Global core bonds gained ground today with US Treasuries outperforming German Bunds. The bond sell-off which started on Thursday last week, accelerated yesterday after a stronger-than-expected US manufacturing ISM. Core bonds recovered and opened higher in the run-up to the European opening bell. European equities opened in green. However, core bonds continued the upward trend with Bank of France governor Villeroy warning that the chances of a no-deal Brexit have increased over the last days. EU chief negotiator Barnier repeated that quote later in the day. Meanwhile, the WTO warned that global trade will face “strong headwinds” in the coming next two years. The German yield curve edges lower with changes up to -1.8 bps (10-yr). US Treasuries moved higher throughout the day. US eco data printed very close to consensus (durable goods orders, capital goods shipments ex. air). The US yield curve moves south with changes up to -3.6 bps (5-yr). Italian prime minister Conte announced that Italy plans an expansive but responsible budget policy. Italian BTP futures moved cautiously lower throughout the day, causing the Italian spread over the German 10-yr yield to widen by 4 bps. Other peripheral spreads remain stable.
The dollar was propelled by a strong US manufacturing ISM and a congruent rise in US yields yesterday. The dollar hit short-term peak levels against several other currencies. This was especially the case against the euro as the single currency was haunted by an ongoing flow of disappointing eco release. EUR/USD this morning changed hands slightly below the 1.12 handle. The key 1.1187 (62% retracement MT) / 1.1177 (2019 low) support area was within reach, but no extensive test occurred yet. There were few important eco data in Europe. US durable goods orders were close to expectations. The dollar also didn’t get any additional interest rate support as US yields eased slightly after yesterday’s sharp rise. USD investors are waiting for more concrete guidance from key eco data scheduled for release later this week. EUR/USD is changing hands in the low 1.12 area. USD/JPY is going nowhere (111.30/40 area).
Sterling traded with a moderately negative intraday bias. Yesterday, none of the alternative options on Brexit secured a majority in the UK Parliament, leaving the Brexit impasse complete. Some MP’s are preparing a law that, if approved, would make a no-deal Brexit illegal. At the same time, UK PM May is said to still consider a fourth vote on her Brexit deal before the April 12 deadline. With the effective outcome and the concrete consequences of the Brexit outcome still impossible to assess, sterling trading remains some kind of erratic in nature. (Currency) markets still assume that a chaotic crash of the UK out of EU will be avoided. At the same time, the complete absence of any guidance on the outcome of the process prevents LT investors from holding real directional exposure on the UK currency. EUR/GBP is trading in the 0.86 area. Cable hovers in the low 1.30 area.
“Back in black and back on track” is how Australia’s treasurer Frydenberg described the budget in 2019-2020 forecasting the first surplus in 12 years ahead of general elections next month. Frydenberg expects a A$ 7.1bn surplus while promising tax cuts and cash handouts for most Australians and added a bold promise to eliminate the country’s total A$ 373bn by 2030.
The WTO warned for a global trade slowdown over the next two years reporting that rising trade tensions, a slowdown in major economies and financial volatility already had a negative impact in trade growth last year. Global trade is expected to grow 2.6% in 2019, down from the 3.7% predicted earlier and 3% in 2020.
New orders for US durables fell less than anticipated in February (-1.6% vs. -1.8% MoM) but US “core” capital goods orders unexpectedly fell (-0.1% MoM). A slight 0.1% rise was expected. Shipments of the latter, a series used to calculate US GDP’s capex component, stalled whereas markets foresaw a slight contraction. January data was revised mostly upwards.