Global core bonds gain ground today. WS closed yesterday’s session at all-time highs, supported by better-than-expected corporate earnings. However, that didn’t spill-over to FX/FI markets with core bonds maintaining this week’s upward trend. European equities failed to track WS gains and edged lower at opening, further supporting core bonds. German ifo business confidence printed below expectations and failed to confirm last month’s cautious rebound. German Bunds gained some more ground and continued the upward path throughout the day, causing the German 10-yr yield to enter negative territory again. The German yield curve is bull flattening with changes up to ‑5.5 bps (30-yr). US Treasuries followed the Bunds’ move higher ahead of the US opening, with no US economic data other than more Q1 corporate earnings lined up to guide investors. The US yield curve is edging lower with changes in the range of -2.5 bps (30-yr) to -4.1 bps (5-yr). Peripheral spreads over the German 10-yr yield are little widening with Italy (+2 bps) underperforming.

Since mid last week, EUR/USD traded with a negative bias. Downside pressure was mainly inspired by ongoing sluggish EMU eco data, including disappointing April EMU PMI’s. At the same time, the dollar enjoyed some kind of ‘by default’ bid. US data are mixed, but there is no reason yet for (FX) markets to position for a softer Fed compared to what is currently discounted. First US corporate earnings also left a rather constructive sentiment on the US economy. This combination of doubts on Europe combined with graded optimism on the US persisted today. The German ifo business confidence was today again unconvincing. EUR/USD initially lost little ground. However, as was  often the case of late, the dollar again captured a better bid at the start of the US session. EUR/USD is currently testing the 1.1187 (62% retracement MT)/1.1177 (correction low) support area. A break would further hurt the technical picture in the cross rate. The dollar is also holding up well against the yen, but still fails to regain the 112.00/112.17 resistance.

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Sterling hovered near recent lows around EUR/GBP 0.87 at the start of European dealings but staged a remarkable comeback around noon. UK government borrowing data were strong but usually have only limited impact on trading. Sterling likely profited from David Lidington’s comments. Britains shadow PM signaled the government is aiming for a kind of customs union that both the Conservatives as Labour can agree to. Part of the move was also driven by euro softness following a weaker than expected German IFO business confidence (see below), raising ever more questions about the long called German recovery. The common currency slipping through/testing technically important levels vs. the dollar (see above) is having follow-through in other currency pairs such as EUR/GBP (currently changing hands at 0.864, down from 0.868 this morning). Cable is trading virtually unchanged at 1.294.

News Headlines

The German IFO Business Confidence gauge fell to 99.2 in April, down from 99.7 last month and below expectations (99.9). The gauge fails to confirm last month’s cautious rebound. The forward-looking component also unexpectedly declined to 95.2, down from 95.6 in March, and suggests the economic recovery will be tougher than expected.

Belgian business confidence unexpectedly dropped from -0.7 to -3.2 in April, the lowest level since September 2017. Consensus expected a stabilization. Details showed weakness in the manufacturing and construction sectors with especially order books under huge pressure. A small rebound in retail/wholesale trade and business-related services couldn’t offset this.


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