Headlines
US equities opened marginally higher after yesterday’s correction as some Fed governors considered valuations as quite high. European equities are trading with gains of up to 0.5% after reversing opening losses.
"Before making any alterations to the components of our stance — interest rates, asset purchases and forward guidance —we still need to build sufficient confidence that inflation will indeed converge to our aim over a medium-term horizon, and will remain there even in less supportive monetary policy conditions," ECB Draghi said.
India’s monetary policy committee has decided to hold the central bank’s key policy rate steady at 6.25%, saying the economy appears to be on course to meet its inflation target (4%). The RBI did narrow the interest rate corridor by hiking the reverse repo rate to 6% in order to help manage the weighted average call rate.
The Czech crown surged almost 1.5% to its highest level against the euro since November 2013, after the country’s central bank scrapped the EUR/CZK 27.00 cap on the currency it had in place for 3-1/2 years. EUR/CZK currently trades around 26.70.
Filings for US unemployment benefits declined to a five-week low, highlighting a resilient job market, a Labor Department report showed. Weekly jobless claims declined from 259k to 234k (vs 250k expected).
The ECB’s inner circle faced a push from heads of member states’ monetary authorities to drop the doom and gloom from its rhetoric and present a much more optimistic outlook on the eurozone’s economic prospects at its policy vote last month, Minutes showed.
It would make sense, if the US economy continues to grow, for the Federal Reserve to begin trimming its $4.5 trillion balance sheet towards the end of this year, unwinding extraordinary stimulus deployed during the crisis, SF Fed Williams said.
Rates
Core bonds remain resilient
Global core bonds moved according to script until European noon. Equity and oil prices gradually rose, pulling Bunds and US Treasuries somewhat lower. ECB’s Draghi urged that it’s too early to speculate on an ECB exit as the central bank needs sufficient confidence that inflation converges to their aim. Apart from some minor losses for the euro, markets ignored his comments. During US trading, core bonds again showed their recent resilience. They changed direction even if intraday trends on stock and commodity markets were extended. On top, US weekly jobless claims unexpectedly declined towards the cycle low and ECB Minutes showed that divergence inside the ECB is larger than president Draghi indicated this morning. They eventually decided to keep forward guidance unchanged as changing it could backfire on markets. A retro perspective interpretation? SF Fed governors Williams confirmed that the Fed could start winding down its balance sheet towards the end of the year.
At the time of writing, the German yield curve marginally bull flattens with yield changes ranging between flat (2-yr) and -1.4 bps (30-yr). Changes on the US yield curve are less than 1 bp. On intra-EMU bond markets, 10-yr yield spread changes versus Germany range between -3 bps (Ireland) and +2 bps (Spain/Greece).
The French debt agency successfully launched a new 10-yr OAT (€4.91B 1% May2027) and tapped the on the run 15-yr OAT (€3.1B 1.5% May2031) for a combined €8B, the maximum amount on offer. The auction bid cover (1.98) improved from previous auctions this year and was more in line with average. The Spanish treasury taps the on the run 3-yr Bono €1.86B (1.4% Jan2020), 10- yr Obligacion (€1.27B 1.5% Apr2027) and off the run Obligacion (€0.79B 4.7% Jul 2041). The total amount sold (€3.92B) was near the middle of the eyed €3.5- 4.5B with a neutral auction bid cover of 1.64.
Currencies
USD stabilizes after soft post-Minutes market reaction
The dollar stabilized against the euro and the yen today after yesterday’s soft market reaction to the March FOMC Minutes. EUR/USD dropped briefly on soft Draghi comments early in European dealings, but the pair soon returned to waitand- see modus ahead of tomorrow’s US payrolls (1.0660 area). USD/JPY rebounded of the Asian lows as equities reversed a poor open (110.75 area).
Overnight, WS’s risk off sentiment also affected Asian markets. Most indices showed losses of 0.5%/1.0%, with China outperforming and Japan underperforming. USD/JPY retested this week’s lows (110.30 area), but no break occurred. EUR/USD held in the upper half of the 1.06 big figure.
Early in European dealings, ECB Draghi reiterated that it is too early to change the ECB’s policy guidance as the ECB president sees no sufficient evidence to materially alter the inflation outlook. The euro tumbled as the Draghi headlines hit the screens. EUR/USD filled bids in the 1.0630 area. However, most of the move was almost immediately reversed. Draghi’s assessment didn’t bring much news and the reaction on the interest rate markets was non-existent. Later in the session, the Minutes of the March ECB meeting also maintained a soft tone. However, they weren’t able to remove investors’ feeling that the debate on a change in the ECB’s assessment still persists within the governing council. EUR/USD settled in well-known territory in the 1.0650/75 area. USD/JPY gradually rebounded as equities reversed opening losses.
After a few weeks of higher than expected jobless claims, the indicator was again better than expected (weekly claims of 234 000 from 259 000). The dollar hardly reacted just one day before the key US payrolls report. Even so, the dollar stayed away from the recent lows, despite yesterday’s soft market reaction to the March Fed Minutes. EUR/USD trades currently in the 1.0660 area. USD/JPY is trading near 100.80. USD traders are counting down to tomorrow’s US payrolls.
At its extraordinary monetary policy meeting today, the CNB Bank Board decided to end the CNB’s exchange rate commitment (EUR/CZK 27.00 floor). The CNB stands ready to use its instruments to mitigate potential excessive exchange rate fluctuations if needed. EUR/CZK currently trades around 26.60
Sterling: no UK specific news to guide trading
There were no important eco data in the UK today. So, sterling trading was driven by non-UK factors and technical considerations. EUR/GBP also spiked briefly lower on the Draghi headlines early in European trading. The pair dropped to the 0.8510/15 area. However, as was the case for EUR/USD, the decline was almost immediately reversed. From there, EUR/GBP didn’t go anywhere, holding a very tight range in the mid 0.85 area. sterling is trading marginally softer against the dollar as the US currency is regaining slightly ground after yesterday’s setback. Cable is trading in the 1.2465 area.
