Markets
Global core bonds lost ground today even as risk sentiment slightly deteriorated. Asian markets performed mixed this morning with Chinese markets closed for the week. The economic calendar was feathery light today, with in the Eurozone only the February Sentix Investor Confidence and producer inflation for December. The former disappointed (-3.7 vs. -1.3 exp.), as did the latter (-0.8% (M/M) vs. -0.5% exp.). ECB Governing Council member Nowotny said he doesn’t expect a recession in Europe and sees higher core inflation this year as wage developments impact the underlying price pressures. The German yield curve edged higher with changes in the range of 0.1 bp (30-yr) to +1 bp (2-yr). US Treasuries moved steady throughout the day but turned south once US investors joined the debates. With nothing on the US eco calendar, risk sentiment will dominate US trading. US equities opened flat .The US yield curve moves higher with changes up to 3.4 bps (10-yr). Italian BTP’s initially fell as Bank of Italy Governor Ignazio Visco warned over the weekend for less favorable prospects for the Italian economy. However, BTP’s reversed the opening move as the Italian 10-yr yield bounced off 2.8% resistance. The Italian spread over the German 10-yr yield widens 2 bps. Other peripheral spreads are steady.
There was no compelling story to inspire any directional price action in the EUR/USD cross rate today. The pair was paralyzed in a tight range in the mid-1.14 area. Last week’s U-turn in the Fed’s communication is discounted and this apparently also applies for recent poor EMU eco news. Euro weakness and USD softness are basically keeping each other in balance. Some external event risk (US-Sino trade talks, Brexit,….) is probably needed to break this stalemate. The intraday  balance tilted slightly in favour for the dollar this afternoon a s US traders came in. However, for now, EUR/USD is firmly holding in the 1.12/15 consolidation pattern. This morning, USD/JPY cautiously extended Friday’s gain. The yen-decline took a breather as European equities traded with are cautious negative bias. Yen selling resumed as core (EMU and US) yields ticked slightly higher this afternoon. USD/JPY is extensively testing the 110 barrier.
EUR/GBP hovered in the mid-0.87 area in Asia and early in Europe this morning. In line with last week’s price action, investor caution on sterling prevailed. EU policy markets are holding the line that no new withdrawal deal is possible. The January construction PMI printed softer than expected this morning (50.6 from 52.8 vs 52.6 forecast), as was the case for the manufacturing PMI last week. Sterling was already under modest pressure in the run-up to the release and settled in the 0.8760/75 area afterward. Cable is also on a downward ST trajectory and dropped back to the 1.3050 area.
News Headlines
The ECB published an article of driving factors of risks to domestic demand in the EMU. They conclude that domestic demand growth, in particular private consumption, will remain a key driver of activity over the next few years, albeit with a diminishing contribution, reflecting the expected maturing of the business cycle. Meanwhile, increasing uncertainties at the global level constitute a downside risk to the outlook, particularly for business investment.
The Slovak Finance Ministry has cut its growth outlook for 2019 (4% from 4.5%) and 2020 (3.7% from 3.9%). The downgrade reflects the slowdown in one of the biggest Slovak trading partners, Germany. The setback in foreign demand should be offset by rising output at the Jaguar Land Rover plant which opened last year. FM Kazimir still expects a balanced budget next year despite the growth forecast downgrades.
