- EMU equities went moderate higher( 0.4% EuroStoxx) led by utilities and IT. US equity indices start with minor (S&P/Dow) to moderate losses (Nasdaq).
- The pace of US new-home construction unexpectedly cooled in May, the latest piece of data to offer a mixed reading on the economy’s QE performance. Housing starts tumbled 5.5% M/M to an annualised pace of 1.09m units, widely missing expectations of a 4.1%. Permits were down 4.9% to an annual pace of 1.2m units, also missing forecasts.
- Prime Minister Theresa May’s government has bowed to European Union demands to focus the initial stage of Brexit talks on the terms of the U.K.’s departure rather than trying to arrange a future trade relationship at the same time, according to two EU officials with knowledge of the preparations.
- The Russian rouble outperformed its emerging-market peers on Friday after oil prices picked up and the country’s central bank cut interest rates to 9% from 9.25%, less than some analysts had expected, as investors remain relatively sanguine about the currency’s prospects despite weaker oil prices and new sanctions from the US.
- Nine months after schedule, Greece finally has some more creditor cash. The country’s stock index been driven to a two-year high and bonds are rallying after eurozone and International Monetary Fund officials agreed to unlock a $8.5B bailout tranche to help Greece avoid default and pay off some of its arrears.
- Labour costs in Spain remained steady in the first quarter of 2017 after falling throughout last year, reflecting the growing strength of the country’s labour market, but highlighting the fact that there is still a long way to go before the ECB sees its goal of higher wage growth across the eurozone.
- Wages for French workers grew at their fastest pace in three years at the start of 2017 – showing welcome signs of acceleration as the country prepared for its major presidential election. Quarterly wage growth picked up to 0.6% in Q1 from 0.1% in Q4 of 2016.
Rates
Core bonds end the week uneventful
Following wild swings in the past two sessions, core bonds are little changed today in a low volume session devoid of key data releases or events. The Bund started the session on a weak footing and lost more ground in follow through selling, but the tide turned at mid-morning and losses were erased during the remainder of a lethargic session. US Treasuries moved sideways in a tight range, but weak housing data brought a bid in the market, pushing US Treasuries to minor daily gains. It helped the Bund travel to unchanged levels.
The German yield curve shifted marginally higher with yields changes varying between -0.5 bp (5-yr) and +2 bp (30-yr). The US curve bull steepened with yields down by 2.2 bps (2-yr) to 0.2 bp. Intra-EMU spreads versus Germany (10-yr) were nearly unchanged with exception of the Greek spread which narrowed about 20 bps on an agreement to pay out the second tranche of the bailout package, allowing Greece to redeem maturing bonds in July.
Currencies
Post-USD rebound already running into resistance?
In technical trading, EUR/USD reversed part of yesterday’s post-Fed decline. The move was supported by poor US housing data. USD/JPY initially profited from a constructive equity sentiment, but the momentum also eased during the US session. EUR/USD trades in the 1.1175 area. USD/JPY tries to stay north of 111. So, the dollar trades off the recent lows, but it’s too early to call a sustained USD comeback.
Asian stock markets traded mixed. Japan outperformed, profiting from the post-Fed USD/JPY rebound. This rebound continued this morning. The BOJ left its policy unchanged as expected. The BOJ slightly raised its assessment on the Japanese economy, but BOJ governor Kuroda indicated that it is too early to discuss any concrete steps on the exit policy as this exit is still far away. The dollar also maintained gains against the euro. EUR/USD hovered near 1.1150.
There was little news to guide EUR/USD trading during the European morning session. Yield changes were modest. If anything, spreads between the US and Germany narrowed marginally. Yesterday’s post-Fed USD rebound slowed and EUR/USD reversed part of yesterday’s decline in technical trading. USD/JPY remained better bid. The BOJ policy decision being out of the way maybe gave some comfort to JPY bears. The pair was also supported by a constructive equity sentiment. The pair filled offers in the 111.40 area.
The US housing data disappointed again in May (see headlines) Housing data are usually no market mover, but time US yields, the dollar and even US equity futures declined a bit. Markets still feel unease with disappointing US data. USD/JPY drifted back to the low 111 area. EUR/USD returned close to the intraday highs, currently trading in the 1.1175 area. The Michigan consumer confidence release might still amend the end of week FX positioning.
No follow-through gains on the BOE sterling rally
Sterling entered calmer waters. Yesterday, the UK currency received BOE support. However, there were no follow-through sterling gains. The eco calendar was empty and there was also no high profile news from the political scene. Cable was locked in a tight sideways range in the upper half of the 1.27 big figure. EUR/GBP rebounded slightly off the overnight correction low (0.8720 area), but this move mostly mirrored a modest rebound of the euro after yesterday’s EUR/USD decline. EUR/GBP hovers in the 0.8750 area. Sterling maintains most of yesterday’s gains but political uncertainty remains high as UK PM May is still trying to strike a deal with the DUP to support her minority government. At the same time, the Brexit negotiations are scheduled to start next week. Press headlines suggest that the UK would be prepared to discuss the terms of the divorce first, which would be a concession to the EU at the start of the negotiations. Is this a precursor for a less hard Brexit?
