Markets
The German Bund and US Note future lost ground shortly after European noon as risk sentiment improved following the latest Trump tweet. He downplayed chances of an imminent air strike against Syria. Weak EMU industrial production figures earlier on the day were ignored. The move in the Bund was undone after ECB Minutes revealed a deep split inside the board on the degree of slack in the EMU economy. It caused a minor dovish reaction, lifting the Bund back towards opening levels. The influential camp of President Draghi, vice-chair Constancio and chief economist Praet which thinks that the economy still has some breathing room before generating upward price pressure currently holds a narrow majority. ECB Coeuré tried to find some middle ground today by suggesting that existing/more economic slack doesn’t mean that policy will remain unchanged. Minutes also showed some concern about the potential negative impact on the global economy from the US/Chinese trade conflict. A proposal to announce that the ECB was close to meeting the objective of putting inflation on a sustained path toward the medium-term goal eventually didn’t make the statement. US jobless claims printed near expectations and continue to point to a strong US labour market. Import/export prices disappointed. Neither of them influenced trading. The German yield curve steepens at the time of writing with yield changes ranging between -0.8 bps (2-yr) and +1.3 bps (30-yr). The US yield curve bear steepens with yields 2.8 bps (2-yr) to 3.7 bps (30-yr) higher
Global markets started the day in some kind of wait-and-see modus as the US yesterday announced to take action against Syria. However, Trump’s latest tweet suggested that the action might not come as soon as ump indicated earlier. Equities staged a cautious rebound and so did the dollar. We see today’s intraday gain in USD/JPY and the setback in EUR/USD in the first place as a correction on recent post-payrolls USD softness. At the same time, poor EMU production data reinforced the intraday decline of EUR/USD. The minutes of the March ECB meeting brought no major surprise, but most ECB governors apparently see good reasons to stay cautious on the pace of any policy normalization. US data (import prices and jobless claims) were marginally weaker than expected, but had little impact on USD trading. EUR/USD is changing hands in the 1.2315 area. USD/JPY trades in the 107.20 area.
Sterling faced a temporary setback on a batch of poor eco data yesterday. However, this intermezzo didn’t change the constructive sentiment that reigned of late. The UK and the EU reaching a transition deal and the prospect of a potential BoE rate hike in May kept sterling well bid. We didn’t see much hard news to support a sterling rebound today. UK Davis said the UK Parliament could block a Brexit deal if there isn’t enough clarity on what the final relationship with the EU will look like, but should this analysis be considered as sterling supportive? Whatever, EUR/GBP dropped below 0.87. The 0.8652 support is again within reach. Admittedly, the intraday decline of EUR/USD was partially to blame. However, the intraday price action of cable was also constructive. For now, the UK currency maintains the benefit of the doubt, even as the data are mixed, to say the least..
News Headlines:
Swedish CPI rose 0.3% M/M and 1.9% Y/Y (from 1.6%). The CPIF measure, favoured by the RIksbank, also rose 0.3% and 2.0% Y/Y (from 1.7%), reaching the Bank’s inflation target. However, both measures were slightly below consensus. The market questioned the central bank’s intention to start raising rates later this year, given its asymmetrical bias to prevent an inflation undershoot. EUR/SEK jumped to the highest level in year, nearing the EUR/SEK 10.40 level.
