Our monetary policy soul mate still stuck in the mud

Our monetary policy soul mate (zero rates, QE) Japan, reported a much weaker than expected Q2 GDP gain of .4% annualized vs the consensus of 2.3%. The report is sending the Japanese 10 yr JGB yield to the lowest in 7 years. European bonds are rallying in response, sending the 10 yr German bund yield to a new record low. Also helping bunds is another selloff in Ireland bonds with the 10 yr spread between the two rising 10 bps to 303 bps, the highest since early May. US Treasuries are following with the 10 yr yield approaching the lowest since mid March ’09. Growth concerns also had the Chinese Yuan lower for a 5th day vs the US$ and the selloff has almost eliminated the entire post revaluation rally since late June. The Yuan weakness however did send the Shanghai index to a one week high. With the growth concerns fanned by the FOMC last week, we’ll see the 1st US Aug industrial #’s this week in the NY and Philly manufacturing surveys.

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