Economic Insights: It always makes one thoughtful when the main moves in financial markets are in sovereign bond yields. The 30-year US Treasury (‘long bond’ ) yield rose by 21ps to 1.44% in the week, which included a testing $41bn auction. In fact, each of the yield curves of USTs, gilts and Euro Area sovereigns rose across the board. Intriguingly, 10-year yields of German, French and Netherlands (i.e. the strongest credits), while still significantly lower year-to-date, have given up about half of their gains from 12 months ago.

This could represent either or both or neither of more early signs of investor fatigue with the flood of new issues and anticipation of inflation as the global economy responds to monetary and fiscal stimulus. This would be a big call and one that some institutions seem to be making already. Meanwhile, China’s sovereign bonds are ever more popular.

Equity markets ended mostly higher but seemed more unsettled following the failure in the US to reach a new COVID-19 spending deal and, indeed, by the continuing rampage of the virus itself. Mr Trump’s bellicose threats against Chinese companies seems to have caused a wobble or two in Big Tech shares. The selection of Senator Harris as the Democrat Vice-Presidential candidate has been calmly received by investors and even welcomed by some.

In the FX market, the dollar slipped a little and the renminbi gained, possibly as an olive branch from Beijing. The pound seems to be pausing after its strong run and could go either way, albeit not far for now.

As expected, UK Unemployment data has yet to reflect the ravages of COVID-19 but the Euro Area did record a 3% drop in Employment. Coincidence or not, the US CPI rose unexpectedly sharply. July Industrial Production and Retail Sales in China were just about bad enough to be credible and seemed to disappoint. This suggests that those betting on the ‘reflation trade’ (equities and Gold up, bond prices down) may be jumping the gun but we may just have been warned!