Global core bonds lose ground today with German Bunds underperforming US Treasuries. With an empty eco calendar, it was up to risk sentiment to guide investors. Following Friday’s profit-taking on the bond markets, triggered by better-than-expected Chinese lending data and strong US earnings, global core bonds opened neutral. Following mixed results on Asian bourses, EU equities opened hesitant. German Bunds remained close to unchanged throughout the day, but maintained a downward bias as risk sentiment remained cautiously upbeat. The German yield curve is bear steepening with changes up to +3.1 bps (30-yr). US Treasuries stabilized as well during European trading, but made another attempt lower on a stronger than expected US Empire Manufacturing result for April. The confidence gauge printed 10.1, up from 3.7 in March and well above market expectations. However, the subcomponent for the future business conditions dropped to its lowest level in over three years, possibly explaining why US Treasuries paired its (limited) losses right away. The US yield curve is flattening with changes in the range of -0.7 bps (30-yr) to +0.6 bps (2-yr). Peripheral spreads over the German 10-yr yield are close to unchanged.

Dollar trading developed within extremely narrow trading ranges. Risk sentiment during European trading hours was less ebullient compared to Asia this morning. The dollar nevertheless remained in the defensive. EUR/USD retested Friday’s intraday high around 1.1320 several times but the hurdle remains too high for now. The couple does recapture the 1.13-mark (1.1310 at the time of writing). USD/JPY had been losing territory throughout the day. A better than expected headline NY manufacturing index (10.1 vs. 8.0 expected) failed to produce a convincing (and lasting?) move back above 112 as underlying (forward looking) details were outright weak. Friday’s rally clearly dwindled today. Markets want that end of week optimism validated by more evidence before engaging in the same directional positioning. Corporate earnings and guidance, important Chinese growth data on Wednesday and PMI business confidence in the euro zone this Thursday will be closely watched.

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British parliament is in recess until April 23 but negotiations between May and Labour’s Jeremy Corbyn continue. Talks happen behind closed doors and little juicy headlines escaped the room. Sterling initially stayed under pressure at the start of European dealings but soon took the upper hand, erasing most of Friday’s losses. The moves were technically irrelevant though. EUR/GBP is trading around 0.862 (vs. 0.865 at the start of the sessions) at the time of writing. Cable traded with an upward bias at 1.31, profiting from some overall dollar weakness.

News Headlines

The US Empire Manufacturing business survey rebounded more than expected in April, from 3.7 to 10.1 (vs 8 consensus). Details show that new orders, shipments and inventories contributed positively. However, the index for future business conditions (6m ahead) dropped by 17 points to 12.4, the lowest level in more than 3 years.

The European council greenlighted the start of trade negotiations with the US. EU trade commissioner Malmström hopes to seal a deal by September. The directives for the negotiations cover two potential agreements. The first one is strictly focused on industrial goods, excluding agricultural products. The second one is focused on conformity assessment, to make it easier to prove products meet technical requirements.

Goldman Sachs’ quarterly earnings fell by a fifth, but manages to beat estimates. Tough trading conditions, lower private equity profits and smaller transaction revenues were to blame even if pay costs were cut by 20%. The expected strategic review is postponed by a year. Citigroup earnings also beat consensus, thanks to expense control and share repurchases. Their battle to raise revenue persists.


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