Markets
Global core bonds lost ground today with US Treasuries underperforming German Bunds. Chinese equities lead the gains as positive signals emerged from the ongoing US-Sino trade talks in Beijing. Core bonds moved with a downward bias overnight, but recovered in the run-up to the EU opening bell. Economic data in the EMU was of secondary importance and had little impact on trading. Sentiment stayed positive throughout the day, pushing core bonds modestly downward. This afternoon, UK Parliament voted May’s Brexit deal down for a third time, pushing German Bunds back north. The German yield curve is steepening with changes in the range of -1.3 bps (2-yr) to +1.4 bps (30-yr). US Treasuries moved steadily today with a downward bias as well. The US PCE Core (Jan) and Chicago PMI (Mar) printed slightly below expectations, while new home sales (Feb) exceeded expectations by a landslide. However, both had only a limited impact on trading. Investors are in wait-and-see modus just before the weekend as next week’s data (retail sales, ISM surveys, ADP employment and payrolls) will give more guidance on the growth concerns that currently grasp markets. The US yield curve is bear flattening with changes up to +4.2 bps (2-yr). Peripheral spreads over the German 10-yr yield are stable with Greece (-6 bps) and Portugal (-4 bps) outperforming.
The gradual EUR/USD downtrend from earlier this week initially continued. EUR/USD filled bids in the 1.1210/15 area during the morning session. EMU data were again mixed (solid German retail sales and labour data, disappointing French data). Over the previous days, there was often USD buying interest at the start of the US trading session but that wasn’t the case today. US income and spending data and the PCE deflator were softer than expected. The data are a bid outdated, but it was enough to block further USD gains. At the same time, the dollar still enjoyed additional interest rate support. The Chicago PMI printed slightly softer than expected at 58.7 (down from 64.7). However, the figure didn’t impress investors enough to cause outright USD losses. US new home sales were even substantially stronger than expected, putting a solid floor for the US currency. EUR/USD is trading near 1.1230. USD/JPY hovers in the 110.80 area. Next week’s key US eco data incl. ISM’s and the payrolls might be the next milestones for USD trading.
Sterling trading was still haunted by Brexit headlines. Early in the session, the UK currency was in the defensive as PM May said she wants to put only the Withdrawal agreement for a third vote in Parliament. UK eco data were mixed. The current account deficit printed again wider than expected (£23.7 b in Q4), but was largely ignored as a factor for sterling trading. During the day sterling regained slightly ground, probably on headlines that some high profile Brexiters would be prepared to support May’s deal. However, today’s vote resulted in another defeat for May by 344 to 286. The UK now has until April 12 to decide what to do next: ask the EU for a long extension or leave without a deal. Sterling reversed earlier gains amidst all of the uncertainty and trades back at EUR/GBP 0.864 currently.
News Headlines
The nationalist Finns Party became Finland’s third most popular party, overtaking PM Sipila’s Centre Party ahead of the early April 14 general elections, a recent polling showed. The government fell on March 8 over a healthcare reform. But with potentially inconclusive election results and Finland’s largest parties already having ruled out to work with the Finns party, a political deadlock looms.
Canadian GDP grew 0.3% MoM (1.6% YoY) in January, beating a meagre 0.1% MoM market consensus and snapping a two month period of economic contraction. Growth was broad-based with particular strength in the construction and manufacturing sectors. The loonie rallied into the mid USD/CAD 1.33/34 area.
