Markets
Global core bonds lost ground today with US Treasuries underperforming German Bunds. News that the US and China are working on several memorandums of understanding to lay the groundwork for a potential trade deal lifted risk sentiment overnight. Core bonds edged lower but stabilized in the run-up to European dealings. Mixed EMU PMI’s kept German Bunds in their downward tendency. No additional negative news is interpreted as positive news by the bond market. The ECB January meeting minutes showed a cautious approach on launching new TLTRO’s. The German yield curve is edging higher with changes in the range of +1.3 bps (2-yr) to +4.0 bps (10-yr). US Treasuries continued to slide in the run-up to the US opening bell. US labour data printed strong, though the Philly Fed Business sentiment for February was the weakest reading since May 2016. Disappointing factory data didn’t support safe haven bids into US Treasuries. The US yield curve is moving higher with gains varying between +2.9 bps (2-yr) to +4.3 bps (10-yr). Spain successfully tapped the market today, proving that the political disquiet has little impact on investor appetite for Spanish paper. The Spanish spread over the German 10-yr yield even tightens with 2 bps. Other peripheral spreads are tightening too with Italy and Portugal (-4 bps) outperforming.
There were plenty of interesting data released in EMU and the US. However, the data were not able to unlock recent indecisive EUR/USD trading pattern. EMU PMI’s were mixed. The manufacturing sector is drifting further into contraction territory, but services showed an encouraging rebound. EUR/USD moved up and down. The euro finally slightly outperformed as a rise in German yields (limited) narrowed the US/German (EMU) interest rate differential. Markets might also expected an even softer tone from the accounts of the January policy meeting. The early morning US data (mediocre Philly Fed and durables, decline in jobless claims) were mixed but not convincing. The dollar lost a few ticks against the euro and the yen. EUR/USD is trading near 1.1350. Yesterday’s rebound top was within reach, but was eventually left intact. USD/JPY is trading in the 110.65 area, on the lower side of the intraday trading range. USD momentum is fading, but no important technical levels are under test, yet.
Sterling trading continued similar to the script of previous days. Brexit headlines caused of modest intraday swings, but in the end sterling resilience prevailed. EUR/GBP upticks were capped in the in the low 0.87 area. Cable is holding well north of the 1.30 mark. (FX) Markets still assume that an outright disorderly Brexit can be avoided. This morning, first headlines suggested that substantial progress might have been made. UK Fin Min Hammond even indicated that a new vote was possible in the coming days. Optimism on an imminent deal eased again later, but the (negative) impact on sterling was modest. EUR/GBP is currently trading in the 0.8780 area. Cable trades near 1.3075.
News Headlines
Bloomberg cites officials with knowledge of a plan that China is proposing to buy an additional $30bn a year of US agricultural products including soybeans, corn and wheat as part of a possible trade deal between the two countries.
The February EMU Composite PMI unexpectedly picked up from 51 to 51.4. A stronger services PMI (52.3 from 51.2) offset the negative impact from the manufacturing gauge (49.2 to 50.5). The latter fell below the 50 boom/bust mark for the first time since June 2013 and crashing (export) orders suggest little improvement ahead. PMI’s suggest that GDP may struggle to rise by more than 0.1% Q/Q in Q1.
US eco data printed mixed. Weekly jobless claims fell more than forecast, from 239k to 216k, underlying tightness on the labour market. The Philly Fed business outlook recorded an horrendous miss, falling from 17 to -4.1 in February, the weakest reading since May 2016. Headline durable goods orders rose less than forecast in December (1.2%), but shipments of non-military goods excluding aircraft, used a proxy for investments in GDP, rose better than expected 0.5% M/M).
