Markets
Global core bonds are mixed today as risk sentiment flourished in Europe, causing German Bunds to underperform US Treasuries. EU equities moved north after the bell and a positive revision of the Eurozone PMI’s boosted sentiment further, weighing core bonds down. The German Bund edged lower throughout the day and set an intraday low as some ECB officials are said to be reluctant to change the forward guidance on interest rates. There was no follow-through action though and Bunds paired losses as US Treasuries found a bid at the start of US dealings. The German yield curve moves limited higher with changes up to 0.5 bps (5-yr). US Treasuries moved sideways today with a slightly upward tendency even as US (risk) sentiment remained positive in the run up to the ISM Non-Manufacturing Index (January). Apart from that, there was nothing on the US economic calendar to guide traders. Investors await President Trump’s State of the Union address, later today after US markets have called it a day. The US yield curve edges lower with changes varying between -0.5 bps (2-yr) to -1.4 bps (10-yr).
There was again no unequivocal deriver for EUR/USD trading today. Early this morning, the dollar maintained the benefit of the doubt. EUR/USD slipped to the 1.1415 area even as EMU PMI’s were slightly better (less weak) than expected. Poor Italian PMI’s probably prevented the euro to profit from a stronger overall PMI and lightly higher yields at that time. The EUR/USD started an intraday bottoming out process. Later, the euro regained some ground after a press article/rumours that the ECB was unlikely to change its forward guidance on interest rates at the March policy meeting. Interest rates differentials are slightly narrowing in favour of the euro. FX traders are now looking forward to the non-manufacturing ISM and President Trump’s State of the Union. EUR/USD is trading in the 1.1425/30 area. USD/JPY (108.85 area) again failed to sustain the move north of the 110 handle.
Contrary to what was mostly the case of late, the UK eco data rather than Brexit set the tone for sterling trading today. EUR/GBP lost a few ticks early in European dealings, tracking the intraday downward bias in the EUR/USD headline pair. However, the UK PMI’s turned the focus again to sterling side of the story. The UK services PMI (50.1) and the composite measure (50.3) declined more than expected, suggesting that UK economic growth is moving close to stagnation as the country is nearing the March 29 Brexit deadline. A decline in the eco dynamics also suggest a cautious BoE assessment at Thursday’s policy meeting. At the same time there was no indication that the UK and EU are making progress on a Brexit deal. EUR/GBP rebounded off the intraday lows and currently regains the 0.88 big figure. Cable is testing the 1.30 big figure.
News Headlines
Reuters cites sources close to the ECB who are reluctant to alter the central bank’s forward guidance on policy rates – unchanged at least through the Summer – in order not to tie the next chair’s governor who takes over from ECB President Draghi on November 1. This stance suggests a preference to use other weapons in the CB’s toolkit first if needed to restore confidence. A new set of targeted long term refinancing operations is often rumoured.
The Swedish services PMI declined from 55.8 to 54.1 in January, the weakest reading since April 2016. All components of the report, apart from suppliers’ input prices, suffered a setback. The manufacturing PMI last week eased from 51.8 to 51.5. EUR/SEK tested this year’s high around 10.43, but failed to creep higher.
Under the National Industry Strategy 2030, the German government could (temporarily) buy stakes in important domestic companies to prevent foreign takeovers and key technologies leaving Germany, the country’s Minister of Economy said. Sectors under consideration include steel and aluminum, chemicals and defense.
