Markets
Global core bonds gyrated around opening levels in today’s uneventful opening session to the trading week. Sparse economic data printed near consensus. The Bundesbank’s warning that it might take longer for growth to rebound hung in the balance with upwardly oriented stock and oil markets. Today’s main message is that investors are counting down to Wednesday’s Fed meeting, resulting in low volume action. We expect the Fed’s new dot plot to show one more rate hike this year and that’s it. The median FOMC estimate in December suggested 2 hikes this year followed by another one in 2020. Markets currently discount a rate cut in 2020. Fed chair Powell is expected to announce the end to the BS run-off by the end of the year. The German yield curve bear flattens slightly with yields rising by 1.3 bps (2-yr) to 0.1 bp (30-yr) higher. US yield add 0.3 bps to 0.7 bps across the curve. 10-yr yield spread changes vs Germany narrow by up to 6 bps. Italy and Portugal outperform after rating agency Moody’s decided not to downgrade the Italian Baa3 credit rating or outlook last Friday (after trading) while S&P lifted the Portuguese BBB- rating by one notch to BBB (stable outlook).
Economic data was only of secondary importance for trading today. Instead, most currency price actions were sentiment and technical driven. The euro was well bid, profiting from early risk on support following a strong Asian session. A weak(er) dollar in the run-up to Wednesday’s soft expected Fed meeting sent EUR/USD further north to an intraday high close to 1.136. The pair retreated during the first US trading hours, but holds on to most of today’s gains. EUR/USD is currently changing hands at 1.134, up from 1.1326. USD/JPY is trading virtually unchanged at 111.56 while EUR/JPY gains ground (126.55), highlighting today’s rather soft dollar.
Premier May pushed for support from the DUP and some rebel Tory members to her deal in a possible third ‘meaningful’ vote (tomorrow). Their backing is essential to May, who repeatedly said to first assess chances of winning before presenting her deal again. Tory hardliner and brexit ‘poster boy’ Rees-Mogg said today that he (and with him some other brexit Conservatives) would do so conditional on DUP’s support for the deal, rather than risk a stay in the EU. May’s attempt to convince her Northern Irish allies have yielded no concrete results so far but talks were labelled “constructive” and are ongoing. Investors took a cautious stance vs. the pound given the high amount of uncertainty and after the strong rally last week. EUR/GBP rebounded from the 0.85 short term resistance area back to 0.857. Cable kicked off today close to 1.33 but edges lower to 1.323 currently despite dollar weakness.
News Headlines
The US NAHB housing market index stabilized at 62, near consensus of a slight pick-up to 63. The NAHB chairman said that builders report the market is stabilizing following the slowdown at the end of 2018 and that they anticipate a solid spring home buying season.
The Bundesbank expects German economic growth to remain subdued in Q1, dragged down by weak industrial production, falling export car demand and deteriorating manufacturing sentiment. The German central bank thus gives up on the idea of a Q1 rebound. Construction and private consumption should support growth amid a strong labor market and rising disposable income.
The Belgian debt agency conducted its first regular bond auction of the year. It successfully tapped OLO 82 (€ 0.76bn 0.5% Oct2024), OLO 87 (€1.29bn0.9% Jun2029) and OLO 86 (€96bn 1.25% Apr2033). The combined amount sold was the maximum of the eyed €2.5-3bn. The auction bid cover amounted to 2.03. Belgium currently already raised 50% of this year’s total OLO funding need (€28bn).
