Markets
Global core bonds gained ground today as the risk rally of recent days loses momentum. US eco data (ADP employment and non-manufacturing) missed expectations yesterday, putting a halt to recent declines in core bonds. German Bunds opened neutral but moved higher after German factory orders declined 4.2% in February, well below expectations. Later, the Italian Treasury is said to slash the Italian growth forecast for this year from 1% to 0.1% in its budget draft, pushing the budget deficit up to 2.3/2.4% compared to the 2.04% agreed to with the EU commission last year. Bunds continued to rise. The German yield curve is edging lower with changes in the range of -0.2 bps (2-yr) to -2.9 bps (30-yr). US Treasuries moved higher during EU trading but largely paired those gains ahead of the US opening bell as this week’s initial jobless claims fell to 202k, the lowest level since December 1969. The US yield curve moves south with the belly of the curve outperforming with changes up to -1.3 bps (10-yr). French bonds moved higher after strong bond auctions, while Italian BTP futures shrugged of lower growth projections (supra). (Semi-)peripheral spreads over the German 10-yr yield are tightening, with Greece (-3 bps) and France (-2 bps) outperforming. Italy (+1 bp) underperforms.
Yesterday’s EUR/USD rebound stalled. The eco news flow was rather thin. The euro supportive risk rally also took a breather as investors are looking forward to more concrete news on the US-China trade talks and tomorrow’s key US payrolls. German February factory orders again printed at an awful -4.2% M/M and -8.4% Y/Y. The reaction of European yields and of the euro was modest. Evidently it didn’t help the single currency. EUR/USD started a gradual intraday correction. Later, the euro (and Italian assets) also faced some headwinds from headlines that Italy will downwardly revise its growth forecast, with a negative impact on the budget deficit. This afternoon, US jobless claims printed at a strong/low 202K, confirming an ongoing healthy US labour market. There is no direct connect with tomorrow’s payrolls, but the dollar traded with a tentative positive bias this afternoon. EUD/USD has drifted back lower to currently trade in the 1.1215/20 area. USD/JPY gained a few ticks to return to the mid 111 area.
EUR/GBP continued a similar wait-and-see trading pattern as was the case yesterday. The pair held a tight sideways range close to, mostly slightly below, the 0.8550 level. Talks between the conservative party and the labour opposition in order to find a Brexit compromise are said to continue. However, for now it is not sure a deal will be reached and what the reaction of May’s own party will be. EU sources also warn that a (short) delay of Brexit shouldn’t be taken for granted as the EU leaders meet on Brexit on April 10. There is ever more speculation that the stalemate might lead to a long delay of Brexit, but at least for now, this prospect doesn’t support any further sterling gains. EUR/GBP is trading in the 0.85450area. Cable is changing hands just north of 1.31
News Headlines
The Italian Treasury is set to cut its growth forecasts for this year from 1% to 0.1%. As a result, the projected 2.04% budget shortfall agreed with the European Commission after a long and difficult discussions is likely to increase to 2.3-2.4% of GDP. The new budget projections are to be approved by the government on April 10.
Minutes of the ECB meeting showed disagreement among policymakers to extend the bank’s forward guidance. They also debated the possible negative side effects of such a low for even longer interest rate policy, fueling speculations for the tiered deposit system ECB President Draghi hinted at last week.
Poor UK car sales in March (-3.4% YoY), usually a strong month because of the release of new number plates, indicates how Brexit is having a devastating impact on the industry. The head of UK’s automotive umbrella organization warned carmakers even to consider closing their UK factories if the uncertainty over Brexit is to hold on.
