Markets:
Global core bonds remain within yesterday’s trading ranges for now, but the US Note future is at risk of losing more ground as the contract slides lower entering US trading. A slightly bigger than expected setback of the German Ifo business sentiment featured on the European calendar, but didn’t cause a directional move. Stock and commodity markets provided no impetus either. Investor focus returned to the psychological 3% barrier in the US 10-yr yield as US investors entered dealings. Key resistance stands at 3.05%/3.07%. US equity futures profit from strong Caterpillar earnings/outlook with industrials leading the way higher. US Treasuries underperform German Bunds. The start of the upcoming US supply operation was negative as well. The US yield curve shows a simultaneous 1.5 bps shift higher at the time of writing. Changes on the German yield curve are limited to +0.5 bps. 10-yr yield spread changes versus Germany are unchanged with Greece outperforming (-4 bps).
The dollar maintained its recent gains. USD/JPY outperforms other major USD cross rates with the pair briefly trading north of the 109 big figure early in US dealings. The rally in other USD cross rates like EUR/USD, cable or USD/AUD slowed. In line with recent data evidence, several national European confidence indicators, including German IFO business confidence, came out on the softer side of expectations. EUR/USD dipped briefly below the 1.22 handle. However, the move had no strong legs. Recent trends in the major FX cross rates were USD driven, not euro driven. For now, there was no important enough US news to support further sustained USD gains. EUR/USD hovers currently in the low 1.2210/20 area. USD/JPY hovers around the 109 pivot.
Sterling developed an intraday trading pattern that was quite similar to yesterday. Last week, sterling came under pressure as BoE governor Carney indicated that the next BoE rate hike could come later than next month. The subsequent correction of sterling petered out on Friday and yesterday. This consolidation pattern continued today. EUR/GBP hovered around the 0.8750 pivot. UK eco data were mixed. The UK March budget data were better than expected and so was the deficit for the 2017/18 fiscal year. The CBI orders were close to expectations but the CBI business Optimism showed a substantial setback in April (from 13 to -4). EUR/GBP trades currently in the 0.8745 area. Cable hovers near 1.3960. So, sterling is trading off the recent lows despite ongoing noise on Brexit and despite reduced market expectations on a BoE rate hike.
News Headlines:
While still at lofty levels, business confidence in Germany, France and Italy deteriorated in April as a stronger currency and capacity constraints limited output in the euro zone’s biggest economies. The indicators point at a continuing momentum in the euro zone, but suggest economic growth probably reached its peak.
As expected, Hungary’s central bank left its main interest rate unchanged at a record low of 0.9%. Loose monetary conditions need to be maintained for an extended period to meet the inflation target, the Monetary Council said in an accompanying statement. It expects inflation to reach the 3% target by mid-2019 as upward pressure from wages on inflation has yet to materialize.
The uncertainty being generated by US trade tariffs is already hurting investment in the global economy and could do serious damage to world growth, ECB policymaker Francois Villeroy de Galhau said.
