After a risk-off session yesterday, investors in Europe and the US were in a better mood today. European and US equity indices mostly rise between 0.5% and 1.5%. There wasn’t one unequivocal driver for this turn in sentiment. A rising oil price probably supported part of the (equity) markets. Saudi Arabia was reported to have raised prices. Combined with production cuts of the OPEC+ group put in place last month, it might be a sign that the imbalance between supply and demand in this market is gradually decreasing. Headlines on the China-US political and trade tensions stay mixed, at best. The US continues to challenge China on the origin of the corona virus and president Trump wants to evaluate whether China is delivering on its promises under the Phase One of their trade deal. In the current environment, it won’t be easy for China to fulfill promises on buying US goods. So, this remains an source of market uncertainty. However, markets maybe see some silver lining as both parties will hold high level talks next week. Regarding the data, French and German production data and Italian retail data (March) again printed even worse than expected, this time with limited market impact. US jobless claims printed at a still high 3.2 mld. Even so, it all didn’t prevent markets to look forward to the gradual restart of economy in Europe and the US. After yesterday’s supply-drive rise in yields, core US and European bond markets showed no directional trend today. US and German yields decline less than 2bps. On the intra-EMU bond markets, peripheral spreads widen slightly but the widening after the German court ruling basically has slowed. Moody’s reassessing the Italy’s Baa 3 rating tomorrow, might be next important reference for European bond markets (and for the euro).

On the FX markets, the euro remained in the defensive. The pair hovered in tight range near the 1.08 pivot. Even so, it touched a minor correction low for the week and key support at 1.0727 still is within striking distance in case of any negative headlines on whatever subject. The recent rise of the yen took breather today with USD/JPY rebounding intraday from the 106 area to currently trade near 106.50. The BoE as expected kept its policy rate today at 0.1%. For now, it also kept the target amount of asset purchases unchanged at £ 645 bln. However, two governors voted to already raise the QE amount by £ 100bln. At the same time, current target might be hit by July. With the BoE committing to act as necessary, further easing in June is likely, especially as the bank expects a sharp economic contraction this year (-14%). Despite the prospect of further stimulus, sterling initially showed some kind of a temporary short squeeze after the BoE policy decision but the move had no strong legs. EUR/GBP is again trading in the 0.8750 area. Cable is trading in the low 1.23 area. Headlines form EU politicians on the UK-EU trade talks suggested that the UK didn’t indeed to EU-UK trade talks to be successful.

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The Norges Bank unexpectedly cut its policy rate from 0.25% to 0%. Governor Olsen said that the policy rate will likely remain unchanged though 2023 given the current assessment of the outlook and balance of risks. The central bank doesn’t envisage negative policy rates. The Norwegian Krone nevertheless rose further with EUR/NOK falling below 11.10 support. The strength might be due to the Norges Bank revealing that it made extraordinary purchases in the FX market (NOK 3.5bn) to prop up the ailing currency in March.

The Czech National Bank lowered its policy rate by more than expected (75 bps) to 0.25%. The central bank also adopted additional measures which will be revealed later today. The Czech Koruna faces some selling pressure today with EUR/CZK currently around 27.20.


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