Markets
Today, German and US yields drifted further south despite encouraging service sector confidence data in EMU and the US yesterday. We consider the moves as mainly technical in nature. Bond investors are awaiting guidance from the ECB policy decision tomorrow. The OECD downgraded its growth forecasts for the world economy and for Europe in particular. The downgrade shouldn’t have been a surprise for markets anymore. Still, the headlines were in line with today’s bond-friendly atmosphere. Early in afternoon trading, (European) bond markets were spooked by headlines from sources who were said to have knowledge of the internal debate within the ECB. The sources reportedly said that the scale of the ECB 2019 growth outlook downgrade would be big enough to justify a new program of bank loans (TLTRO’s). However, the design of the new program is said to be still subject to debate. The report caused some shivers in the bond market, but in the end changes were limited. A new loan program is apparently already expected by markets. The ECB’s guidance on interest rates is probably more important for (European) yields. In this respect, the ECB is rumoured to maintain a scenario of the economy returning to trend growth by the end of this year. The German yields declined between 0.8 bp (2-y) and 2.4 bp (10-y). Changes in the US Treasury curve are currently less than 1bp.
The EUR/USD decline/correction from earlier this week slowed today. The OECD downgrading its growth forecast for EMU was apparently already discounted in euro pricing. EUR/USD settled near the 1.13 big figure. The US ADP labour market report was close to expectations and had little impact on the dollar. Headlines from sources on the ECB forecasts and on the internal debate on a new bank loan program (cf supra) pushed EUR/USD temporary below the 1.13 level. As was the case for interest rates, the move was limited and short-lived. EUR/USD is again trading in the 1.13 area. More or less at the same time of the ECB headlines, the US trade deficit for 2018 was reported at the widest level in 10-year. This was maybe a slightly USD negative. USD/JPY is trading in the 111.80 area.
In line with price moves in several other major currencies, sterling trading was some kind of erratic in nature. There were no UK eco data today. Sterling traders were watching headlines from EU-UK Brexit negotiations in Brussels. The EU said the talks were difficult. UK officials labelled them as ‘robust’. However, this time FX markets didn’t feel the need to adapt sterling positioning in a profound way. EUR/GBP hovered in a sideways range near the 0.86 level. Cable (1.3140 area) also shows no clear directional trend.
News Headlines
The OECD downgraded its growth forecast for the world economy to 3.3% in 2019 and 3.4% in 2020. It predicted growth of 3.5% for both years in November. High policy uncertainty, ongoing trade tensions and a further erosion of business and consumer confidence are said to be responsible for the slowdown. Especially Europe is seen vulnerable to policy uncertainty.
ADP reported 183 000 private job growth in February. The figure was in line with market expectations. January job growth was upwardly revised to 300 000 (from 213 000), bringing the figure in line with last month’s BLS payrolls release. The US trade deficit widened sharply in December as imports exceeded exports by $59.8 bn ($ 50.3 bn in November). For the whole of 2018, the US trade deficit surged to $ 621 bn, the widest deficit since 2008.
Today, both the Polish Central Bank and the Central Bank of Canada as expected left their policy rates unchanged at respectively 1.50% and 1.75%.
