Markets
Global core bonds edged cautiously higher in a day characterized by thin volumes and a fading risk-sentiment. US markets were closed in remembrance of Martin Luther King. So the focus was on Europe. With an empty economic calendar, investors stayed on the sidelines. Only the IMF World Economic Outlook was scheduled to be released today. The IMF cut its forecast for the world economy to 3.5% for this year, the weakest pace in three years. Next to that, investors await the Eurozone PMI’s and central bank meetings (ECB, BOJ, Norges Bank) later this week. The ECB’s reinvestment policy and forward guidance on interest rates will remain unaltered. We only expect a muted market reaction as the bank is expected to refrain from downgrading its economic risks outlook. Any hints on new TLTRO’s is not expected but could be a wildcard and support market sentiment. The German Bund edged little higher today, but is currently (partly) pairing its intraday gains. The German yield curve is marginally edging lower with changes varying between -0.2 bps (2-yr) to -0.7 bps (5-yr). Spain has mandated the syndication of a new 10-yr Euro benchmark bond as investors showed strong appetite for peripheral euro-area debt last week at the Italian 15-yr bond syndication. The transaction will most likely be launched tomorrow.
USD trading developed in thin market conditions today as US markets were closed. A constructive risk sentiment overnight in Asia initially suggested a cautious bid for EUR/USD. However, a return toward 1.14 proved impossible. European equities failed to continue last week’s rebound. EUR/USD gradually developed an intraday sell-on upticks pattern. The IMF in particular reducing the EMU/German 2019 growth forecasts didn’t help the single currency. Investors are also keen to see the ECB’s assessment at Thursday’s policy meeting. EUR/USD is trading in the 1.1365 area. Last Friday’s low is within reach. A break would bring the 1.1309 support again on the radar. Recent rise in US interest rates also gives the dollar again better downside protection. USD/JPY drifted sideways, currently trading in the 109.65 area.
There was plenty of activity to make progress on Brexit today, both in London and in Brussels. However, on both sides of the British Channel there were few signs that a consensus was in the making. UK PM May is said to try to get better conditions on the Irish backstop from Brussels, but the EU 27 are highly divided on the conditions the justify a delay and on how long such a delay should last. This afternoon’s meeting in the UK Parliament on PM May’s next steps on Brexit probably won’t bring much clarity. Sterling fell prey to profit taking on Friday and stabilized today. EUR/GBP hovers in the low-to-mid 0.88 area. Cable (1.287 area) is also trading well below last week’s peak at 1.30.
News Headlines
The IMF cut forecasts for global growth in 2019 to the weakest pace in three years. It now predicts growth of 3.5%, down from 3.7% in October last year. With growth forecasts unchanged for the US (2.5%) and China (6.2%), the downgrade is to a large extent the result of weaker than initially thought EMU growth. The bloc saw growth forecasts cut from 1.9% to 1.6% as projections for Germany (1.3% vs. 1.9% previous), Italy and France were trimmed.
Kamala Harris, senator of California, announced she’s running for the Democratic presidential nomination 2020. Harris is California’s former attorney general, has Jamaican-Indian roots and would be the first black woman in the Oval Office.
A meeting of euro-area finance ministers today opens the call for candidates to succeed current ECB chief economist Peter Praet, who’s 8-year term ends in May. Ireland has already put forward its central bank governor Philip Lane as a candidate. Lane was nominated last year for the ECB vice presidency but withdrew from the race in support of de Guindos. The application round runs until the end of this month.
