Markets
Global core bonds lost ground today as risk sentiment remains slightly upbeat in a low-volume trading session. Asian equities rallied this morning to their highest level since October on positive signals from the US-Sino trade talks and optimism on China’s economy. With a completely empty economic calendar in the EMU and US markets closed (Presidents Day), market action was set to remain limited. ECB governor Villeroy hinted that the ECB could change its interest-rates guidance if it becomes clear that the economic slowdown isn’t temporary. He thereby confirms the ECB’s dovish comments of late after ECB’s Coeuré hinted on Friday on a new round of TLTRO’s. European equities drifted sideways, while core bonds opened with a downward tendency. Investors remain cautious too on US President Trump receiving the results of the Dept. of Commerce’s investigation as to whether automobile imports represent a security risk to the US. This could lead to the US imposing tariffs. Meanwhile, France announced a new 30-year bond syndication, causing a downtick in the Bund. The German yield curve steepened with changes in the range of -0.8 bps (2-yr) to +2.1 bps (30-yr). Peripheral spreads are tightening with Greece (-6 bps), Portugal (-6 bps) and Italy (-3 bps) outperforming.
EUR/USD rebounded on Friday off a short-term correction low in the 1.1235 area as US production data created doubts on the resilience of the US economy. The ECB signaling a potential prolongation of TLTRO’s supported buying of EMU assets and was a short-term euro positive. Today, EUR/USD extended Friday’s rebound. There were no EMU eco data and US markets were closed in observance of Presidents Day. In technical trading, EUR/USD settled in the low 1.13 area (currently around 1.1325). Last week’s mixed/soft US eco data are currently still preventing USD/JPY to profit from a constructive risk sentiment. The pair trades in the mid 110 area.
EUR/GBP trading was confined to a tight range in the mid 0.87 area. There was a lot of debate n the UK political scene as seven labour MP’s leaving the labour party to form an independent group, challenging Labour leader Jeremy Corbyn’s strategy on Brexit and on other issues. The reaction of sterling was close to non-existent as the move is not seen as potentially leading to an alternative Brexit scenario. EUR/GBP is trading in the 0.87658 area . Cable is changing hands north of the 1.29 handle, mirroring modest USD softness.
News Headlines
Seven UK politicians left the Labour opposition party to form their own “Independent Group” party. The split has long been rumored and is said by some of its members to be the result of Labour leader Corbyn’s failure to make a fist against May’s brexit policy. Others have left, accusing the party of anti-Semitism. Britain’s new movement calls on politicians across party borders to join their ranks, with some Conservatives rumoured to do so.
Bulgaria’s ruling party GERB has dropped plans to alter the election code on Monday after the main opposition (Socialist Party, BSP) left Parliament. BSP, which hold about 33% of the Parliamentary seats, said fair elections could not be guaranteed if the revisions were passed. Bulgaria is holding local elections in October 2019.
Ukraine’s foreign minister Klimkin asked the EU for more funds to finance infrastructure and local businesses in the east and south of the country. The regions need a reshuffle of the economic model, Klimkin says, adding Russian attempts to destabilize the area would be “very detrimental for European security”.
