Markets:
Global core bonds are again losing ground with US Treasuries underperforming German Bunds. Recent selling pressure on core bonds sought confirmation today. Risk sentiment remained positive in Asia overnight and was supported by stronger than expected German retail sales. European equities opened higher, giving core bonds a downward bias at the start of the day. EMU eco data printed mixed and had little impact on trading. The German yield curve bear steepened with changes up to +2.7 bps (30-yr). US Treasuries moved similar to German Bunds and edged gradually lower throughout the day as US eco data didn’t surprise. The uptick in risk sentiment continued in the US, as equities opened confidently higher. The downward move of US Treasuries continued leading the US yield curve higher with changes up to +3.5 bps (5-yr). Italian BTP’s initially gained ground on a stronger than expected Manufacturing PMI result (47.7, vs. 47.2 expected), but paired those gains. Peripheral spreads over the German 10-yr yield remain close to unchanged with Italy (-2 bps) and Greece (-3 bps) outperforming.
Earlier this week the euro outperformed the dollar, but the balance between the two currencies was restored after a solid US GDP and strong Chicago PMI yesterday. This morning, markets didn’t get enough new info to tilt this balance to one side or another as EMU data were mixed (cf infra). This complex of data was wasn’t able to give EUR/USD trading a clear directional push. The US core PCE deflator for January was in line with expectations. An intraday dip attracted new buyers. In volatile trading, EUR/USD again traded in the 1.1385 area around the open of US equity markets, awaiting the publication of the US manufacturing ISM. A soft ISM might cause a new attempt of EUR/USD to regain the 1.14 mark. USD/JPY extended recent uptrend supported by a further rise in US (& EMU) yields, but the move slowed after the US ISM result.
Sterling fell prey to profit taking yesterday. A series of high profile political/Brexit event (risks) had passed without derailing UK PM May’s roadmap. However, at the same time, markets apparently concluded that the diminishing risk of a ‘no-deal Brexit’ was sufficiently discounted. A countermove on recent sterling rally started. EUR/GBP rebounded back higher in the 0.85 big figure. This GBP-profit taking move continued today. UK eco data were mixed. Consumer credit remained remarkably strong. The UK manufacturing PMI slowed from 52.6 to 52.0 (as expected) confirming a cautious attitude with UK corporates in the sector as Brexit uncertainty lingers. EUR/GBP initially drifted sideways in the 0.8575 area, but renewed sterling selling finally pushed EUR/GBP temporary back up to the 0.86 area in volatile trading. In a weekly perspective, sterling still shows a solid gain both against the euro and the dollar. Cable is currently again trading in the lower half of the 1.32 big figure.
News Headlines:
Canadian GDP growth unexpectedly grinded to a halt in the final quarter of last year. GDP grew by 0.4% Q/Qa, below 1% Q/Qa forecasts. Consumption slowed further to 0.7%, the weakest since 2015 with investments dropping sharply (-10.3% following a -6.7% decline in Q3). The Canadian loonie lost ground after the release with USD/CAD rising 1 big figure returning north of the 1.32 mark.
EMU eco data printed mixed to stronger today. Volatile German retail sales rose by 3.3% M/M in January following an upwardly revised -3.1% M/M in December. The final EMU manufacturing PMI was marginally upwardly revised to 49.3, but remains below the boom/bust mark. The EMU unemployment rate stabilized at a cycle low of 7.8%. Headline inflation ticked up to 1.5% Y/Y, but the core measure remains stubbornly low at 1% Y/Y.
The US manufacturing ISM fell more than forecast in February, from 56.6 to 54.2, a 2-year low, (vs 55.8 expected). Details disappointed as well, with new orders, production, supplier deliveries and employment falling. An index of prices paid fell to a 3-yr low of 49.4.
