Markets

Global core bonds managed to erase (most of) early losses today despite risk sentiment improving overnight as the Chinese first quarter GDP data outperformed expectations. Despite Chinese equities struggling to profit, core bonds fell lower on the news. However, a larger than expected drop in EU28 March car registrations stabilized the German Bund ahead of the EU opening bell. Investor sentiment remained cautiously upbeat pushing equities in green territory at the start of the day. The first outcome of March Eurozone inflation was confirmed and couldn’t surprise investors. The German ministry of Economy slashing its 2019 economic growth forecast in half (see below) was all the more surprising. The German Bund couldn’t profit on the news and even lost some additional ground as China is considering stimulus measures to bolster consumption. As investors joined trading, core bonds undid part of its intraday gains. The German yield curve is moving higher with changes in the range of -0.1 bps (2-yr) to +1.1 bp (10-yr). US Treasuries temporarily lost additional ground after the US Trade Deficit narrowed 3.4% (to $49.4bn) in February, but paired all losses as WS opened the doors. The US yield curve is moving lower with changes up to -0.6 bps (2-yr) as core bonds stage a comeback as US dealings kick in.

EUR/USD spent most of the European trading session north of 1.13, but failed to take the post-ECB high of 1.1324 out. The main upleg already occurred already in Asian trading after Chinese activity data shelved most pessimistic growth outlooks by (significantly) beating consensus. EUR/USD climbed away from yesterday’s low around 1.1280 upon the release. USD/JPY (112) for now remains below the 112.14 March high despite positive risk sentiment. Second-tier EMU eco data failed to impact trading. Germany cut its economic forecasts for a second time this year, projecting only 0.5% growth in 2019 and 1.5% in 2020. The Minister of Economy dashed all hopes on additional fiscal stimulus despite lackluster growth. This at least partly explains the single currency’s reluctance to add gains despite thriving stock markets (Chinese fiscal stimulus rumours). Investors probably also keep tomorrow’s EMU PMI’s in mind. Front end yield differentials between the EU and US remained broadly stable. As US investors enter dealings, we witness EUR/USD returning below the 1.13 mark. Speeches by Fed Harker and Bullard are wildcards tonight. The Fed’s Beige Book could show more anecdotic evidence of an activity slowdown in the US.

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EUR/GBP followed EUR/USD higher for most of the day. The pair currently trades around 0.8665. UK inflation data printed a tad softer than expected in March (1.9%Y/Y for headline and 1.8% Y/Y for core reading), but UK eco data are currently the last thing on UK investors’ minds. The UK parliament’s Easter recess unfortunately bring Brexit drama to a low level as well, resulting in unattractive technical trading.

News Headlines

The German government cut its forecast for 2019 economic growth for the second time in three months, from 1% to 0.5%, as the recession in the manufacturing sector deepens. Domestic demand should help offset this weakness. For 2020, the government expects a consumption-driven rebound with 1.5% growth.

China reportedly drafted a new series of stimulus measures in a latest attempt to stimulate consumption and mitigate the effect of the trade dispute. They would include subsidies for new-energy vehicles, smartphones and home appliances. The proposals are still at a primal stage and are without guarantee of eventually being approved.

ECB Governing Council member Nowotny expects the euro-economy to at least stabilize in the second half of this year. He therefore doesn’t expect the Central Bank to significantly lower its growth forecasts in June as he assumes there will be a solution to the US-China trade conflict.

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