Global core bonds gained ground today as risk sentiment remained fragile. US Treasuries are outperforming German Bunds. WS tracked losses on European bourses yesterday as the US and China are still a long way from making a deal. US President Trump said he ‘probably’ won’t meet his Chinese counterpart Xi Jinping before the March 1 deadline. Global core bonds opened with a upward bias, even though German trade data surprised on the upside. Italy’s industrial production dropped 5.5% (M/M) in December (vs. ‑2.7% exp.), while France’s industrial production printed above expectations (0.8% M/M vs. 0.6% exp.). The German yield curve is mixed with changes in the range of -1.7 bps (10-yr) to +0.3 bps (2-yr). The German 10-yr yield dropped to 0.10%, confirming yesterday’s break of the 0.15% support level. US Treasuries continued the upward trend of late during EU trading hours as US equity futures pointed to further losses. With an empty economic calendar, risk sentiment remains in the driver’s seat. UST’s continued a gradual move higher, pushing the US yield curve lower. Changes vary between -1.1 bps (30-yr) to -2.2 bps (10-yr). Peripheral spreads over the German 10-yr yield widen with Greece (+3 bps) and Italy (+5 bps) underperforming.
The dollar outperformed the euro this week as uncertainty on the outlook for the EMU economy outweighed last week’s soft U-turn from the Fed. Today, the EUR/USD decline slowed. EMU eco data were second tier and mixed (poor Italian production, above consensus German foreign trade and French production data). EUR/USD revisited yesterday’s low in the 1.1325 area, but there were no follow-through losses. With risk sentiment still fragile, there was no trigger for a sustained EUR/USD rebound. Even so, the pair settled in a tight range within reach of recent lows. EUR/USD is currently trading in the mid 1.1350 area, awaiting upcoming events including a next phase in the China-US trade talks next week. USD/JPY trading developed within the every narrow boundaries that guided USD/JPY earlier this week (close to, mostly slightly below the 110 level).
Sterling trading was also limited to tight ranges in a session devoid of any important eco or political news. The UK PM currently tries to find backing for an alternative Brexit deal in Ireland, but any progress is far from evident. If anything, the UK currency traded with a tentative positive bias today, building on yesterday’s positive momentum. The BoE yesterday indicated that is holding to the scenario of limited, gradual rate hikes, including an additional hike this year, in case a chaotic no-deal Brexit can be avoided. EUR/GBP is changing hands close to opening levels at 0.875. Cable is trading at 1.296.
Activity in the Norwegian mainland economy (excluding the volatile petroleum and shipping sectors) grew 0.9% in the fourth quarter of last year, beating estimates for 0.7% growth. Activity regained momentum after subdued growth earlier in 2018 due to unusually dry summer weather. Mainland GDP increased 2.2% in 2018. Solid Q4 growth keeps the door open for the Norges Bank to raise rates further in March.
Strong Canadian labour market data lift the loonie. USD/CAD declines from 1.3310 towards 1.3240. The net change in employment amounted 66.8k in January, way above 5k consensus. Details showed that job growth was more or less evenly split between full time (+30.9k) and part time (+36k) jobs. The increase in the unemployment rate, from 5.6% to 5.8% was accompanied by a rise in the participation rate (from 65.4% to 65.6%).