Global core bonds continue to gain ground today. This morning, Chinese state-run media accused the US of starting a “technology cold war”, while China’s Commerce Ministry added that the US needs to correct its wrong actions and show sincerity if it wants to continue trade negotiations. Those kinds of headlines doesn’t strike us as one of the parties is close to making the first peace offer, and continues to weigh on financial markets. Core bonds opened higher. Soft EMU PMI’s and a disappointing German Ifo survey further weighed on sentiment. The minutes of the ECB  April meeting yielded little news and had no impact on trading. The German yield curve is currently moving lower with losses up to -2.5 bps (10-yr). US investors joined the debates and tried to turn the tide, but risk-off rapidly continued. This week’s jobless claims printed 211k, close to expectations but overall impact remained limited. The US yield curve is edging lower with yield changes up to -3.5 bps (5-yr). Peripheral spreads over the German 10-yr yield are widening with Greece (+4 bps) and Italy (+4 bps) underperforming.

The escalation of the trade war remained the dominant factor for global FX trading, but EMU confidence data also (PMI’s /IFO) had potential to inspire some moves in the euro. The overall EMU composite printed close to expectations, but indicated that growth remains sluggish in Q2. German IFo business climate also missed the consensus even as the forward-looking sub-index provided a glimmer of hope. EUR/USD already drifted lower in the run-up to the publication of the EMU confidence data. The pair the settled in in the 1.1130/40 area. Equities suffered substantial losses and US yields declined more than German ones. US jobless claims (211 K) still suggest a healthy US labour market, but were also ignored. Initially, this constellation had little impact on EUR/USD, but finally the law of gravity pushed EUR/USD toward the 1.1112 2019 low (test ongoing at the moment of writing). The risk-off again supported modest yen gains. USD/JPY returned to the psychological 110 barrier. So, the risk-off remains slightly supportive for the USD (ex-USD/JPY) with the US currency (trade-weighted and/or USD/EUR) testing key technical levels.

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Sterling remained in the defensive today, but the recent declined slowed at least temporary. Uncertainty on the Brexit process and the battle within the conservative party to replace PM May are sterling negatives. Markets also keep an eye at the outcome of the EU parliamentary election in the UK. Technical considerations were maybe in play to ease the sterling sell-off. EUR/GBP twice (yesterday and today) tested the 0.8840 resistance area, but no sustained break occurred. This ‘rejected’ test might be caused by some GBP-shorts to take some chips off the table. The EUR/USD decline also weighed slightly on EUR/GBP. The pair is changing hands in the 0.8800 area. Cable touched a minor new correction low in the low 1.26 area, but trades currently again in the 1.2640 area. Even so, the global picture for sterling didn’t occur.

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Confidence data suggest EMU growth to remain sluggish in Q2. The EMU composite PMI rose only marginally from 51.5 to 51.6. The manufacturing measure slipped further in contraction territory (47.7).The services PMI also disappointed at 52.5 (from 52.8). The May PMI indicates EMU Q2 growth at 0.2% Q/Q according to IHS Markit. German manufacturing activity also continued to suffer (44.3). French PMI’s/confidence data improved more than expected. Aside from the PMI’s, German ifo Business climate dropped from 99.2 to 97.9, mainly due to a decline in the current conditions assessment.

Crude oil extended losses. Brent oil fell below the $70 p/b. The US WTI contract dropped to $60 p/b. The correction accelerated after an unexpected rise in US inventories yesterday. Ongoing uncertainty also raises questions on expected global demand for oil.


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