Trading Day-Oil, yields slide

Figures on Tuesday showed German growth in Q2 was faster than initially estimated, and business morale hit its highest level in a year in August. Europe's economic engine appears to be going up through the gears — GDP has expanded at almost 1.5% annual rate over the past three quarters, notes JPMorgan, driven by fiscal stimulus, strong exports, consumer spending and private sector capex. Deutsche Bank on Tuesday revised up its 2026 real GDP forecast to 1.0% from 0.5%.

Germany's momentum, together with strong growth in other countries like Spain, explains why Citi's European economic surprises index has surged to its highest in three and a half years. In contrast, the U.S. surprises index has tailed off recently, and the gap between the two is now the widest (in Europe's favor) since February 2023. With energy prices on the rise again, could the ECB accelerate the pace of anticipated rate hikes? Not according to sources cited by Reuters today.

Coincidentally, China's yuan is also trading at its strongest level against the dollar since February 2023, trading through 6.72 per dollar. A break through 6.70 to levels last seen four years ago seems a matter of "when", not "if". The PBOC is trying to cool the pace of appreciation though, administering daily fixings at levels weaker than market expectations — Beijing is still wedded to its export-driven growth model, as evidenced by its booming, $1 trillion trade surplus.