Markets:
Global core bonds are little changed in a low-volume trading, as investors are in wait-and-see modus ahead of the ECB meeting and the special EU-Brexit summit later this week. Market sentiment was fragile overnight with Asian equities closing mixed, setting EU equities up for more of the same. German Bunds opened neutral. Germany’s trade surplus rose to €17.9bn euros in February, more than expected (€16.0bn). However, the increase is caused by a larger drop in imports than the decline in exports, confirming investors’ concerns on international trade. The German Bund is gyrating near opening levels. The EMU Sentix Investor Confidence rebounded to -0.3 in April, up from -2.2 a month ago and above expectations (-2.0) but had little impact on trading. The German yield curve is edging a little lower with changes varying up to -1.0 bp (30-yr). US Treasuries are treading water today ahead of US factory orders for February but the report isn’t expected to have a big impact on trading. The US yield curve is bear steepening with changes up to +1.4 bps (30-yr). Peripheral spreads over the German 10-yr yield are little changed with Greece (-4 bps) and Portugal (-2 bps) outperforming.
There were few eco data to guide USD (EUR/USD) trading. The German February trade surplus widened more than expected. However, as both imports and exports declined more than expected, the report can hardly be considered good news for Europe’s biggest economy or for the euro. There quite some market headlines mentioning a building of euro shorts ahead of this week’s ECB meeting, but they also proved no good guide for EUR/USD trading. After a cautious start, EUR/USD drifted higher in the 1.12 big figure in technical trade. European equities opened lower but were no factor of significance in EUR/USD trading. In a daily perspective, the dollar is losing modest ground against the euro (EUR/USD 1.1250 + area) and the yen (111.40 area). Maybe there is still some fall-out from Friday’s disappointing wage data as USD traders continue to ponder the chances for Fed rate cuts further down the road. Later this week, US CPI data might show whether there is more reason to walk that road. The BOJ downgrading its economic assessment on 3 regions was largely ignored by yen-traders as a less positive risk sentiment dominated.
Sterling trading developed in remarkably calm conditions even as a ‘decisive’ EU summit on Brexit is coming ever closer. A German government spokesmen announced a meeting between UK PM May and German Chancellor Merkel on Tuesday. Later PM May will also meet French president Macron. Sterling traders didn’t know what conclusion to make. Sterling traded with a tentative negative bias. EUR/GBP is changing hands in the 0.8620 area. Cable hovers in the mid 1.30 area as USD softness is keeping the cross rate more or less in balance. At least for now, there is also no indication that the talks between the UK conservative party and Labour is yielding any progress.
News Headlines:
The Turkish lire hit its weakest level since mid last month. EUR/TRY rises towards 6.4. The Turkish currency got a double whammy. First, the central bank decided to unwind emergency measures installed two weeks ago to prop up the currency. Second, Turkish President Erdogan urged the election board to investigate irregularities in Istanbul’s local elections, refusing to concede the race in the country’s largest city.
The Bank of Japan has downgraded the growth outlook for three of its nine regions, the biggest number of downgrades in six years. The move fuels growing consensus that the economy continues to weaken. The BOJ points to slowing overseas demand to weaken exports and factory output, but expects the economy to continue expanding moderately.
