Bonds: Weaker than forecast US jobs report weighs on yields
Most economists stuck to their calls for the Federal Reserve to start raising interest rates in September despite a weaker than expected reading on the US jobs market.
Nevertheless, it did give some of them pause for thought.
Indeed, the yield on 10-year Gilts slipped by one basis point to 2.07%, dragged lower by a four basis point drop in the yield on US Treasury notes of similar maturity to 2.39%.
What most unnerved some Fed watchers was the lack of any wage growth in June, whereas analysts had penciled in a rise of 0.2% in average hourly earnings. Simply put, as long as wages are stagnant then inflationary pressures ought to rise more slowly. The unemployment rate on the other hand slid by two tenths of a percentage point to 5.3%, albeit thanks to the exit of 432,000 persons from the labour force.
Fed funds futures refused to budge higher on the back of the above data.
As of Wednesday´s close they were showing a 29% chance the central bank would increase its benchmark policy in September, versus 35% on the previous day.
Acting as a backdrop, the Greek crisis continued to rumble on. Speaking to Bloomberg TV Greek finance minister Yanis Varoufakis pledged to resign if Greeks voted 'yes' on Sunday.
In the afternoon the IMF warned that Greeks – albeit due to their own failure to implement reforms - now need debt forgiveness in excess of 30% of their country´s shrinking gross domestic product to meet the debt-to-GDP targets set out in 2012.
Survey compiler Markit´s June construction PMI for the UK saw another jump, to 58.1 from 55.9 in the month before (consensus: 56.5) – a four month high.
To take note of, Sweden´s central bank surprised markets by slashing its main policy rate by 25 basis points to 0.35% and extending its QE programme until the end of 2015 in a bid to brake the strenght of the country´s currency, the Krona.