Markets
Global core bonds lost ground today risk sentiment flourished overnight. Chinese PMI’s printed stronger than expected while the US and China are said to be close to a trade agreement. Meanwhile, UK PM May reaches out to opposition leader Corbyn to breakdown the Brexit deadlock, raising the chances of a soft and market-friendly Brexit. Core bonds opened lower. The final reading of EMU PMI’s outperformed expectations, weighing core bonds further down. The German 10-yr yield moved back north of the psychological zero line and is fighting to remain in positive territory at the time of writing. The German yield curve bear steepens with changes up to +6.2 bps (30-yr). US Treasuries fell lower during Asian trading on the positive US-Sino trade talks and held on to those losses throughout the day. The ADP Employment change for March disappointed (129k vs. 175k expected) but had little impact on US Treasuries. Investors awaited the more forward-looking non-manufacturing ISM later on the day. The gauge printed below expectations but remains solid whatsoever (infra). The US yield curve is bear steepening as well with changes up to +3.8 bps (30-yr). Peripheral spreads over the German 10-yr yield tightened with Greece (-9 bps), Spain (-3 bps) and Italy (-3 bps) outperforming.
Dollar strength prevailed recently on global currency markets. The US currency was supported by decent US data and higher yields. The trade-weighted dollar came close to the 97.50/75 resistance area. EUR/USD dropped to close to the 1.1177/87 support. The move petered out yesterday. Today, fortunes changed in favour of the euro. The single currency succeeded some kind of catching up move. Final EMU services PMI’s printed stronger than expected. Especially positive surprises from Italy and Spain gave some comfort for euro bulls. EUR/USD rebounded off the low 1.12 area. A positive risk global risk sentiment was also euro supportive. Early in US dealings, ADP labour market growth printed well below consensus (129k vs 175 k expected), but the move was ignored by USD traders, probably as the month-to-month link between ADP and the payrolls is recently rather loose. LT interest rate differentials narrowed slightly in favour of the euro, but US yields still held the upward trajectory from earlier this week. EUR/USD filled offers in the 1.1250/55 area earlier today, but is currently changing hands in the 1.1235 area. USD/JPY again shows no clear trend despite higher core yields and a positive risk sentiment. The pair hovers in the mid 111 area as markets are counting down the the US non-manufacturing ISM.
Sterling initially gained further ground this morning as markets pondered the potential consequence of UK PM May look for support from the labour opposition to get a Brexit deal approved in the UK Parliament. Sterling profited as markets saw growing chance of a softer Brexit. EUR/GBP dropped to low 0.85 area. However, the division within the PM May’s Conservative party makes the outcome of this new political option still highly uncertain. Sterling lost some ground intraday. Later today, EU’s Juncker also repeated that an approval of the withdrawal agreement before the 12 April deadline was needed for the UK to get a ST delay. It is still far from sure that this condition will be met. EUR/GBP is currently again trading in the mid 0.85 area. Cable is also drifting back south (1.3130 area).
News Headlines
Oil prices (Brent) continue to rise, trading just shy of the psychologically important $70 p/b today as recent data (business confidence amongst others) have eased global growth concerns. At the same time production cuts by OPEC, a US-lead Iranian oil boycott and Venezuelan export disruptions have boosted prices from the supply side.
According to Austria’s Chancellor Kurz there is “absolutely no reason” for another extension to brexit beyond April 12. UK’s May asked for a second delay so she could hammer out a revised brexit deal in co-op with Labour’s Corbyn in the meantime. However such a request has to be approved by the EU unanimously.
US non-manufacturing ISM missed estimates (58.0), slipping from 59.7 to a still solid 56.1 in March as new orders fell from a stellar 65.2 to 59.0. Other subcomponents dropped much less sharply or even rose (overall business activity, employment, backlogs, prices paid), suggesting a healthy (domestic) US economy.
