Markets
Global core bonds lost ground today as investor concerns over the global growth outlook show signs of easing. US Treasuries are underperforming German Bunds. Risk sentiment recovered overnight with Asian bourses, except China, coloring green. Core bonds opened with a downward bias. EU equities opened hesitant, temporarily supporting German Bunds. However, overall sentiment improved across the EU as German and French business/consumer confidence indicators printed stable to slightly positive. German Bunds moved lower again yet the move didn’t impress. The German yield curve is close to unchanged with yield changes varying between -0.4 bps (30-yr) to +0.8 bps (2-yr). US Treasuries moved gradually lower throughout the day after it had set a fresh peak yesterday. Boston Fed chief Rosengren was positive on the US growth outlook, clinging on to more hikes despite rising risks. Weaker than expected US housing data and a disappointing US consumer confidence reading turned the tide for US Treasuries, who partly erased its intraday losses. A convincing WS opening (+1%) was unable to halt the upward trend. The US yield curve is bear steepening with changes in the range of +0.7 bps (30-yr) to +3.1 bps (2-yr). Peripheral spreads over the German 10-yr yield remain stable overall with Italy (-2 bps) outperforming.
Trading in EUR/USD showed some remarkable intraday swings. Eco data in the US and Europe failed to give EUR/USD trading clear guidance. EMU confidence data were a bit mixed. If anything, French business confidence data on average printed slightly better than expected. Decent data and a positive risk sentiment initially laid the groundwork for a cautious EUR/USD intraday rebound. However, sentiment turned in favor of the dollar going into the open of the US markets. We didn’t seen a clear driver. Early morning, US housing data were mixed at best. Even so, US yields rebounded more than EU-ones, giving the dollar substantial interest rate support. EUR/USD declined from the 1.1325 area to the 1.1280 area. USD/JPY also rose (modestly), supported by higher core yields and a rebound in US equities. US consumer confidence was materially weaker than expected. The USD interest rate advantage eased slightly after the release, but the report didn’t change the established intraday trends in a profound way. The dollar maintains most of its intraday gains. EUR/USD is trading in the 1.1290 area. USD/JPY trades near 110.60.
Sterling traders continued to closely monitor the developing Brexit saga. MP’s are expected to hold indicative votes on different Brexit options tomorrow. The outcome of this process is highly uncertain. Even so, sterling rebounded during the session. The move was probably supported by comments from conservative Brexiteer Jacob Rees-Mogg as he indicated that May’s deal was ‘better than not leaving at all’. So, maybe there is still some chance for May’s deal to be approved. EUR/GBP is currently trading in the 0.8535 area (compared to the 0.8590 area mid-morning). Cable is resisting broader USD strength and is trading in the 1.3220 area.
News Headlines
ECB’s Olli Rehn said banks will know the full details of the TLTRO-III program by June. In March the ECB officially unveiled the basics of its new long-term funding scheme. The funding will be allotted on a quarterly basis (September 2019 to March 2021) for a maturity of 2 years at a rate indexed to the MRO and up to 30% of the eligible loan stock.
The Hungarian central bank left the base rate unchanged (0.90%) and increased its overnight deposit rate from -0.15% to -0.05%, as expected. However, the central bank signaled it might possibly be a one-off with further rate hikes highly data dependent. In contrast, it announced a fresh corporate-bond buying program, starting from July this year. The forint took a hit as the overall ‘package’ was softer than expected.
