Headlines
European equities trade little changed and mixed after a better opening. US equities open with small losses of about 0.15%.
The UK unemployment rate stabilised in the 3 months to February at 4.7%, the lowest level since 2005. Average weekly earnings rose by 2.3% Y/Y (vs 2.2% Y/Y expected). Employment growth was less than forecast though (+39k vs +70k) while jobless claims rose by 25.5k. Sterling hardly reacted to the mixed report.
Opec’s oil output fell in March to sit below the level where the cartel estimates demand for its crude this year, as attempts to tighten the market were bolstered by supply disruptions in member countries. Brent crude rose further today, north of $56.5/barrel.
Christine Lagarde, the IMF’s managing director, said that eurozone creditors must provide considerably more detail on debt relief for Greece before the fund will take a decision to join the country’s bailout programme.
US Secretary of State Tillerson and Russian Foreign Minister Lavrov met in Moscow, amid a confrontation between the Trump administration and Russia over recent US strikes on Syria and the fate of Syrian President al-Assad. In remarks before a closed-door session, Mr. Lavrov appeared to warn Washington not to strike Syria again.
Chinese President Xi Jinping called for a peaceful resolution of rising tension on the Korean peninsula in a telephone conversation with US President Trump, as a US aircraft carrier strike group steamed towards the region.
Rates
Geopolitical tensions ease
Global core bonds traded in a narrow sideways range today amid an empty eco calendar. The geopolitical storm following hostile US comments against Syria and North Korea eased. Equity markets (lower) and oil prices sent a diffuse picture for core bonds. Markets seem to be gearing up for US retail sales and inflation data on Friday. In yield terms, both the German (0.2%) and US 10-yr yield (2.3%) hover close to/slightly below key support levels. At the time of writing, the changes on both the US and German yield curve range between -1 bp and +1 bp. On intra-EMU bond markets, 10-yr yield spread changes versus Germany narrow up to 4 bps with Greece outperforming (-7 bps).
The German Finanzagentur held a €3B 10-yr Bund auction (0.25% Feb2027). Total bids amounted to €3.45B, below the €4.89B average at the previous 4 Bund auctions. The Bundesbank retained €0.57B of the amount on offer for secondary market operations, resulting in an official bid cover of 1.4 (real bid cover 1.2). The auction had no tail and the yield nearly halved (0.21%) compared to last month’s auction. The Italian Treasury launched a new 3-yr BTP (€4.5B 0.35% Jun2020) and tapped two on the run BTP’s (€2.5B 1.85% May2024 & €2B 2.25% Sep2036) and one off the run BTP (€1B 3.5% Mar2030). The total amount sold was the maximum of the high €8-10B target with an auction bid cover (1.32)-in line with Italian average. The Irish debt agency sold the on the run 10-yr IGB (€0.7B 1% May2026) and off the run IGB (€0.55B 3.9% Mar2023) for a combined €1.25B, the higher end of the €1-1.25B target. With the completion of today’s auction, the NTMA has issued €7.75B from its stated target range of €9-13B in the bond markets this year. The US Treasury concludes its refinancing tonight with a $12B 30-yr Bond auction. Currently, the WI trades around 2.93%..
Currencies
Dollar stabilizes after disappointing session yesterday
The dollar steadied today as geopolitical tensions moved to the background. There was no economic nor other key headline news that could give the main currency crosses firm direction. So EUR/USD and USD/JPY are currently very close to yesterday’s closing levels.
After an uneventful Asian session, EUR/USD tried again to move higher from 1.0610, but the sluggish move ran already into resistance around 1.0625, after which euro selling occurred, pushing the pair to the 1.0605 opening level. It stayed around this level going into the close of our report. Both US and German yields are nearly flat on the day, implying that rate differentials barely changed. European equities eked out small gains, while US equity futures show marginal losses. We think that the upcoming Easter holiday keep investors side-lined. Combined with no strong movers, it leaves EUR/USD paralyzed close to 1.06. Investors are unwilling to reverse last week’s dollar gains, but have no appetite either to test the key 1.05 level.
The yen gained substantial ground yesterday on a rise of geopolitical tensions. It pushed USD/JPY through the key 110 level. Risk sentiment turned neutral in the European session. USD/JPY set a new ST low at 1.0935 in Asian trading, but the yen returned its gains. However, also USD/JPY had no appetite to test the broken 110 level. USD/JPY set an intraday high at 1.0976, barely above the 109.62 close yesterday. In the US session, there is a slight negative trading bias, but the pair changes hands at 109.55 at the time of writing, virtually unchanged on the day.
Sterling holds on to yesterday’s gains
Similar to our two main crosses, sterling trading was absolutely boring. Traders awaited the labour report, but it was mixed and thus neutral for sterling. As EUR/USD hovered lackluster throughout the session, sterling couldn’t get direction from it. The market reacted for a second to the labour market report. Earnings were a tad higher than expected, but it were offset by weaker employment and higher than expected jobless claims. So the initial dip lower in EUR/GBP and the spike higher in cable were immediately undone. Cable traded between 1.2480 and 1.2510 and changes currently hands at 1.2493, virtually unchanged on the day. EUR/GBP trades currently at 0.8490, exactly yesterday’s close.
