Global core bonds are gaining ground today with US Treasuries outperforming German Bunds. Risk sentiment remained positive overnight with Asian bourses tracking WS gains and UK PM May whom returned from Strasbourg with concessions from the EU that were seen lifting chances to get her deal through Parliament today. Both US Treasuries and German Bunds opened lower in the run-up to the EU opening bell. European equities opened higher but changed course quiet immediately, causing core bonds to erase intraday losses. Core bonds maintained the upward trend throughout the day, supported by a below-consensus rise of the US NFIB small business optimism (101.7 vs 102.5 expected) and weaker than expected US consumer inflation data in February. Headline inflation rose 0.2% (M/M) as expected, but core inflation cooled in February from 0.2% to 0.1% (M/M). US real average weekly earnings growth slowed to 1.6% from 1.9%. Both the German and US yield curve edge lower, respectively with changes up to -0.6 bps (German 2-yr) and up to -1.2 bps (US 10-yr). Peripheral spreads widen today with Greece (+17 bps) underperforming as Eurozone finance ministers are said to delay the release of €1bn of funding to Athens.

EUR/USD trading was mainly driven by two separate factors today: Brexit and the US CPI data. European equity markets opened with a risk-on sentiment this morning and this optimism was at least partially inspired by the a last minute Brexit deal reached yesterday in Strasbourg. EUR/USD rebounded to the 1.1280/85 area, but the rally did run into resistance as the dollar regained ground on persistent Brexit uncertainty going into the start of the US trading session. At that time, the focus for trading turned (at least temporary) from the UK/EU to the US. The US February CPI printed softer than expected. Markets saw this as reinforcing the Fed wait-and-see approach as they are looking forward to next week’s Fed policy meeting. EUR/USD retested the intraday top in the 1.1280/85 area. However, with Brexit uncertainty to stay extremely elevated, further euro gains were blocked. EUR/USD is currently trading in the 1.1270 area. USD/JPY hovers in the 111.20 area, near the intraday lows.

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Intraday swings of sterling were driving by the (quickly) developing Brexit story as the UK Parliament is having a new meaningful vote on Brexit this evening. Markets in general and sterling in particular, reacted in quite a positive way to the new assurances UK PM May received from the EU after a last-minute meeting with EU Commission President Juncker. Sterling strengthened. EUR/GBP even dropped temporary to the 0.85 area, the strongest level for the UK currency since May 2017. Already at that time, the proposal already said that risk of the UK deliberately being held in the backstop agreement was reduced, but not removed. However, the market assessment on the political fate of the ‘new’ deal changed as the UK Attorney General Cox indicated the new agreement was legally binding, but at the same time that the legal risk to the UK remained unchanged. EUR/GBP jumped back above the 0.86 level but sterling momentum again improved slightly during the formal hearing of UK’s Cox. At of writing of this report, UK PM May tries a final attempt to convince Parliament on her deal.

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Swedish inflation slowed to 1.9% YoY (0.7% MoM) in February. That’s slightly below the 2% market consensus and well below the Riksbank 2.4% forecast. Core measures (0.8% MoM, 1.4% YoY) matched estimates. The Swedish krona weakened slightly to EUR/SEK 10.57 as the soft data causes markets to doubt this year’s Riskbank hiking intentions.

The Mexican government has put an oil refinery project, for which it foresaw $2.5bn, on hold and instead will redirect the funds to the troubled oil champion Pemex. The state-owned energy company is under pressure by huge taxes and debt and has been a cause of concern. The Mexican peso advances 0.5% to USD/MXN 19.32.


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