Markets
Global core bonds eked out small, technically insignificant, gains today. End-of-month extension buying, rather soft ECB comments and disappointing EMU eco data (see below) suggested that Bund gains could have been bigger. European stock markets opened very strong, but hovered near those levels afterwards. US stock markets continue to build on the freezing of trade tensions between the US and China. The US yield curve bull steepens at the time of writing with yields 2 bps (2-yr) to 1 bp (30-yr) lower. Changes on the Germany yield curve vary between -0.5 bps (2-yr) and -1.1 bp (5-yr). The belly of the curve outperforms the wings. Peripheral yield spreads vs Germany narrow up to 4 bps (Greece, Portugal).
The euro had a good run yesterday as a better risk sentiment mostly supported non-USD currencies, excluding USD/JPY. EUR/USD took a breather in Asia this morning. At the start in Europe, it looked that a further rise in equities would also lead to a further congruent rise of USD/JPY, EUR/JPY and EUR/USD. The latter filled offers in the 1.2475 area. However, the euro rally stalled. We didn’t see a specific trigger or event. Interest rate differentials were little changed. EC confidence data were softer than expected. They weren’t the trigger for the move, but provided a good excuse for some additional selling. Both EUR/USD and EUR/JPY had lost more than half a big figure around noon. The move was also due to some improvement in dollar sentiment (both DXY and USD/JPY were upwardly oriented). The price pattern from Europe basically persisted early in US dealings. EUR/USD trades currently slightly below 1.24. USD/JPY is changing hands around 106.75. Over the previous days USD softness prevailed. This picture is tentatively amended today.
Sterling performed quite well over the previous days. Brexit uncertainty moved to the background and the market focus was on a potential BoE rate hike in May. However, the sterling rally ran into resistance today, both against the euro and against the dollar. In order-driven trade, EUR/GBP captured a strong bid, despite a downside intraday reversal of EUR/USD. End of month related buying might have been in play. Whatever the reason, EUR/GBP returned to the high 0.87 area, but a further easing of EUR/USD finally capped the rally. EUR/GBP trades currently near 0.8770. Last week’s downside test is rejected. The 0.8652/0.8968 ST consolidation pattern is again in place. Cable also reversed yesterday’s rebound.
News Headlines
Lending to non-financial corporations grew just 3.1% in February, slowing from a post-crisis high of 3.4%. The annual growth rate of the M3 measure of money supply, seen by some as a precursor of economic activity, was 4.2%, below 4.6% consensus. EC confidence data disappointed in March, with the headline reading declining from 114.2 to 112.6 (113.3 forecast). Spanish inflation accelerated less than expected in March, from 1.2% Y/Y to 1.3% Y/Y (1.5% Y/Y expected).
Most ECB governors sounded rather dovish today. ECB Makuch said that he saw no convincing signs at this stage that inflation will return to the central bank’s 2% target. ECB Nowotny indicated that the central bank doesn’t want to shock markets by ending APP at once at the end of September 2018. However he sees a clear possibility to reduce stimulus afterwards. ECB Liikinen warned that “A gradual tightening of monetary policy will rest on a more solid basis when indications of inflation rates to potentially temporarily exceed 2% become more prominent in inflation expectations”. ECB Vasiliauskas indicated that the ECB can probably agree with the market forecast of a change in interest rate in the first half of 2019.
