Both German and US bonds oscillated around opening levels during a subdued trading session that saw markets sidelined ahead of today’s US GDP figures. Growth surpassed expectations by a landslide, printing at 3.2% QoQ annualized (up from 2.2% last quarter) vs. 2.3% expected. However details showed a rather meagre contribution from private consumption, the US economy’s backbone. Volatile components such as inventory buildup and especially net exports were this quarter’s strongholds. German and US bonds showed a similar market reaction with moves obviously more outspoken in the latter: slipping on the headline but recovering and even gaining shortly after as growth contributors were scrutinized. The US yield curve bull steepens with changes varying from -5bp (2-yr) to ‑3bp (30-yr). The German curve bull flattens as short term rates are roughly stable while the 10-yr yield slips about 1 bp. Peripheral spreads over Germany narrow up to 2 bps in Portugal and Spain. Italian bonds show remarkable strength ahead of tonight’s S&P rating review (BBB with negative outlook), causing the spread to narrow 4 bps.

There was no news at all to guide EUR/USD trading this morning. The pair was paralyzed in a tight range in the 1.1130/40 area. The dollar spiked briefly higher upon the release of better than expected headline US Q1 growth. However, the move was immediately reversed as USD investors became aware of the rather disappointing composition of the growth mix. EUR/USD is currently trading in the 1.1150 area. The dollar thus trades marginally weaker against the euro compared to yesterday’s close, but the pair holds below previous 1.1177/87 support area. USD/JPY spiked to retest the 112 big figure, but currently trades again in the 111.65 area. The Q1 growth report won’t be a game changer for USD trading.

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Today, sterling also showed no clear trend. EUR/GBP hovered in a tight range near 0.8630. UK CBI order data and business confidence showed a mixed picture. Confidence in the industry improved from -23 to -13 on April, but expectations for exports orders were at a post-crisis low. The report had little impact on sterling trading. The government will continue Brexit talks with labor next week, but there are no concrete indications on whether/how the Brexit impasse will be solved. EUR/GBP is trading in the 0.8630 area. Cable tries to regain the 1.29 as the dollar is losing slightly ground after the Q1 GDP release.

News Headlines

The Bank of Russia today as expected kept its key interest rate unchanged at 7.75%. The bank indicated that if the situation develops as expected, it might turn to cutting the rate in Q2-Q3 2019. USD/RUB was steady following the central bank decision but is losing territory after the US GDP release.

At the SNB’s annual shareholder meeting, Chairman Jordan said that abandoning the negative interest rate in the current environment would weigh heavily on the Swiss economy and would cause the franc to appreciate. He reiterated that risks to financial stability will have to be addressed with focused macro-prudential measures.


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