Markets
Global core bonds gain ground today with US Treasuries outperforming German Bunds. The trade dispute between the US and China is escalating again as both sides maintain a strong and attacking rhetoric. A poor Asian session suggested a weak investor sentiment at the start of European dealings. Global core bonds opened higher. EU equities opened substantially in red, supporting core bonds even more. German Bunds moved with an upward bias throughout the day, pushing the German yield curve lower with changes up to -2.3 bps (30-yr).US Treasuries behaved similar to German Bunds, though at a greater magnitude. US eco data (jobless claims, PPI’s and trade data) printed near expectations and had little impact. Investors are eyeing the US end-of-month refinancing operation with the 30-yr Note auction lined up later today. It will be closely monitored after yesterday’s flop 10-yr Note auction with the lowest bid cover since 2009. Another weak result could suggest investors need a higher risk premium on US assets. The US yield curve is edging lower with changes in the range of -4.8 bps (5-yr). Peripheral spreads over the German 10-yr are for the first time showing a general widening trend, with Greece (+10 bps) underperforming. Italy widens up to 8 bps as a private rescue plan for the regional bank Carige is at risk of collapsing.
Uncertainty on the impact of the US raising additional tariffs extended the global risk-off correction resulting in further equity losses. US eco data were mixed but with little impact on the dollar. The trade tensions triggered a further decline in US yields. The interest rate differential between the US and Germany also narrowed substantially. However, as was the case earlier this week, the US-China trade story failed to set any directional trend in the major USD cross rates. The trade-weighted dollar is drifting sideways in the mid-97 area already for more than a week. The euro initially traded stable but started gaining traction as US dealings kick off, currently trading at 1.1240. USD/JPY (currently 109.80 area) is developing a cautious downtrend. The pair finally drifted below the 110 handle. Even so, yen gains remain modest considering the rise in global (stock market) volatility.
Sterling lost further marginal ground against the euro and the dollar. Talks between the government and the labour opposition on a Brexit deal continue today. However, Conservative party officials indicated that there is still quite some work to do. At the same time, Labour leader Corbyn indicated that the Conservative party still has to do major concession for talks to succeed. BoE’s Saunders said that interest rates will increase over time, but that it won’t be far or fast. So, overall today’s narrative wasn’t really supportive for sterling. EUR/GBP is trading in the 0.8615/20 area. Cable drifting below the 1.30 level.
News Headlines
The Norwegian Central Bank kept its policy rate unchanged at 1.0% as expected. However, the Norges Bank indicated that current outlook and the balance of risk suggests that the policy rate will likely be raised in June. The Norwegian crown rebounds slightly. EUR/NOK is trading in the 9.80 area.
The Central Bank of Turkey suspended its one week repo auction, raising funding costs for Banks. The bank said the decision was due to volatility in financial markets, but is probably also intended to ease pressure on the Turkish lira. For now, the impact is very limited with EUR/TRY trading near the 7.00 barrier, the weakest level in about 7 months.
US eco data published today were close to expectations. Headline final demand PPI rose 0.2% M/M and 2.2% Y/Y, slightly below consensus. The core measure excluding food, energy and trade was marginally higher than expected. The US trade March trade deficit ($50 bln) was bang in line with expectations. Weekly jobless claims (228K) rose slightly more than expected, but the level still suggests a healthy job market.
