Markets
Core bonds erased gains built up during Asian trading following stronger than expected EMU eco data. German Bunds underperformed US Treasuries. Today’s early upleg came on the back of disappointing Chinese PMI’s and earnings. Better national Q1 GDP numbers eventually resulted in an upward surprise for the EMU as a whole (0.4%Q/Q) while the unemployment rate reached a cycle low in March (7.7%). Q1 GDP releases from China, the US and the EMU put worst case growth scenarios at least temporary to bed. We still prefer to err on the side of caution given lackluster indications at the start of Q2. Regional German inflation readings in the meantime suggested an upward surprise for the national outcome. The 1% M/M and 2.1% Y/Y increase is hugely influenced by the timing of Easter holidays though. German yields increased by 0.3 bps (2-yr) to 2.3 bps (10-yr). US yields are slightly lower after a weak Chicago PMI. 10-yr yield spreads vs Germany narrowed by up to 5 bps (Italy).
EUR/USD extended yesterday’s rebound. Yesterday, we interpreted the move mainly as USD softness as investors turned more cautious on the dollar ahead of tomorrow’s Fed policy meeting. Today, the move was also supported by euro strength. EMU Q1 growth printed stronger than expected. Labour data from EMU but also from Germany and even Italy printed stronger than expected. Last but not least, German April HCIP inflation unexpectedly jumped to 2.1% Y/Y. Especially the latter is at least partially driven by one-off factors that will likely be reversed in the coming months. Even so, the market couldn’t fully ignore the flood of better than expected EMU data. European yields and the euro turned north. EUR/USD trades currently in the 1.1220 area, regaining the 1.1177/87 previous support. With the Fed decision (tomorrow) and the payrolls (Friday) still ahead of us, the EUR/USD picture might still change later this week. Even so, the EUR/USD 1.1110 support area apparently won’t be that easy to break. USD/JPY still suggests some underlying USD softness, too. The pair is trading in the 111.30 area.
Sterling showed decent gains against a weak dollar, but also against a broadly stronger euro. We didn’t seen any obvious news to explain the move. EUR/GBP drifted gradually lower in the 0.86 big figure throughout the day. End of month sterling sales against the dollar were rumoured to play a role. The Brexit negotiations between Labour and the Conservative party are said to continued but there are no signs of big progress yet. EUR/GBP is trading in the 0.8615/20 area. Cable regained the 1.30 mark.
News Headlines
European 2019Q1 growth figures mostly surprised on the upside today. French growth stabilized at 0.3% QoQ while Spanish growth unexpectedly accelerated to 0.7% QoQ. Italy left recession territory, printing a 0.2% QoQ growth (0.1% expected). The preliminary growth figure for the euro zone came in at 0.4% QoQ, beating the 0.3% market estimates and up from 0.2% in the previous quarter.
German inflation crushed estimates in April, printing at 1.0% MoM and 2.1% YoY. Regional inflation data showed that the strong uptick is due to a sharp increase in prices of (Easter) holiday sensitive items which is expected to fade out in the following month(s).
The Case-Shiller index showed home prices in the US decelerated further in February. The indicator has fallen steadily since early 2018 to reach the lowest reading since 2012 of 3%. This is despite solid wage increases during 2019Q, other US data showed today. The Chicago PMI disappointed strongly (52.6 vs. 58.5 expected).
