Markets
Core bonds edged higher ahead of the European market opening, awaiting the ECB meeting and the EU summit on Brexit. Industrial production for February printed above expectations in Italy, France, and the UK, lifting risk sentiment. EU equities gained ground, weighing core bonds down. Both moves remained limited ahead of the ECB meeting. The ECB eventually didn’t change its stance, reiterating that policy rates will remain low at least through the end of 2019. In the press conference ECB’s Draghi confirmed that the ECB will consider if negative rates need mitigation. However, he said it is too early to commit to ‘tiering’ or to give details on the new TLTRO bank loans. Draghi also stressed that the ECB is ready to use all instruments if warranted, putting an emphasis on the word “all”. Draghi’s message was slightly more dovish than expected, pushing the Bund higher. The German yield curve moves lower with changes up to -2.8 bps (5-yr). US Treasuries were largely stable throughout the day, awaiting the March consumer inflation. The result printed close to expectations, little impacting trading. UST’s tracked Bund gains and moved higher as well. The US yield curve edges lower with changes up to -3.0 bps (5-yr).
EUR/USD remained well bid in the run-up to the ECB policy decision/press conference. The start of the ECB press conference also coincided with the publication of the US CPI. EUR/USD retested the 1.1285 area as the US (core) CPI printed slightly softer than expected (2.0% Y/Y vs 2.1% Y/Y expected) but headline US inflation printed marginally higher than expected at 1.9%. So, the US CPI was too close to expectations/balanced to force a clear directional move of the USD. The focus immediately turned to ECB press conference. The ECB’s economic assessment was little changed from the March meeting. Still the euro declined during the ECB press conference. The ECB president apparently failed to convince markets what would be the drivers for the economy to unwind/reverse recent weakness. Draghi indicating that the ECB will investigate whether negative rates need to be mitigated also can be seen as a euro negative as it might reinforce the idea that rates will have to remain low for longer. Whatever the trigger, the EUR/USD topside test was rejected. EUR/USD is currently trading in the 1.1240 area. USD/JPY trading was confined to a very tight sideways ranges . The pair is trading in the 111.15 area.
Today is set to be a milestone for Brexit as EU leaders will decide on the conditions and the length of a possible Brexit delay. Several EU leaders incl. German Chancellor Merkel indicated that any delay should be rather short. However, the delay as proposed by the EU will be longer than the 30 June deadline UK PM May is aiming for. The EU proposal will meet tough resistance within PM May’s conservative party. At this stage, sterling traders are not able to draw firm conclusions on the next steps in this political process and the implications for BoE policy and for sterling. EUR/GBP initially held a relatively tight range in the 0.8620/30 area, but dropped back to the 0.86 big figure on euro weakness during the ECB press conference. Cable rebounded temporary to the 1.31 area, but this move was partially due to USD softness and was also reversed later in the session. The pair currently trades in the 1.3065 area.
News Headlines
Norwegian inflation topped market estimates in March. Headline inflation increased at 0.2% MoM (2.9% YoY) vs. 0% MoM (2.8% YoY) expected. Core inflation accelerated to 0.3% MoM (2.7% YoY) vs. a 0.1% MoM (2.5% YoY) increase expected. EUR/NOK slipped below 9.60 as the data support the central bank’s normalization process.
Turkey announced a $4.9 billion injection in the country’s state banks to boost the capital level and relieve bad debts. It is the first step of the government’s reform package to revive its economy that has been pressured by high inflation and a recession. Other measures include promises to boost exports and adjust taxes.
