Markets
Global core bonds moved higher today with US Treasuries outperforming German Bunds. With an almost empty economic calendar, investors were left with nothing but risk sentiment to guide position taking. Before EU openings, disappointing German factory orders soured sentiment. In December, factory orders declined 1.6% A modest rise of 0.3% was expected. The German Bund jumped higher on the release but moved downwards throughout the day. Once again, core bonds moved higher as US investors joined the debates. The German yield curve was mixed with changes between -1.5 bps (30-yr) to +1.2 bps (2-yr). US Treasuries were little inspired as well. The US trade deficit narrowed more than expected in November, but had little impact. Still, UST’s moved higher in the run-up to the WS bell. The US yield curve is moving lower with changes up to -1.8 bps (10-yr). Italy’s 30-yr bond syndication was well bid with a record €41bn for its second syndicated sovereign bond of the year. The final deal size is said to be 8 billion euros. The Italian BTP’s traded in a choppy sideways pattern to currently hover near opening levels. Peripheral spreads over the German 10-yr yield are steady.
The way of least resistance for EUR/USD trading this week is south. This morning, it looked that this trend would simply continue. At the start of European dealings, December German factory orders (-1.6% M/M, and ‑7.0% Y/Y) disappointed again, flashing a new warning sign on the EMU economy. EUR/USD dropped to the 1.1380 area, but at least for now, there were no follow-through losses. Further out, there was hardly any market relevant eco news. The Italian 30-y bond auction attracted ample investor interest. This successful sale didn’t help the euro, but at least one perceived risk factor for the euro didn’t materialize. On the other hand, comments from EU policy makers, including from EU’s Tusk, suggested that Brexit uncertainty probably won’t disappear anytime soon. EUR/USD (currently 1.1380 area) continued this morning’s trading near this week’s low. An, albeit marginal, decline in US yields and a less buoyant risk sentiment also aborted the USD/JPY attempt to regain the 110 barrier. The pair (currently 109.80 area) hovered in the upper half of the 109 big figure.
Sterling entered calmer waters today. Both last week on Friday and yesterday, the UK currency came under pressure as the PMI’s indicated that UK economic growth might be heading for a standstill as its remains highly uncertain whether and, if so, on what conditions, the country will leave the EU on March 29. There were quite some harsh headlines from EU’s Tusk vis-à-vis UK Brexiteers. He also admitted that attempts to stop the Brexit process will probably prove idle. For now, the comments had no negative impact on sterling. EUR/GBP is trading in the 0.8780 area. Tomorrow, UK PM May and EU’s Juncker are scheduled to meet and try to unlock the Brexit stalemate.
News Headlines
The Polish central bank left its main rate unchanged at a record low of 1.50%. The status quo comes amid a dovish shift of other major central banks (Fed, ECB) and was widely expected as the bank’s governor Glapinski suggested at the previous meeting that rates might even remain stable until the end of his term in 2022, instead of 2019 or 2020 indicated earlier. The Polish zloty is trading slightly lower ahead of the bank’s press conference.
Bank of Canada deputy governor Timothy Lane said US trade uncertainty, lower oil prices and weaker housing and consumer spending has been driving the latest deceleration in growth. But the underperformance relative to the US’s has put downward pressure on the loonie against the USD which should help the economy through this temporary slowdown, Lane said.
