the Dollar amid the prospect of further easing, but EURUSD also dipped – to 1.0810 as USD advanced against most currencies. The front end WTI future meanwhile lifted to $25.52 per barrel.

Data releases today focus on final inflation numbers out of Germany and Spain, which are unlikely to hold major surprises. Lower oil prices have brought headline rates down, but food price inflation is accelerating, also thanks to lockdowns.

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Andria Pichidi

Market Analyst

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