Global core bonds gain ground today with German Bunds outperforming US Treasuries. Risk sentiment turned sour overnight with nearly all Asian equity indices edging down. Core bonds maintained an upward bias overnight ahead of the European trading day. The European PMI’s were key today as investors sought confirmation of the stronger-than-expected Chinese growth data. French PMI’s kicked-off and immediately set the tone: a weak manufacturing subcomponent and a solid services result. However, it took a similar German result to entail a market reaction. German Bunds jumped higher and found more backing after the PMI result for the entire eurozone printed disappointing as well. The German yield curve is bull flattening with changes in the range of -0.7 bps (2-yr) to -5.3 bps (30-yr). US Treasuries behaved similar to German Bunds throughout European dealings and edged higher. However, strong US retail sales beat expectations by a landslide and caused US Treasuries to retreat, though rather limited as the Philly Fed business outlook disappointed at the same time. Despite the strong retail sales, US Treasuries kept an upward bias at the start of the US trading day. The US yield curve is moving lower with changes up to -2.9 bps (10-yr).

EUR/USD suffered from a double setback today, the first occurring this morning. EMU PMI’s missed estimates again. They highlighted the euro zone’s struggle to recover from what is still considered a temporary (but drawn-out) slowdown. Key US data (retail sales, jobless claims) later surprised (strongly) on the upside. The economic straddle caused the US/German interest rate differentials to widen in favour of the dollar. EUR/USD nosedived on the poor PMI’s and extended losses after the US numbers. The couple is hovering near 1.125. The trade weighted dollar  jumped to recent highs around 97.4. USD/JPY temporarily spiked above 112 before retreating to around 111.90.

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UK retail sales ended the first quarter on a strong note, rising for a third consecutive month in March and overwhelming market estimates (1.1% MoM vs. -0.3% expected). February saw its data revised upwardly. Sterling’s reaction was only lukewarm given the magnitude of the surprise. Markets avoid any directional sterling long exposure as long as Brexit remains as unclear as is the case today. Talks between PM May and Corbyn to strike a cross-party agreement have been going since the EU agreed to postpone Brexit with another 6 months. But the lack of any concrete news during these low-volume holiday trading sessions results in uninspiring sideways water treading. EUR/GBP is changing hands at 0.864, down from 0.866 this morning and at least partially related to euro weakness. Cable is pressured by an overall stronger dollar. The support area at 1.30 is vulnerable.

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US eco data were mixed. Weekly jobless claims (192k) remains for a 2nd straight week below 200k which is the lowest level since the late 60’s. The Philly Fed Business outlook fell more than expected, from 13.7 to 8.5, and the index on the outlook for future activity fell to its lowest since 2016. US retail sales were today’s positive surprise with the control group, a proxy for consumption in US GDP, rebounding by 1% M/M after a 0.3% M/M decline in March.

The Swedish unemployment rate unexpectedly surged from 6.3% to 6.7% in March. Figures put the central bank’s resilience to raise the policy rate (-0.25%) to 0% by the end of the year in doubt. The Riksbank meets next week. EUR/SEK rose towards 10.50 despite today’s euro weakness.

Eurozone PMI’s deteriorates further in April (composite 51.3), suggesting the EMU economy continues running at a pace of tops 0.2% Q/Q. The spread between the (external) manufacturing sector, in recession territory, and the (domestic) services sector remains large. On a national level, both Germany (composite 52.1) and France (composite 50) couldn’t convince.


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