Markets:
Global core bonds lost slightly ground today as stock markets got some breathing space following last week’s sell-off. Chinese/US comments over the weekend suggest that common sense might eventually prevail in trade talks. US Treasuries underperformed German Bunds ahead of this week’s supply operation which starts tonight with a $30bn 2-yr Note auction. US yields rise by 0.9 bps (30-yr) to +2.9 bps (5-yr). German yields add 0.8 bps to 1.2 bps with the belly of the curve outperforming the wings. 10-yr yield spread changes vs Germany range between -1 bp (Spain) and +3 bps (Italy). Spain continues to outperform vs Italy. S&P upgraded the Spanish rating last Friday from BBB+ to A- (positive outlook). Italian Lega Nord leader Salvini said he would start talks with 5SM leader Di Maio to form Italy’s next government. From a market point of view, such populist government, is the least favored outcome.
Global risk sentiment improved today as markets saw tentative signs that the US tried to solve issues with its trading partners (including China) via bilateral negotiations. (US) Equities rebound after Friday’s sell-off. Core bond yields rose slightly. The US/German interest rate differential widened marginally. However, it didn’t help the dollar much. USD/JPY cautiously regained the 105 barrier. EUR/JPY and EUR/USD also maintained a good bid. Technical considerations and option-related activity were said to support the single currency. The data were second tier and no real driver for currency trading. EUR/USD rebounded north of 1.24. EUR/JPY regained the 130 mark. EUR/USD holds in the 1.2155/1.2555 consolidation pattern. However, the price action both in USD/JPY and even more in EUR/USD suggests that any dollar rebound needs unequivocally positive news. Markets want more clarity that there is no meaningful negative fall-out from the trade tensions on US/ global growth. That news isn’t available at this stage.
Sterling remained well bid today. Cable extended gains north of 1.42. EUR/GBP also traded with a slightly negative bias even as EUR/USD rebounded. The pair is holding a tight range roughly between 0.8745 and the 0.8720 area. UK Finance Loans for housing declined more than expected in February, but the release had no (negative) impact on sterling. Both in cable and in EUR/GBP remain key technical resistance levels, respectively at 1.4345 and 0.8768/52, within striking distance.
News Headlines:
The French public deficit declined from 3.4% of GDP in 2016 to 2.6% of GDP in 2017. The French government only anticipated the deficit to be reduced to 2.9%. It was the first time in a decade for France to meet the EU’s 3.0% deficit rule. Spain’s budget Minister reported that his country recorded a 3.11% budget deficit in 2017.
China’s crude oil futures started trading today on decent volumes. Many expect the Chinese INE oil future to become a third global price benchmark alongside Brent and WTI crude.
South African bond yields declined to the lowest level in almost three years and the rand extended gains after Moody’s Investors Service left the country’s credit rating at investment grade (Baa3) and lifted the outlook to stable.
IMF head Lagarde said euro zone leaders should set up a “rainy day fund” to help cushion member states in economic downturns.
