US curve continuing to flatten... should you be concerned?

Macroeconomic environment UK: weaker-than-expected retail sales in June, up by 2.9% yoy (and by 3% excluding automotive fuel), but down by 0.5% mom (and by 0.6% excluding automotive fuel). US: Philly Fed General Business Condition Index recorded a sharper-than-expected increase, up from 19.9 to 25.7 in July (consensus: 21.5), an analysis of su b -indices revealing a strong increase in new orders (31.4 vs. 17.9) and in prices paid (62.9 vs. 51.8), which both stand at 10-year highs. On the other hand, the number of employees sub-index fell sharply (16.8 vs. 30.4). Conference Board leading indicators point to an acceleration of activity in June (+0.5% vs. +0.2% in May). Initial jobless claims decline d to their lowest level in 48.5 years. Equities After rising for two sessions in a row, European equity markets were on the back foot on Thursday after some weaker-than-expected earnings reports. The tech, media and basic resources underperformed, whereas the oil and food sectors outperformed. The VIX edged higher to 12.5%. In the US the S&P fell slightly. In Asia the Nikkei fell as well. Bond markets / Derivatives Particularly calm session in the Eurozone , with a slight outperformance by Italian govies at the short end, yields for 2 to 3-year BTP easing by 2bp-3bp. The German curve flattened through the long end, with the yield for the 30-year Bund easing by 1bp, whereas the yield for the 2-year Schatz added 0.5bp. As regards EZ volatility, gamma continued to underperform, notably for long tenors, which are back near their 2017 levels (10bp for 3Mx10Y) . In the US, Treasury yields eased intraday, with declines of nearly 2bp for the 10-year TNote and 30-year TBond . Money markets / Central banks After declining in recent sessions, the US 3-month Libor-OIS spread and TED spread both recovered slightly on Thursday. The Eonia 5-year basis bounced back to an around 1-month high, whereas the Euribor 5Y 3s6s extended its decline to 6.7bp. Eurodollar contracts and the Dec 19 Euribor contracts inched higher yesterday. At 1.92% mid, the Fed Funds is still not far off the IOER. FX US dollar was firm on Thursday, gaining ground against G10 currencies and emerging currencies. The DXY dollar index has put on 1.2% since the start of the week, having extended its rise yesterday. The euro made a brief foray below 1.16, but this support level is holding for the moment. Sterling continued to struggle, passing below 1.30, notably in reaction to some poor macro data. High beta currencies (Norwegian krone, New Zealand dollar, Swedish krona) underperformed. The South African rand brought up the rear, shedding almost 1.8%. Commodities Crude oil prices firmed on Thursday after Saudi Arabia’s Energy Minister announced that the kingdom would not increase production in H2 2018 and would probably scale back available export volumes in August compared with June-July.