Markets
Global core bonds edge higher today with German Bunds outperforming US Treasuries. News of the weekend was a WSJ message saying that the US and China were close to entering the final stages of the trade negotiations, lifting sentiment across Asia. The uptick in sentiment caused EU equities to open higher but surprisingly didn’t pull core bonds down. The German Bund initially stabilized overnight after last week’s sell-off and rebounded at EU opening. With an empty event calendar, there was nothing to trigger a reversal of direction. German Bunds moved higher through the day, causing the German yield curve to edge lower. Changes mount up to -1.9 bps (10-yr). US Treasuries cautiously moved higher during EU trading and didn’t change course when US investors joined the debates. Similar to the EU, there was only risk sentiment to guide trading. The US yield curve is flattening with changes in the range of -1.1 bp (30-yr) to +0.1 bp (2-yr). Greece mandated banks to syndicate a new 10-yr bond in the near future, likely tomorrow. Greek 10-yr bonds moved lower on the news. Peripheral spread over the German 10-yr yield remain stable, with only the Greek (+5 bps) and Italian (+3 bps) spreads widening.
USD trading showed a diffuse picture today as there were few important data. In the end, the trade-weighted dollar gained a few ticks. USD/JPY held a tight sideways range close to, mostly slightly below the 112 big figure. So, the yen hardly declined on the constructive headlines regarding the US-China trade talks this weekend. EUR/USD also lost quite some ground in the 1.13 big figure. Again, we didn’t see any high profile/concrete news. Markets at least were not impressed by comments from US president Trump as he wants the Fed to be cautious on interest rate hikes and not to pursue a strong dollar. Last week’s extensive, but rejected test of the 1.14 area apparently caused some short-term players to turn more cautious on EUR/USD longs. Maybe investors are also cautious on the euro in the run-up to the ECB meeting as Draghi and Co are expected to reduce growth forecasts further. In this context, we don’t expect the ECB to explicitly change its guidance on interest rates. EUR/USD is currently trading near 1.1330.
Trading in sterling was mostly technical in nature. Cable dropped from the mid 1.32 area to (temporary?) trade below 1.32. However, at least part of this move was due to an intraday rebound of the dollar. EUR/GBP hovered up and down in the upper part of the 0.85 big figure. An overall soft euro pushed EUR/GBP to the 0.8560 area, but the pair rebounded later. The UK construction PMI was of second tier importance for sterling trading, but the index dropping into contraction territory (49.5 from 50.6) didn’t help sterling. High level talks to reach an ‘amended’ Brexit deal between the UK and the EU will continue this week as the 12 March deadline looms. For now there is no concrete news to trigger a directional move of sterling. PM May’s roadmap as set out last week is still in place.
News Headlines
Sources suggest that Chinese PM Li Kequiang will announced a 3 percentage points reduction of the highest VAT rate for the manufacturing sector at tomorrow’s annual report on economic policy. The fiscal stimulus measure is forecast to deliver a 0.6% of GDP push in the economy’s back.
OPEC sources said they would delay a decision on their output policy from April to June as they want a better picture of the impact of their supply cuts. An extension is the most likely scenario at this stage. Brent crude rose back above $66/barrel.
