Markets
Global core bonds edged lower today with US Treasuries underperforming German Bunds. Risk sentiment turned positive as hope on progress at the high-levels trade talks between the US and China got lifted overnight. China is said to send three vice ministers to Washington on Monday to lay the groundwork for the high-level trade talks starting next Wednesday. Fourth quarter corporate results are printing marginally above expectations, too. European equities trade higher today, weighing core bonds down. Disappointing German Ifo Business expectations in January and the more dovish ECB stance hold the German Bund in a more sideways pattern. The German yield curve moved higher with changes in the range of +0.3 bps (30-yr) to +1.6 bps (5-yr). The US presented a virginal white eco calendar today as the responsible government agencies remained closed in the light of the ongoing government shutdown. Given the uptick in risk sentiment, US Treasuries edged steadily down throughout the day. Investors are also starting to eye the Federal Reserve meeting of next week and maybe more importantly the high-level US-Sino trade talks. Risk sentiment holds steady as US investors join trading, pushing US equities higher after opening. The US yield curve shifts higher with changes in the range of +1.7 bps (2-yr) to +2.1 bps (10-yr). Peripheral spreads over the German 10-yr yield ease marginally today with Greece outperforming (-7 bps) as political tensions ease on the Macedonia name agreement.
Earlier this week, EUR/USD drifted south in the 1.12/1.15 trading range, mostly driven by negative headline news on the EMU economy. At the same time, the dollar also traded with a cautiously positive bias even as the US currency received only limited interest rate support. Today, at least the euro decline halted. German IFO sentiment was again weaker than expected, but this was no surprise anymore for EUR/USD traders. Initially, the euro didn’t react. Later in the session EUR/JPY, USD/JPY and EUR/USD all turned gradually north in a standard risk-on move. EUR/USD trades currently in the 1.1365 area. So, despite plenty of negative EMU headline news, the 1.1270 support area survived quite easily. USD/JPY tried to near the 110 barrier but a real re-test didn’t occur yet.
EUR/GBP tested the key 0.8620 support area overnight. Sterling was still propelled by investors’ hope that chances of a no-deal Brexit have substantially decreased. This morning, sterling also profited from press headlines that a new Brexit proposal of UK PM May might get the support of the DUP party if it included a time limit on the Irish backstop. However, during the European trading hours, sterling returned part of its most recent gains. Amongst others, comments from EU/Irish policy makers indicated that there were still plenty of obstacles on the way to a comprehensive agreement with all parties involved. CBI retail data were rather close to expectations and didn’t support any further sterling gains. EUR/GBP trades currently in the 0.8675 area. Cable hovers near the 1.31 level. So, despite today’s slowdown, sterling still closed the week with quite an impressive gain.
News Headlines
Swedish retail sales disappointed in December. Sales declined by -1.4% MoM (-1.1% YoY) vs. a 0.1% (1.2%) rise expected. With November data revised upwardly, one could suspect a so called “Black Friday” effect similar to poor UK data released earlier this month. A slowing December PPI published simultaneously sent the Swedish krona lower to EUR/SEK 10.30.
Participants to the ECB’s 2019Q1 Survey of Professional Forecasters lowered growth forecasts to 1.5% for 2019 (1.8% previously) and 1.5% for 2020 (1.6%). Inflation is expected at 1.5% in 2019 (down from 1.7%) and 1.6% in 2020 (1.7%). The first 2021 forecasts show 1.4% growth with inflation at 1.7%. Slipping expectations for longer term inflation (2023) from 1.9% to 1.8% might suggest waning confidence in the ECB’s abilities.
