Markets
Yesterday , global core bonds traded with a cautiously positive bias for most of the day as ongoing volatility on equity markets supported safe haven bonds. However, gains were modest and evaporated throughout the session. An auction of $29 bln of 7-year US Treasuries went rather difficult after recent decline in US yields. US equities closed the session in negative territory, but selling pressure was far less aggressive than on Tuesday. The US yield curved even ended the session higher with the 5-y underperforming (+2.8 bp) and the very long end outperforming (-0.7 bp). German bunds also returned most of their intraday gains closing the day little changed. Today, global sentiment on risk will remain in important driver for global bonds, but markets will also keep a close eye at the price data including the German March CPI inflation and the US February PCE deflators. German HICP is expected to rise 0.5% M/M and 1.6% Y/Y (from 1.2%). Of late the German Bund had a strong run. The 10-y yield dropped below 0.50% and neared the 0.47% support area. Higher German/EMU inflation data might gradually cause a bottoming out process in the German 10-y yield. The US core PCE deflator is expected rise modestly (0.2% M/M and 1.6% Y/Y). Activity data (jobless claims and Chicago PMI) are expected to remain strong, confirming a continuation of the US economic recovery.
Yesterday, the dollar traded with a remarkably positive bias. The bid for the US currency might have been partially due to end of month/quarter position squaring. The trade-weighted dollar (DXY) rebounded to the 90 area. EUR/USD drifted south to fill bids in the 1.23 area. USD/JPY tested the 107 big figure. US eco data were mixed to cautiously positive, but were of little significance for the USD performance. Price data in Europe and the US will also be closed monitored by FX traders. A stronger rise/or a positive surprise in German inflation relative to US price data might put a floor for German yields and might be a tentative positive for the euro. We also felt yesterday’s rise of the dollar (both against the euro and the yen) to be a bit ‘artificial’. US data probably will have to be really good for the dollar to extend/maintain yesterday’s gain.
Yesterday, sterling was temporary supported by headlines that the UK was working on a constructive solution to solve the issue of the Irish border post-Brexit. However gains were modest and UK economic news was mixed. EUR/GBP close the session at 0.8743, marginally lower from Tuesday. Today, the UK eco calendar contains the money supply and lending data and the final release of the Q4 GDP data. We don’t expect a big impact from the data on sterling. There will be a lot of analysis/noise on Brexit as the UK will leave the EU in exactly one year from now. We expected EUR/GBP to hold north of the key 0.8652 support.
News Headlines
Via an editorial in the official China Daily Newspaper China warned the US that it can target a broad range of U.S. economic sectors including agriculture, aircraft, autos , semiconductors and services if the trade dispute between both countries would run out of control.
Japan retail sales rose 0.4% M/M and 1.6% Y/Y in February. The figure was slightly below the market consensus, which expected growth of 1.7%. A rise in consumer spending supported by higher wage growth remains a key factor for the Bank of Japan to reach its 2.0% inflation target over time.
Today, the eco calendar contains several interesting data releases including a first estimate German March CPI inflation. In the US, the February personal income and spending data will be published. Markets will keep a close eye at the price deflators of this report. The US calendar also contains the initial jobless claims and the Chicago PMI and Fed’s Harker speaks on the economic outlook. In the UK, the Money supply and lending data, the Q4 current account and the final revision of the Q4 GDP will be published.
