Markets
Global core bonds lose ground today. US Treasuries fell overnight as China and the US claimed to be close to a trade deal, giving core bonds a downward bias at the start of the day. German industrial production data for February printed stronger than expected, weighing some more on German Bunds. The losses remained limited with yesterday’s disastrous factory orders still in mind. US Treasuries continued their downward trend throughout the day, lacking guidance ahead of the US payrolls report. The US payrolls printed stronger than expected, while the wage data for March printed below expectations. After some volatility, the US 10-yr Note paired the intraday losses. However, the reaction remained limited overall. The German yield curve is moving higher with changes up to 1.6 bps (30-yr). The US yield curve remains near opening levels, with changes limited to 1.0 bp (10-yr). Italian BTP futures hardly reacted on news that the government approved a series of measures to boost the economy, while Italy’s statistics office said its sees a potential end to contraction for the Italian economy. BTP’s moved higher. Greek bonds advanced too as euro-area finance ministers agreed to disburse €1bn. Peripheral spreads are tightening with Greece (-8 bps) and Italy (-4 bps) outperforming.
EUR/USD trading showed little directional dynamics. This morning, the euro gained marginal ground on a positive risk sentiment and better than expected German industrial production. However, gains were negligible. The pair settled in a very tight range in the 1.1230 area , awaiting the US payrolls. US job growth was solid (196 000) and the unemployment rate printed unchanged at 3.8%. However, wage growth disappointed at 0.1% M/M and 3.2 % Y/Y. The latter only confirms that the Fed has no reason at all to change its wait-and-see stance in the foreseeable future. US yields and the dollar temporary declined a few ticks up-on the release. However, it was almost immediately clear that the report was no game-changer for USD trading. EUR/USD is changing hands in the 1.1235 area. USD/JPY is trading in the 111.65 area.
Sterling traders today couldn’t but keep a close eye on the ongoing stream of Brexit headlines. UK PM May continues her negotiations with the Labour opposition. At the same time, she asked the EU for an extension of the Brexit-delay till June 30. EU’s Juncker proposed a longer delay of a year. For now, there is no concrete news from the negotiations between Labour and the Conservative party. However, this exchange of proposals at least suggests that both the EU and UK PM May still see a substantial risk that no Brexit deal will be approved in time in the UK Parliament. Sterling temporarily gained a few ticks, but the gains soon evaporated. EUR/GBP is again testing the 0.86 big figure. Cable failed to sustain north of the 1.31 handle. Today’s sterling loss remains limited. Even so, the multiple political event risk on Brexit next week (both in the UK and in EU) warrants some caution on sterling long exposure.
News Headlines
The US economy added 196k jobs in March, compared to 177k consensus. The January and February numbers faced a combined 14k upward revision. Earnings grew by 0.1% M/M and 3.2% Y/Y, falling short of expectations (0.3% M/M and 3.4% Y/Y). The unemployment rate stabilized near cycle lows (3.8%), but the participation rate unexpectedly fell from 63.2% to 63%.
German industrial production rebounded more than expected in February (0.7% M/M), but the key manufacturing sector remains weak. The bounce was mainly triggered by strong construction figures.
Canadian payrolls showed a 7.2k decline in March, following a strong February figure (55.9k) and printing below consensus (6k). Details showed a setback in both full time (-6.4k) and part time (-0.9k) employment. The unemployment rate stabilized at 5.8% while hourly wages accelerated from 2.2% Y/Y to 2.3% Y/Y. The combination of US and Canadian payrolls lifted USD/CAD higher into the higher end of the 1.33 big figure.
