Markets:
Core bonds lost ground today. German Bunds underperformed in European dealings despite disappointing EMU eco data. US Treasuries made a catch-up move. The downleg surprisingly started after disappointing (!) March PCE deflators which disappointed! The move is even more striking as US Treasuries rallied last Friday on exactly the same output. It’s rather stretched to point today’s weakness to stronger-than-expected personal spending (0.9% M/M) even if part of Friday’s disappointment was also related to the low contribution of consumption in the Q1 US GDP release. European stock markets an oil hovered near opening levels. We won’t draw strong conclusions from today’s session with key eco data from Washington to Beijing up for release in coming days. The German yield curve bear steepens with yields 1.4 bps (2-yr) to 3.4 bps (30-yr) higher. US yields add 1.8 bps (2-yr) to 2.3 bps (10-yr) in a daily perspective. 10-yr yield spreads changes vs Germany narrows somewhat with Spain (-4 bps) outperforming with political event risk out of the way.
The Belgian debt agency successfully raised €3bn today by tapping OLO 82 (€0.94bn 0.5% Oct2024), OLO 87 (€1.17bn 0.9% Jun2029 and OLO 88 (€0.89bn 1.7% Jun2050). The total amount sold was the upper end of the €2.5-3bn target range. The total auction bid cover was a solid 1.97. The Belgian debt agency now raised around €18bn (64%) of this year’s total OLO funding need (€28bn).
Second tier EMU and US data had only a limited impact on euro and/or USD trading. Investors are looking forward to several other key data (EMU GDP, US ISM’s, payrolls) and the Fed policy meeting later this week before engaging in directional EUR/USD position taking. End last week EUR/USD rebounded cautiously off the 1.1110/20 support area as US Q1 growth failed to convince investors. The euro gained a few ticks this morning but the move stalled soon. April EC confidence data were below consensus but with little impact on the euro. EUR/USD settled in the mid 1.11 area. US March spending and income data was mixed with March spending being strong, but income and the price deflators softer than expected. The dollar’s reaction was negligible. EUR/USD is holding below 1.1177/87 previous support, suggesting underlying euro softness. USD/JPY (111.75/80 area) remains rather well bid.
Sterling also showed little directional price action today. The conservative and labour parties are still talking to find a way out of the Brexit stalemate and to avoid that the UK has to participate in the May European elections. For now, there is no indication that a workable solution might be reached in time. The BoE will meet on Thursday, but Carney and Co will probably also keep a wait-and-see modus as Brexit uncertainty persists and as most other major central banks have put policy normalization on hold. EUR/GBP is trading marginally stronger in a daily perspective (0.8635 area). Cable gained a few tick on USD softness this morning, but dropped again to the low 1.29 area later.
News Headlines:
The broad monetary aggregate M3 grew at an annual pace of 4.5% in March vs. 4.3% in February, the ECB revealed today. A separate report showed March credit growth to households and corporations eased to 3.2% (from 3.3%) and 3.5% (from 3.8%) respectively. EC economic confidence slipped more than expected and for a tenth consecutive month to 104.0 (from 105.5) with the industrial sector leading the decline. Forward looking subseries were equally disappointing, crumbling down to the lowest since 2016.
US personal income increased (0.1% MoM) less than expected (0.4%) in March while spending (0.9% MoM) topped estimates (0.7%). The PCE deflator, the most watched inflation gauge by the Fed, accelerated (0.2% MoM, 1.5% YoY) but less than anticipated (0.3% MoM, 1.6% YoY). Core PCE stalled in March.
