Markets
Global core bonds lost substantial ground today. Risk sentiment was mixed overnight, giving a neutral bias to core bonds at the start of the day. European equities opened little lower, pushing core bonds cautiously higher after the EU opening bell. Little after, China reported better-than-expected lending data for March, lifting hopes on a firm economic recovery in one of the biggest economies. What followed was a general risk-on response: the euro gained ground, equities moved north and yields edged higher. Stronger-than-expected industrial production data for the EMU weighed some more on German Bunds. The German yield curve is moving higher with changes up to 4.8 bps (10-yr), with the 10-yr yield regaining the psychological 0%-level. Same story in the US, with Treasuries losing substantial ground after the strong Chinese lending data. Moreover, JPMorgan & Chase and Wells Fargo kicked of the Q1 earnings seasons and both US bank giants beat estimates, lifting hopes that the economic downturn could only be temporarily. The risk-on sentiment weighed US Treasuries down, pushing the US yield curve higher with changes up to 5.4 bps (5-yr). Peripheral spreads over the German 10-yr yield remained stable, with Greece (-9 bps) outperforming as it plans to repay parts of its loans from the IMF ahead of schedule.
Over the previous days, the euro already showed signs of underlying resilience. Amongst others, the single currency soon overcame a dovish rhetoric of ECB’s Draghi at the press conference on Wednesday. EUR/USD dropped temporary on good US data and higher US yields yesterday, but the euro bid already returned in Asia this morning. EUR/USD returned close the EUR/USD 1.13 barrier. Later, Chinese lending data surprised on the upside. The report obviously eased investor fears on Chinese/global growth and revived an outright risk-on trade. (European) equities, core yields, oil and EUR/USD all jumped higher. EMU February production data were also better (less negative) than expected. In this global move, EUR/USD broke beyond the 1.13 resistance, triggering further euro short-covering. Solid buying in EUR/JPY reinforced the overall performance of the single currency. EUR/USD is trading in the 1.1325 area. USD/JPY also profits from the risk-on and higher core yields. The pair nears the 112 big figure. EUR/JPY gained more than one big figure compared to the start in Asia this morning and trades currently in the 126.75 area.
EUR/GBP drifted cautiously higher in the mid 0.86 area. We didn’t see any UK specific news. The move was probably mainly inspired by an overall bit for the euro. EUR/GBP tested the intermediate resistance in the mid 0.86 area, but a sustained leap didn’t succeed. Sterling regained some ground later in the session. The move was maybe supported by constructive comments from UK Finance Minister Hammond as he still saw a decent chance for the negotiations between the Conservative party and Labour to yield a positive result in the coming weeks. EUR/GBP is again trading in the 0.8625 area. Cable rebounded above the 1.31 big figure but this move was mainly EUR/USD driven.
News Headlines
UK’s Nigel Farage has launched the Brexit party as a new political organization in next month’s European elections. Farage is the former Ukip leader, a strong Eurosceptic party. He stepped down shortly after the Brexit referendum outcome in 2016 and left the party completely last year.
Germany’s Bundesbank president Weidmann warned German growth could slow sharply (to less than 1%) in 2019 as trade and Brexit uncertainty continue to weigh on investment, adding that Germany is currently running expansionary fiscal policies to counter the slowdown. It is estimated to have an impact of 0.25-0.5% points on GDP.
JPMorgan Chase kicked off the earnings season on a strong note. The largest US bank topped earnings expectations as net income increased (+19%) on higher interest income and gains in its advisory business. Its CEO sounded optimistic about the overall outlook for the bank as the US economy, labour market and consumer and business confidence stays strong despite “some global geopolitical uncertainty”.
