Markets Tread Water As Hunt For Catalyst Goes On

WHERE WE STAND – Once again, yesterday, I spent a rather large chunk of the day asking myself ‘is this thing on?’, such was the lack of any significant market movement, or especially interesting news flow.

That let my mind wonder, to another question, around tariffs, and what the point of all this never-ending to-and-fro actually is. Is it an attempt to raise revenue? Is it an attempt to prompt a re-shoring of manufacturing? Or, is it just an easy way for President Trump to hog the limelight and drive the news agenda every day? Personally, I’m betting on the latter option every single day of the week.

Anyway, while markets were somewhat subdued, Wednesday was nevertheless a day of gains on Wall Street, with major indices ending comfortably in the green, and Nvidia topping a $4tln market cap, becoming the first company to do so. There didn’t seem an obvious reason behind the rally – as I quipped on the desk, the only obvious rationale is because the day ended in a ‘y’.

There is some degree of truth in that, though, with the path of least resistance for equities continuing to lead to the upside, as both economic and earnings growth remain solid. Support also continues to be provided by participants reading President Trump’s tariff letters, more of which were sent yesterday, and the accompanying extension of the negotiating deadline to 1^st August, simply as an ‘escalate to de-escalate’ strategy, and a dealmaking gambit, as opposed to a sincere threat. Given Trump’s performances thus far, that seems a logical bet, with TACO time probably only being weeks away…again.

On the whole, though, both data- and news-flow were relatively light yesterday.

Perhaps the most interesting remarks came from ECB Vice President de Guindos who, having last week mentioned that a move north of $1.20 could be “complicated”, has now resorted to ‘hoping’ that the exchange rate begins to stabilise.

This isn’t really what one would want to hear a senior policymaker saying, and is further bait to market participants to really begin to test the ECB’s mettle as far as the currency is concerned. While the Governing Council will stand pat later this month, the case for a September cut could grow stronger if rhetoric of this ilk continues, simply to try and tamp down the value of the EUR.

Besides that, minutes from the June FOMC meeting were a bit of a snoozefest, especially with the idea of a July cut having been put to bed after last week’s solid jobs report.

Yesterday’s 10-year sale was of more interest, however, with the auction stopping through by a solid-enough 0.3bp, albeit a touch shy of the 6-auction average. Still, it was enough to allay some fiscal jitters, and allow Treasury benchmarks to gain across the curve, with benchmark 10-year yields falling over 5bp on the day. I remain of the view, however, that we’re going to stay in relatively tight trading bands for the time being, probably 4.25% - 4.50% on the 10-year, and 4.75% - 5.00% on the 30-year.

LOOK AHEAD – Rather bucking the trend of the week so far, today’s docket actually has a few things of interest on it.

On the data front, the weekly US jobless claims figures stand as the highlight. Though neither the initial nor the continuing claims print pertains to the July NFP survey week, both will be closely watched for any signs of emerging labour market fragility, especially as the former continues to linger around cycle highs, despite last week’s solid June jobs report.

Elsewhere, the US sells 30-year notes this evening, in a sale that will no doubt be closely watched amid ongoing worries over the unsustainable fiscal path on which the US economy remains. That said, the last auction stopped-through a sizeable 1.4bp, a sign that healthy demand is there, if conditions are right.

Besides that, central bank speakers are also back out in earnest today, including 2 ECB Governing Council members, 2 FOMC members including 2025 voter Musalem, plus BoE Deputy Governor Breeden.