US 30yr reaching 5.32% - Geopolitical Uncertainty and Firmer Crude Prices

OVERVIEW : Tuesday, August 18th, 26’

Markets remained cautious as US-Iran developments continued to point toward a stalemate, with reports of an agreement in principle to extend the ceasefire offset by Iran rejecting ceasefire proposals and insisting that the war must end rather than pause. Iran also maintained that the Strait of Hormuz will not reopen until the blockade and oil embargo are lifted, while Trump said there are no talks and that the naval blockade remains in force. Crude remained firmer but off its highs, with the lack of clarity around Hormuz keeping the geopolitical premium elevated and weighing on the broader risk tone. US yields remained a key market driver, with the US 30yr reaching 5.32%, its highest level since June 2007, despite softer economic data and reduced near-term Fed hike expectations. The rise in long-end yields continued to pressure risk assets and supported the Dollar, while precious metals remained under pressure from the firmer USD.

-

US DOLLAR

USD was relatively firmer into the close against the broad G10 basket, supported by the combination of geopolitical uncertainty, firmer crude prices and elevated Treasury yields. The lack of clarity around the US-Iran ceasefire and continued uncertainty over the Strait of Hormuz kept a defensive bid under the Dollar, while the rise in long-end yields provided additional support despite reduced near-term Fed hike expectations. Focus now turns to tomorrows FOMC minutes

Data:

  • US ADP Employment Change Weekly 9.5K (Prev. 8.25K).
  • Housing Starts (Jul MM) -12.4% (Prev. 19.0%).
  • Industrial Production (Jul MM) 0.2% vs. Exp. 0.3% (Prev. 0.3%).
  • US Building Permits Prel (Jul MM) 5.0% (Prev. -2.6%).
  • US Manufacturing Production (Jul YY) 1.2% (Prev. 1.1%).
  • US Export Prices (Jul MM) -1.3% vs. Exp. 0.2% (Prev. -0.7%).
  • US Export Prices (Jul YY) 8.2% (Prev. 10.2%).
  • US Import Prices (Jul YY) 5.9% (Prev. 7.1%).
  • US Import Prices (Jul MM) -0.4% vs. Exp. 0.1% (Prev. -0.3%).



-

EURO

EUR was relatively firmer on the day, supported by the stronger-than-expected ZEW surveys, with both German and Eurozone sentiment improving materially. German ZEW sentiment rose to 34.2 from 26.3, while the Eurozone measure increased to 31.4 from 23.4, providing a better growth backdrop. ECB’s Lane struck a cautious tone on inflation, saying it could remain around 3% for the rest of the year depending on how the crisis develops. Crucially, he also stressed that inflation running one percentage point above the ECB’s 2% target is a lot, reinforcing the significance of the current inflation overshoot and limiting the scope for an aggressively dovish interpretation.

Data:

  • German ZEW Economic Sentiment Index (Aug) 34.2 vs. Exp. 30 (Prev. 26.3).
  • German ZEW Current Conditions (Aug) -61.1 vs. Exp. -68.8 (Prev. -77.6).
  • European ZEW Economic Sentiment Index (Aug) 31.4 vs. Exp. 25.4 (Prev. 23.4)


-

GREAT BRITISH POUND

GBP had choppy price action but closed relatively firmer on the day, with the UK jobs data providing a mixed signal rather than a clear shift in the labour-market or BoE outlook. Wage growth excluding bonuses was slightly firmer than expected at 3.5%, while the claimant count unexpectedly fell, offering some support to Sterling. However, the unemployment rate remained at 4.9% versus 4.8% expected, while employment growth slowed materially to 83k from 147k.

Data:

  • UK Unemployment Rate (Jun) 4.9% vs. Exp. 4.8% (Prev. 4.9%).
  • UK Employment Change (Jun) 83k (Prev. 147k).
  • UK Average Earnings excl. Bonus (Jun 3MYr) 3.5% vs. Exp. 3.4% (Prev. 3.4%).
  • UK Average Earnings incl. Bonus (Jun 3MYr) 4.1% vs. Exp. 4.1% (Prev. 4.4%).
  • UK Claimant Count Change (Jul) -11.0k vs. Exp. 11.2k (Prev. -6.4k).


-

AUSTRALIAN DOLLAR

AUD outperformed through the first half of the day, supported by the stronger Westpac Consumer Confidence reading, which rose to 88.9 from 83.9. The 6.0% monthly increase provided a constructive domestic signal and initially helped underpin demand for the Aussie. However, AUD subsequently gave back all of its gains as the risk tone deteriorated on renewed geopolitical concerns and the USD caught a broader bid.

Data:

  • Australian Westpac Consumer Confidence Index (Aug) 88.9 (Prev. 83.9)
  • Australian Westpac Consumer Confidence Change (Aug) 6.0% (Prev. 4.1%)


-
CANADIAN DOLLAR

CAD had choppy price action and closed flat on the day, with focus shifting toward the potential US-Canada tariff deal. The reported agreement, now said to be on President Trump’s desk, could provide near-term support for the Loonie if it results in a reprieve from the threatened tariffs.

-

NEW ZEALAND DOLLAR

NZD sold off throughout the day as the broader risk tone deteriorated, with the Kiwi’s high-beta profile leaving it exposed to the shift in sentiment.


-
JAPANESE YEN

JPY saw marginal performance through the session and ultimately closed flat on the day,

-
SWISS FRANC

CHF was broadly weaker on the day, with limited demand for the Franc due to yield disadvantage continuing to weigh on the currency.