Markets
Risk sentiment improved yesterday after US President Trump changed tack on the necessity of a quick missile attack against Syria, easing geopolitical concerns. Russia threatened earlier to shoot down all US missiles. European and US equity markets eventually gained 0.75% to 1.25% with US stocks outperforming. Improved risk sentiment weighed on global core bonds, even if the Bund sell-off was hampered by dovish interpreted ECB Minutes. US yields eventually ended 4 bps (2-yr) to 5.8 bps (5-yr) higher, the belly of the curve outperforming. The German yield curve steepened with yield changes ranging between -0.6 bps (2-yr) and +3.2 bps (30-yr). Asian risk sentiment is positive overnight with China underperforming. Disappointing Chinese trade data delivered the final blow, but the intraday slide was already ongoing. Developments on the geopolitical scene are mixed (China, Iran; see headlines below). We question whether stock markets will be able to add significantly to yesterday’s gains given the weekend ahead. Investors might prefer to build in somewhat more safety given uncertainty surrounding China and Syria. We continue arguing in favour of consolidation both in the Bund and the US Note future.
The combination of improved risk sentiment and a dovish ECB sent EUR/USD lower. The pair approached the 1.23 mark intraday, but eventually closed at 1.2327. USD/JPY mainly profited from the risk component of yesterday’s story line, rising from 106.79 to 107.33 after testing 107.48 resistance. Second tier eco data (weak EMU IP, softer US import prices and near consensus claims) had no impact. Today’s eco calendar only contains Michigan consumer confidence (April) and speeches by non-voting Fed-governors Rosengren, Bullard and Kaplan. Dollar sentiment improved for the better yesterday. The data and risk sentiment suggest no strong directional move today.
Sterling outperformed. The split between the dovish ECB and tightening BoE (May rate hike?!) was definitely at play. EUR/GBP dropped from 0.8724 to 0.8643, closing below 62% retracement from the EUR/GBP rally between April and August last year (0.8693) and below this year’s low (0.8668). It would be technically very relevant if the break is confirmed in this week’s close. GBP/USD rose from 1.4177 to 1.4247 and closes in on this year’s high (1.4345). The UK eco calendar is empty today, but EU officials suggested overnight that the EU and UK will next week for the first time look into the post-brexit trade relationship. The sessions will also cover the still unresolved issue of the Irish border and other parts of the divorce agreement that remain to be settled. It could break sterling’s momentum given that both parties’ official views remain wide apart.
News Headlines
US President Trump seems to want to extend his hardline strategy against China. First, he instructed senior officials to look at whether the US should rejoin the Trans-Pacific Partnership of which China isn’t part. Mr. Trump withdrew the US from the Obama-era TPP in one of his first acts in office. Next, he ordered the White House, according to officials, to ratchet up the pressure on China by focusing on new tariffs. At the same time, the US administration is crafting sharp prohibitions on Chinese investment in advanced US technology. (WSJ)
China’s March exports unexpected fell 2.7% Y/Y in USD terms, the first drop since February last year, while imports grew 14.4% Y/Y, more than expected. The combination left the country with a rare $4.98 bn trade deficit for the month, the first since February 2017. (Reuters)
US and European officials said they’ve made progress on revisions to the Iran nuclear accord to address ballistic missiles and sunset provisions, raising optimism among American allies that President Trump can be persuaded not to scrap the deal. (BB)
