Markets

Global core bonds are mixed today with US Treasuries outperforming German Bunds. After the ECB’s change of policy guidance lifted core bonds substantially higher yesterday, German Bunds moved sideways at the start of the day. EU equities lost ground at the opening bell, but that didn’t support core bonds any further as French and Italian industrial production data for January outperformed expectations by a landslide. The German yield curve is mixed with changes varying between -0.8 bps (30-yr) and +2.1 bps (5-yr). US Treasuries remained near opening levels throughout the day, however, holding on to their upward bias ahead of the US February payrolls. The result printed substantially below expectations (20k vs. 180k expected), fueling investor worries about distortions in the US labour market. Especially as US wages rose at their fastest pace this expansion. The US yield curve is mixed with changes in the range of -0.1 bp (5-yr) to +1 bp (30-yr). Italian Deputy PM Salvini threatened to pull the plug on the populist coalition if his partner (5SM) continues to block his plans. Italian BTPs underperform their peripheral peers, causing a widening of the spread over the German 10-yr yield (+5 bps).

(Currency) markets still pondered the consequences of yesterday’s ECB change in interest rate guidance. At the same time, USD traders were looking forward to the February US payrolls report. Doubts on (global & European) growth still dominated trading this morning in Asia. European equity markets also extended yesterday’s decline. (European) yields and EUR/USD confirmed yesterday’s downward setback. EUR/USD recovered a few ticks but basically hovered in the low 1.12 area. US payrolls painted a mixed picture. Wage growth was stronger than expected (3.4% Y/Y) and the jobless rate declined to 3.8%. However, the most important sub-indicator of the report, payrolls growth, missed the consensus by a big margin. In theory, this might be USD negative. However, it also put the issue of global growth back in the spotlight. The risk-off trade resumed and US equity futures declined. Admittedly, yen gains remain modest. USD/JPY cautiously is drifting below the 111 handle. The loss of the dollar against the euro remained very limited given yesterday’s euro decline. EUR/USD is trading in the 1.1230 area. For now, disappointing news on global growth can hardly be considered as euro supportive. EUR/JPY is drifting lower in the 124 big figure.

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Sterling traded with a negative bias both against the euro and the dollar today. Uncertainty remains very elevated as UK and EU officials are still trying to reach a comprise on the ‘Irish border backstop issue’. For now, there are no clear signs that a breakthrough is imminent only a few days before the March 12 key Brexit vote in UK parliament. Sterling trading is still overshadowed by this binary Brexit risk. EUR/GBP is again trading in the 0.86 area. Cable is changing hands in the 1.3060/50area, despite tentative USD softness.

News Headlines

February US payrolls disappointed with a 20k net job growth following an upwardly revised 311k in January. Consensus expected a 180k increase. The unemployment rate fell from 4% to 3.8% with the participation rate stable at a 5-yr high of 63.2%. Average hourly earnings rose by 0.4% M/M and 3.4% Y/Y, the fastest pace this expansion.

Bloomberg reports that, according to sources, some ECB policy makers consider the central bank’s new downgraded eco forecast for this year (1.1% from 1.7%) still too optimistic. They argue that the assumed pickup in the second half of the year might not materialize.

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