Markets
Yesterday, global bonds showed no clear directional trend. German bunds and US Treasuries initially traded with a tentative negative bias supported by good EMU services PMI’s. However the rise in yields was modest. Later in the session, (US) yields tried another upside attempt on a strong US non-manufacturing ISM (59.7). However, bonds soon found their composure. US yields ended the session little changed, bonds with longer maturities outperforming. The 10-y bund yield also showed no clear directional move. This morning, Asian, equities are trading mixed with China still outperforming. Markets are awaiting more concrete news from the US-China trade talks. In line with yesterday’s price action, core (US and European) bonds remain well bid with the Bund jumping higher at the start of European dealings. Bond trading will probably be driven by global risk sentiment and event risk (headlines on trade) today. The US eco data (ADP and trade balance) probably will have to yield a big surprise to give clear a directional bias global bond trading. European bond investors are looking forward to tomorrow’s ECB policy decision.
Last week, the euro gained modest ground as investors embraced the idea that EMU data might bottom and that better eco data might keep the door open for ECB policy normalisation later this year. Yesterday, the EMU services PMI’s indeed surprised on the upside of expectations. This positive development was visible in several countries, including Italy and France. However, it didn’t help the euro. EUR/USD remained paralysed in a tight sideways range in the 1.1340/1.1315 area. Later in the session, the dollar proved more sensitive to positive news. The US currency profited from a strong US non-manufacturing ISM. EUR/USD dropped to the 1.13 area and closed the session at 1.1308. USD/JPY spiked temporary above the 112 level, but couldn’t sustain the gain. The pair finished the day at 111.89. Today, the eco calendar is only moderately interesting with few eco data in Europe to guide euro trading. In the US, the ADP labour market report and the December trade balance are probably only of second tier significance for global FX trading. The Fed Beige book and speeches of Fed members are a wildcard for USD trading. The dollar, rather than the euro currently looks to have the benefit of the doubt. EUR/USD is currently drifting back lower in the 1.12/1.15 ST consolidation pattern. Investors are apparently cautious to engage in euro long positions ahead of tomorrow’s ECB policy decision. We don’t expect the ECB to be outright soft. We expect Draghi en Co to stay in waitand- see modus and maintain their guidance on interest rates.
Yesterday, sterling showed some intraday volatility, but at the end of the day changes were modest. The UK services PMI unexpectedly rebounded and stayed well above the 50 level. However, it didn’t help sterling much. EUR/GBP jumped temporary higher on headlines that a break-through in the EU-UK Brexit talks wasn’t to be expected anytime soon. However, at the end of the day, sterling closed little changed against the dollar and even gained slightly ground against a broadly weaker euro. Today, there are no important eco data in the UK. So sterling trading will proably be driven by the headlines on the negotiatons between the UK and the EU.
News Headlines
Australia Q4 GDP rose a lower than expected 0.2% Q/Q and 2.3% Y/Y in the fourth quarter of last year. The report raised market speculation on an RBA rate cut later this year. The Aussie dollar drifted lower in the 0.70 big figure.
Greece received strong demand in its first 10-y bond sale since the financial crisis. The country sold €2.5 bln bonds. Demand reached €11.8 bln. The bond was priced to yield 3.90%
Today, the calendar in Europe is thin. The OECD will publish its interim outlook. The US eco releases are including the ADP private sector labour market report and the US trade balance for the month of December. The Fed will release its Beige Book preparing the policy meeting at the March 20. Fed’s Williams and Fed’s Mester will speak.
