Gilt Yields Fall as Oil Prices Stabilize — Market Talk

0721 GMT - Yields on U.K. government bonds, or gilts, decline slightly as oil prices stabilize, reversing Thursday's rise when 10-year gilt yields hit a 2-month high of 5.122%. U.K. retail sales data for June were better than expected, with monthly sales rising by 1.0%, better than the consensus forecast for a 0.1% contraction by economists in a WSJ survey. The data show that "households remain willing to run down their high saving rate to maintain their spending levels in the face of higher energy costs," Pantheon Macroeconomics' Rob Wood says in a note. Ten-year gilt yields fall 2.4 basis points to last trade at 5.088%, Tradeweb data show. ([email protected])0717 GMT - Bitcoin rises slightly as U.S. stock futures stabilize after sharp falls overnight. A jump in oil prices due to the U.S.-Iran conflict contributed to falls in equities and cryptocurrencies Thursday along with earnings from Tesla and Alphabet raising concerns about AI spending. Oil prices ease slightly Friday, although remain elevated, supporting expectations the Federal Reserve could raise interest rates this year. Bitcoin rises 0.6% to $65,509, LSEG data show. ([email protected])0705 GMT - Eurozone government bonds recover slightly as investors await French, German and eurozone purchasing managers' surveys. Any weakness in the readings could ease concerns about prospects of the European Central Bank raising interest rates. However, yields remain elevated, with the 10-year Bund yield having hit its highest since 2011 on Thursday. They risk rising further with Brent crude prices trading near $100 a barrel and the ECB suggesting on Thursday that rates could rise again. Rising oil prices will likely keep bond markets under pressure, though the PMI data "could provide some relief," Commerzbank analysts say in a note. The 10-year Bund yield falls 1.4 basis points to 3.1950, having hit 3.2118% on Thursday, LSEG data show. ([email protected])0658 GMT - Sterling recovers slightly against a softer dollar but remains near a two-week low versus the euro, little moved after data showed U.K. retail sales unexpectedly rose in June. Retail sales rose 1.0% in June, whereas economists in a WSJ survey expected a 0.1% decline. Investors are now looking ahead to the U.K. purchasing mangers' survey for July at 0830 GMT. Sterling rises 0.1% to $1.3321 after the data, from $1.3309 beforehand, having reached a three-week low of $1.3296 Thursday, according to LSEG. The euro trades flat at 0.8544 pounds, near a two-week high of 0.8549 reached earlier. ([email protected])0652 GMT - The dollar edges slightly lower but remains at elevated levels after reaching a three-week high on Thursday as a surge in energy prices boosted expectations for the Federal Reserve to raise interest rates. The market is now pricing a 33% chance the Fed could raise rates by 25 basis points on July 29 and is fully pricing a move by September, according to LSEG. The growing Middle East conflict has lifted energy prices, with the U.S. military saying late Thursday it completed its 13th consecutive night of strikes on Iran. While oil prices stabilize somewhat Friday, they remain high. The DXY dollar index falls 0.1% to 101.384, pulling back only marginally from the high of 101.544 reached Thursday.([email protected])0648 GMT - Upside risks to Japan's inflation outlook remain high as the yen's recent depreciation and a rebound in crude oil prices add to cost pressures, says Okasan Securities economist Ko Nakayama. Price hikes are now stemming from a broad range of drivers--not just crude and naphtha, but also rising wages, a weak yen and higher raw material and logistics costs, he adds. Government data released earlier Friday showed a mild pickup in consumer inflation for June. Bank of Japan policymakers have said they expect the impact of surging oil costs to start appearing in consumer prices around the summer. ([email protected])0550 GMT - U.S. Treasury yields edge lower but stay near Thursday's peaks as Brent oil looks to stabilize around $100 per barrel, at least for now. Technical analysts at J.P. Morgan say the market could try to catch its footing near the next support level of 4.175%, "but we would like to see signs of seller exhaustion before we would suggest fading the move." The 10-year U.S. Treasury yield edges 0.2 basis point lower to 4.701%, thus staying below an 18-month high of 4.714% reached Thursday, according to LSEG data. ([email protected])0542 GMT - Incoming data point to a Federal Reserve staying on hold at its July meeting, and also a likelihood of keeping rates unchanged for the remainder of the year, say Morgan Stanley strategists in a note. "The Fed is running out of patience for above-target inflation," they write. "Inflation has to perform in the coming months--we think it will--or the Fed will switch to hikes later this year," the strategists say. Money markets price in almost two Fed rate hikes by year end, according to LSEG data. However, decelerating inflation may keep the Fed on hold this year, with the fed funds rate at 3.50%-3.75%. "We expect disinflation to keep the Fed on hold this year."([email protected])0528 GMT - India HSBC Flash PMI data showed the weakest expansions in private sector sales and output since early 2022, according to its latest survey. HSBC Flash India PMI Composite Output fell to 54.3 in July from 57.1 in June while remaining in expansionary territory. Growth was capped by an increasingly challenging market, competitive pressures, order cancellations, reduced client enquiries and shortages of key raw materials, the survey showed. Inflationary pressures intensified, but new export orders rose at a stronger pace. "Renewed tensions in the Middle East have once again resulted in firms building buffers to manage the uncertainties around the longevity of the supply-side shock," says Pranjul Bhandari, chief India economist at HSBC. ([email protected])0525 GMT - Eurozone government bond yield spreads remain under widening pressure amid renewed geopolitical tensions, rather than benefiting from seasonal tightening, rates strategists at Societe Generale say in a note. "The usual seasonal tightening is not at play as investors seem reluctant to carry long spread positions amid expectations of renewed issuance and heightened political uncertainty after the summer," they say. That said, the 10-year French OAT-German Bund yield spread is likely to remain rangebound over the summer, but weak fundamentals, heavy supply and uncertain investor demand warrant medium-term caution, they say. Italian-German spreads remain tied to oil prices, but the strategists still find the front end attractive. The 10-year OAT-Bund yield spread closed just below 82 basis points on Thursday, according to LSEG. ([email protected])0515 GMT - Unless oil prices fall significantly over the coming weeks, a rate hike by the European Central Bank in September is highly likely, while market pricing of further hikes might prove excessive, Pictet Wealth Management's Nadia Gharbi says in a note. "We continue to believe current market pricing is exaggerated... given the absence of second-round effects, the loosening of the labour market and the underlying weakness in the economy, which is being exacerbated by the energy shock," the senior economist says. Money markets currently price in almost 70bps of additional tightening by June 2027, according to LSEG. ([email protected])0507 GMT - TD Securities continues to see 3.00%-3.10% as a cap for 10-year Bund yields, its rates strategists say in a note. This is below a 15-year high of 3.212% reached on Thursday on the back of a surge in oil prices. TD Securities, however, acknowledges that lower summer liquidity could lead to more exaggerated moves. It continues to forecast the 10-year Bund yield at 2.80%-2.90% at year end. ([email protected])