Headlines
European stock markets opened up to 0.5% lower, but traded in a narrow sideways range afterwards. US stock markets opened marginally lower.
Fewer Americans than forecast filed for unemployment benefits last week (234k vs 245k expected), with applications hovering just above a four-decade low.
US producer prices clocked their first monthly decline since August last month. US producer prices inched lower by 0.1% m/m in March from +0.3% in February. Headline PPI was up 2.3% from a year ago. Excluding more volatile items like food and energy however, producer prices unchanged from the previous month and up 1.6% from a year ago.
Military force cannot resolve tension over North Korea, China said, while an influential Chinese newspaper urged the North to halt its nuclear programme in exchange for Chinese protection.
Global demand for oil is finally close to outstripping supply after nearly three years of surplus production, despite growth in the overhang of unused crude, the IEA said. The agency said oil stocks across the OECD fell by 17.2 million barrels in March.
JP Morgan Chase said its Q1 profit rose 17% as a boost from trading helped results for the nation’s biggest bank by assets. Well Fargo said its Q1 profit was flat as the nation’s third-largest bank remains stuck in the spotlight for its sales practices scandal than six months later. Citi reported a better-than-expected 17% jump in quarterly profit, boosted by strong fixed-income trading.
The Czech National Bank wanted to take advantage of the "overboughtness" of the koruna to lift its longstanding currency cap earlier than expected, minutes from last week’s extraordinary policy meeting reveal. CNB members agreed that a weak crown policy had proved effective and a return to it was "highly unlikely".
Rates
No follow-though action on Trump’s comments
Global core bonds traded sideways today near the high’s reached in the wake of US president Trump’s comments in a WSJ interview. He said that he would prefer the Fed to keep interest rates low, suggesting he will appoint dovish profiles for the vacant FOMC board seats. Trump also thinks that the dollar is getting too strong. The US 5-yr yield (1.8%), US 10-yr yield (2.3%) and German 10-yr yield (0.2%) all fell below key support levels, but the decline didn’t accelerate today. After all, the Fed remains an independent institute which will continue its tightening cycle if growth and inflation develop as expected. There was no immediate return action either though as investor’s don’t want to be wrong-footed during the long Easter weekend. Especially taking into account everything what happened earlier this week. Trump’s comments were the third event this week that took markets by surprise and out of their comfort zone, following extreme-left French presidential candidate Mélenchon’s rise in the polls and hostile US comments against Syria/North Korea earlier this week. The eco calendar only contained lower weekly jobless claims and lower US PPI data, but didn’t influence trading.
At the time of writing, the German yield curve shifts 1.7 bps (5-yr) to 2.5 bps (30-yr) lower. Changes on the US yield curve range between +0.3 bps (5-yr) and +0.8 bps (2-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany vary between +2 bps and -2 bps..
Currencies
Dollar already finds its composure
Trump’s attempt to talk the dollar down triggered a one off selling wave yesterday eve, but caused no follow through action today. He said: "I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting—that will hurt ultimately". It looks like markets aren’t convinced that Trump can simply talk the dollar down. His progrowth policy, in a context of full employment, not only pushes growth but also inflation higher, obliging the Federal Reserve to increase interest rates. So his talk contradicts the fundamentals.
USD/JPY stabilizes
During Asian trading, USD/JPY was still under some downward pressure as Asian investors reacted on Trump and also as the short term trend is yen positive. Some risk aversion sentiment prevails. So for the yen, Trump’s comments went with the trend. However, USD/JPY’s fall from 109 at the opening ran out of steam around 108.73 and losses were recouped during the European session when the pair hovered between 108.90 and 109.30. European stocks fell at the opening, but very rapidly started to trade sideways at modestly lower levels, suggesting that geopolitical tensions eased. A similar sign came from the Korean won that stabilized. USD/JPY currently changes hands at 109.15, slightly up from opening levels.
EUR/USD lower as dollar decline considered overdone
The EUR/USD price action differed from USD/JPY. It rose yesterday eve from 1.06 to about 1.0670. After a sideways move in Asian trading, the dollar started to recoup the losses. EUR/USD fell in a stretched move to about 1.0620, largely erasing yesterday’s gains. Geopolitical risks play less of a role and the rate differential didn’t change much. Sentiment on the euro is negative, due to the upcoming French elections. So, investors considered the post-Trump rally as an opportunity to buy into the dollar or at least considered yesterday’s move as unwarranted. The early US data were mixed with lower than expected PPI and lower than expected initial claims.
EUR/GBP retests 0.8484 support
In a session devoid of euro area and UK eco data or other event news, general euro weakness prevailed. EUR/GBP slid slowly lower from a 0.8505 opening to the 0.8484 support, with a new ST low at 0.8475. However, the test of the support isn’t over yet. Cable lost some ground after being stronger in Asian overnight trading. When EUR/USD started to slide lower, cable followed and looks ready to test the 1.25 level, which compared to the 1.2540 opening. There was no specific sterling story behind the intraday price action.
