Markets
Global core bonds gain modest further ground today as the risk-off sentiment is prevailing. US President Trump’s renewed tariff threat got backed by Reuters this morning that said that China tried to renege on key topics. China is said to have deleted commitments from the draft trade deal, undermining close to all enforcement mechanisms the US had been fighting for. It leaves the impression that US President Trump is serious on raising tariffs on Chinese imports on Friday. Core bonds profited and moved higher throughout the day. Before EU openings, better-than-expected German industrial production results had no impact on trading. The German yield curve is moving lower with changes up to -2.4 bps (30-yr). In the run-up to the WS opening bell, US Treasuries reversed part of the intra-day gains as President Trump stated that China had informed him that Chinese VP Liu He is coming to the US tomorrow to make a deal. We advise cautiousness as long as there is no practical evidence of concrete progress, confirmed by the negligible reaction on financial markets. At the time of writing, US Treasury yields are edging lower with losses up to 1.8 bps (2-yr). Peripheral spreads over the German 10-year yield are widening with Italy (+3 bps) and Greece (+11 bps) underperforming. The latter has set its annual primary surplus target to 2.5% of GDP, challenging an agreement with the EU and the IMF that called for a primary surplus of 3.5%.
There was very little news to guide EUR/USD trading today. German March industrial production rebounded more than expected (0.5% vs ‑0.5% ). EUR/USD tried to extend gains north of 1.12 early in European trading, but the move almost immediately ran into resistance. From there, the pair settled in a very narrow range near the 1.12 pivot. Global markets are looking out for next steps in the US-China trade dispute/negotiations. The outcome of this process remains highly uncertain. Even more, EUR/USD traders this week clear didn’t know how to react to this topic in the first place. In this context, today’s EUR/USD stalemate shouldn’t come as a surprise. The USD/JPY correction slowed today. The pair hovered in the low 110 area for most of the day.
UK PM May reiterated that negotiations with the Labour party continue as they try to reach a deal that could reach a majority in Parliament. However, UK politicians (and investors) are losing confidence that a deal might be reached. In the meantime, ever more conservative party members are indicating that they consider to apply their candidacy to succeed PM May. This process probably won’t simplify progress in the Brexit process. Dwindling chances on a (soft) Brexit deal between the Conservative party and Labour are weighing on sterling. EUR/GBP rebounded further in the 0.85/87 consolidation range (currently 0.8605 area). Cable dropped close to the 1.30 area.
News Headlines
Iran responded to US sanctions imposed against the country after Trump’s administration walked out of the 2015 nuclear accord last week. The country set a 60-day deadline for its counterparts to guarantee commitments on oil and banking. Otherwise, Iran threatens to stop restrictions on uranium enrichments.
The US Trade Representative’s office said in a draft federal register note that the US will increase tariffs on $200bn of Chinese imports to 25% from 10% on Friday.
Washington Fed governor Brainard said that she wants to explore targeting explicit levels and slightly longer interest rates as well, if the Fed must cut its policy rate again to zero in a future downturn: “Initially one-year interest rates, for example, and if more stimulus is needed, perhaps moving out the curve to two-year rates”.
German industrial production rose by 0.5% M/M in March, beating forecasts (-0.5% M/M) following a downwardly revised 0.4% M/M in February. Construction and consumer goods production supported the March growth, but the outlook remains subdued, proven by eg recent PMI’s or yesterday’s industrial orders.
