Today’s most eye-popping development came at the start of EU dealings on EU rate markets. Curves rapidly started bear steepening, lifting long term yields to fresh recovery highs. The German 30-yr yield even tested the 2020 high (0.38%) for a first time. In absence of eco data – apart from a downwardly revised but still sky-high final EMU manufacturing PMI – we look in the direction of German election polls to explain the move. First voting intentions since the announcement of Chancellor candidates showed a surge in support for German Greens with the CDU/CSU bloc dropping to second. A Green Chancellor is from a market point of view seen as a proxy for a looser German fiscal stance. The bear steepening of EU yield curves didn’t last though and occurred in thin dealings with UK markets closed for May Day holiday. The German yield curve currently even flattens with yield changes ranging between 0.3 bps (2-yr) and -0.4 bps. (30-yr). The US yield curve moves in similar fashion ahead of the ISM manufacturing release: between +0.4 bps (2-yr) and -1 bps (30-yr). The ISM eventually disappointed, falling from 64.7 to 60.7 (vs 65 expected) as supply chain struggles hamper production, inflicting some damage to US yields and USD in a 1st reaction.
The US dollar returns some of Friday impressive, but also contentious gains. The trade-weighted greenback slides towards the 91 big figure with EUR/USD changing hands around 1.2050 ahead of the ISM. The euro was initially inspired by the move on EU FI markets. News that Germany is looking to ease lockdown restrictions by the end of the week didn’t really filter through markets. Later today and this week, we are eager to find out whether or not the dollar remains as stoic to better economic news than it did during much of the month April. Other eye-catchers are the US Treasury’s quarterly refinancing statement on Wednesday and speeches by central bank governors. Non-voting Dallas Fed governor Kaplan was the first to openly break ranks with the current omerta on tapering asset purchases in a context of stellar US economic growth. EUR/GBP’s umpteenth attempt to push beyond 0.87 resistance again failed miserably and this time even encouraged some to throw the towel in the run-up to Thursday’s Bank of England meeting. A more bullish economic tone in the updated inflation report can lift the BoE some spots on the global normalization ranking. EUR/GBP is about to fall through the daily bottoms of the past 7 trading day at 0.8670.
The European Commission proposed to open its borders for visitors from countries with relatively low infection rates as well as for those who are fully vaccinated with one of the shots approved by the EU drug regulator and, if national governments choose to, by the WHO. These new rules replace the current ban for non-essential travel to the EU for residents of many countries and come just in time for the summer travel season.
Turkish inflation accelerated a little less than expected from 16.19% in March to a 2-year high of 17.14% in April. Core inflation soared to 17.77% vs. 16.88% in March and 18.35% expected. Speedier price developments are in part the result of base effects (inflation in April last year marked the pandemic-driven trough). Transport (1.68% m/m), clothing & footwear (7.57%) and food & nonalcoholic beverages (2.13%) added to the upward pressures. In its inflation report published last week, the CBRT expects upward momentum to have peaked in April, suggesting it may not need to hike rates beyond the current 19%. The central bank meets on Thursday.
The EU and India plan to revive talks on a comprehensive trade deal. Both sides could announce a relaunch of the negotiations as soon as Saturday. Earlier talks stalled in 2013 over tariff rules for car parts and free-movement rights for professionals. Over the course of years, political momentum has shifted as both the EU and India seek for ways to respond to the increasing economic dominance of China in the region.