Both the news flow and the economic calendar was extremely thin throughout the trading day. European risk sentiment remained constructive after an already blistering start of the week yesterday while the US had some catching up to do. China sought to defuse some of the lingering (geo)political tensions (US, Hong Kong), boosting overnight/Asian mood. European markets built on reports of development plans for a Covid-19 treatment and vaccine and more signs of a return to normal (cf. infra). EMU stocks advance 1% to 1.7%. US equities open some 2% higher with a technically important move occurring in the S&P 500. Core bonds lost ground today with the German Bund marginally underperforming US Treasuries. The German yield curve bear steepened with yields advancing 3.5 bps (2-yr) to 6.2 bps (10-yr). Germany’s 2-year auction (€5 bn) met the strongest demand in 13 years today with a 3.3 bid-to-cover as investors profited from the highest yields in a month. France announced it will most likely launch a new syndicated OAT 20y benchmark tomorrow. Peripheral spreads to the core narrow. Spain (-8 bps) and Greece (-9 bps) outperform. US yields eke out 1.2 bps at the short end of the curve while adding 4 bps (10-yr) to 6 bps (30-yr) at longer tenors.
The dollar fainted against the background of risk-on. DXY (trade-weighted greenback) slipped from the 99.8 area towards 99 but stopped short of an actual test. USD/JPY headed to 108 during early trading hours but that move soon ran out of steam. The currency pair is now filling bids near 107.4. EUR/USD was in a particularly good shape. Barring a mid-day dip, the pair headed straight north before hitting resistance at 1.098 but is trading close to that intraday high at the time of writing. The ongoing constructive risk climate also bodes well for the pound sterling. Adding to the currency’s momentum was the prospect of the economy opening up again by mid-June. Meanwhile, the disarray within UK PM Johnson’s cabinet continues as one government minister resigned. He did so in protest after Dominic Cummings, Johnson’s top aide, refused to apologize for allegedly breaking the lockdown rules. It is of no significance for the pound today though. EUR/GBP declined from 0.894 and is currently testing the 0.89 support zone (0.888). GBP/USD (cable) spiked as the dollar for its part traded heavy. The couple rose from 1.22 to 1.234.
DPA reports that German Chancellor Merkel’s cabinet could tomorrow approve a plan to lift a travel warning for tourists for 31 European countries (27 EU member states, Iceland, Norway, Switzerland and Liechtenstein) from June 15. Italian FM Di Maio called that date Europe’s “D-Day” when it comes to tourism ahead of the crucial summer season. The German plan is obviously contingent on continuing positive trends in the coronavirus pandemic.
The Hungarian central bank (MNB) kept all of its policy rates unchanged. The MNB is happy with tools introduced over the past weeks which increased its room for manoeuvre in challenging economic conditions. The Monetary Council continuously assesses incoming data and changes in outlook will use every instrument at its disposal to achieve price stability and to support the Hungarian economic and financial system. EUR/HUF continues trading around 350.