Headlines
European equity markets hold on to their positive momentum and gain up to 1%. US stock markets opened slightly higher as well with Nasdaq outperforming.
Manuel Valls, the former Socialist prime minister of France, will fight next month’s National Assembly elections under the banner of Emmanuel Macron’s centrist En Marche, as he declared his Socialist party "dead and gone".
US NFIB Small Business Optimism declined from 104.7 to 104.5 in April while consensus expected a bigger drop to 104. The indicator remains near multi-year highs.
South Korean voters were poised to elect Moon Jae-in as the country’s next leader ending nine years of conservative rule and bringing to power a forceful advocate for closer ties with North Korea. The 64-yr-old former student activist, human rights lawyer, lawmaker and presidential aide thinks that South Korea needs to learn to say "no" to the US.
British PM May pledged to cap household energy prices if she is re-elected on June 8, which would be the biggest market intervention since the sector was privatised almost 30 years ago.
Rates
Outperformance Greek bonds continues
Global core bonds experienced an uneventful session. Recent trends continued with the Bund and US Note future under slight downward pressure. Investors already have key ECB and Fed meetings in June in mind, which might surprise in a hawkish manner. The eco calendar was empty apart from NFIB small business optimism which stabilised at a very high level. Stock markets gained ground while Brent crude remains stuck below $50/barrel.
At the time of writing, the German yield curve steepens with yield changes ranging between -0.3 bps (2-yr) and +3.7 bps (30-yr). Changes on the US yield curve range between +1.1 bp (30-yr) and +1.5 bps (5-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany widened up to 2 bps with Austria (-1 bp; good auction) and Greece (-4 bps) outperforming. Greek bonds perform very well since last week’s agreement between Greece and international creditors on additional structural reforms. It should pave the way for a new aid payment, debt relief talk and inclusion in the ECB’s APP programme. Greek PM Tsipras said today that Greece is "closer than ever" to reaching a deal with its international lenders that will help ease its debt mountain. He added that negotiations on debt relief were ongoing and were expected to continue until the May 22 Eurogroup.
The Dutch debt agency tapped the on the run 5-yr DSL (€2.2B 0% Jan2022). The amount sold was in the lower end of the €2-3B target range, but that’s often the case at Dutch auctions. The Austrian treasury auctioned the on the run 10-yr RAGB (€0.575B 0.5% Apr2027) and 30-yr RAGB (€0.425B1.5% Feb2047). The combined amount sold was the maximum targeted. The auction bid cover was good (2.06). The treasury set an additional 10% of each allotted volume aside for secondary market operations. The US Treasury starts its mid-month refinancing operation tonight with a $24B 3-yr Note auction. Currently, the WI trades around 1.56%.
Currencies
From euro correction to USD rebound
The risk rally resumed today after yesterday’s pause. There were few eco data which hardly impacted trading. The safe haven currencies like the yen and the Swiss franc were sold. Contrary to what was the case of late, the dollar profited more from the risk-on sentiment and from the rise in core yields than the euro. USD/JPY revisits the 114 area. EUR/USD is drifting below 1.09. Apparently there was still some unwinding of excessive euro longs to do.
Overnight, Asian equity markets traded narrowly mixed in the absence of new eco info. EUR/USD stabilized in the 1.0930 area. USD/JPY maintained yesterday’s gains and traded in the 113.30 area. The Aussie dollar was hurt by disappointing retail sales, pushing AUD/USD back sought to the 0.7355 area.
Yesterday’s post-Macron profit taking on the European equity markets was short-lived. Good corporate results, solid EMU eco data (including a further rise of the German trade surplus) and the absence of high profile event risk were all good reasons for European equities to resume their uptrend. The risk-on trade weighed on safe havens like the Swiss franc (EUR/CHF 1.0940 area) and the yen (EUR/JPY> 124). Contrary to what was the case last week, the dollar this time profited more from the risk rally and from the rise in core yields than the euro. Interest rate differentials between the US and Germany didn’t change much. If anything, they widened slightly in favour of the dollar. (2-y differential again at 200bps+ level). The market was still a bit too much long euro as investors raised euro long positions after the first round of the French presidential election, betting on a change in the ECB-policy guidance. There were also few data in the US. The NFIB small business confidence declined less than expected to 104.5. This remains a very high level in a historical perspective and suggests that the US recovery remains broad-based. The report is no market mover, but it also didn’t hamper the case for further USD gains. EUR/USD trades currently in the 1.0885 area. USD/JPY is gaining further momentum an tries to regain the 114 big figure.
Global trends dominate sterling trading
Sterling trading was still driven by external factors rather than by UK specific issues. The Brexit quarrelling between the EU and the UK has eased a bit. This might be a slight help for sterling. EUR/GBP drifted cautiously lower in the 0.84 big figure, feeling a modest spill-over effect from the broader EUR/USD correction. The pair trades currently in the 0.8425 area. At the same time, cable is losing modest ground on the overall comeback of the dollar. However, at GBP/USD, 1.2920 sterling is holding strong. The recent top (1.2989) is still not that far away.
