Markets
Global core bonds lost (modest) ground today with US Treasuries underperforming German Bunds. ECB chairman Draghi delivered a dovish message at yesterday’s policy meeting, lifting German Bunds. Despite positive signals from the US-Sino trade talks, risk sentiment was negative overnight. Asian bourses closed in red, with Chinese indices underperforming. The EU and UK PM May found an agreement on a new Brexit extension, but markets already anticipated that. German Bunds opened steady with a small downward bias. Sentiment was today’s driver as the second-tier eco data in the EMU didn’t impact trading. German Bunds are maintaining most of yesterday’s post-ECB gains. The German yield curve is moving little higher with changes up to 0.7 bps (10-yr). US Treasuries lost ground as well, initially as a reaction to yesterday’s rather exaggerated gains in lockstep with German Bunds. The move south accelerated as US jobless claims printed stronger-than-expected at 196k, the lowest level since 1969, underlining the strength of the US labour market. US (headline) producer inflation printed higher in March, but core inflation remained stable. The US yield curve is moving higher with changes up to 3.6 bps (5-yr).
The euro showed remarkable resilience yesterday even as ECB’s Draghi indicated that rates will probably stay very low for (very) long. He even kept the door open for additional easing if necessary. At the same time, US yields also declined, leaving the dollar with no additional interest rate support despite a soft ECB. This balance of weakness between the euro and the dollar still persisted this morning. There were few eco data with market moving potential in EMU or in the US today. EUR/USD retested this week’s peak levels in the 1.1285 area. However, no follow-through euro buying occurred. What can’t go up, must come down. A the start of the US session, US headline PPI printed substantially higher than expected and jobless claims dropped to a very low sub-200k level. The US-German interest rate spread widened slightly. EUR/USD slipped further south and is currently trading in the 1.1260 area. USD/JPY gained a few ticks to trade in the 111.30 area.
Sterling trading entered some kind of no man’s land. The immediate threat of a no-deal Brexit is probably avoided. At the same time, the impasses in UK politics persists. The negotiations between officials of PM May’s Conservative party and the Labour opposition continue. However, for now there is no indication on what a compromise might look like, if any. At the same time, UK PM May faces strong headwinds from Brexiteers in her own party, with the likely organization of EU elections in the UK a first high profile sources of discontentment. The prolonged period of uncertainty probably also keeps the BoE on the side-lines for longer. EUR/GBP hovered in in the lower part of the 0.86 big figure for most of the day. Cable is changing hands in the 1.3075 area.
News Headlines
US headline producer prices rose 0.6% M/M in March, the fastest monthly pace since October last year. The rise was mostly due to gasoline prices. However Core PPI inflation (excluding Food, energy and trade) printed at a soft 0.0% M/M and 2.0% Y/Y (2.3% Y/Y in February). In a different report US jobless claims printed 196 000, the lowest level since 1969, indicating tight labour market conditions. Continuing claims also declined to 1716k.
Sweden’s CPI inflation printed slightly higher than expected in March. CPI inflation rose 0.2% M/M to be up 1.9% Y/Y. Inflation excl. energy was also little stronger than expected at 0.3% M/M and 1.5% Y/Y. The Swedish crown temporarily rose on the report, but failed to maintain gains later in the session. EUR/SEK is again trading near 9.44.
