In technical trade, US and European bonds stabilized after recent losses. Contrary to what was the case recently, German Bunds outperformed US Treasuries. US yields decline between 0.4 bps (2-yr) and 2.3 bps (30-yr). The German yield curve also bull flattens with yields declining between 0.6bps (2-yr) and 4.6 bps (30-yr).
The recent USD decline halted today. EUR/USD came within reach of the 1.2092 2017 top yesterday, but a real test/break didn’t occur. German labour data were strong as expected, confirming other evidence of strong growth in Europe’s largest economy. They couldn’t inspire further euro gains though. Interest rate differentials widened marginally in favour of the dollar. For now this was enough for the USD decline to take a breather. EUR/USD traded in the in the 1.2025 going into the publication of the US manufacturing ISM. The ISM report was strong (59.7), potentially supporting further USD gains.
USD/JPY held a tight sideways trading in the lower half of the 112 big figure. The slight decline in core bond yields combined with a modestly positive risk sentiment kept USD/JPY trading in balance. Japanese markets still enjoyed a banking holding this morning, keeping yen trading at lows levels.
Sterling trading was mostly technical nature. EUR/GBP declined early in the session, inspired by an overall intraday setback of the euro. The pair bottomed in the 0.8850 area. In the same context, cable (currently 1.3530 area) lost slightly ground as the dollar was in better shape across the board. In the afternoon, sterling weakness added to the negative momentum in this cross rate. The UK construction PMI was slightly weaker than expected, but had little impact on sterling trading. Tomorrow’s services PMI has more market moving potential.
Ireland sold €4 bn of its 5/2028 bond, the maximum amount targeted. The bond was priced at MS +2bp. The order book amounted above €14bn, showing strong investor buying interest. The strong performance of Irish bonds in the wake of the sale also supported sentiment on other intra-EMU bond markets. Yields spreads versus Germany narrowed marginally with Greece outperforming (-5 bps).
Global equities held a positive bias today. European equities show gains of about 0.5%. The slowdown of the rise of the euro removed a negative factor that weighed on regional equities yesterday. USD equities also opened again in positive territory showing gains of about 0.5%. The Nasdaq again outperforms
News Headlines
The German unemployment rate declined to 5.5% in December, a post-reunification low. The jobless total fell 29K. Only a decline of 13K was expected. The number of vacancies rose to 790k in December, indicating labour shortages in several sectors of the economy.
Growth in Britain’s construction sector slowed last month for the first time since September. The IHS Markit/CIPS UK Construction PMI slipped to 52.2. It hit a five-month peak of 53.1 in November. The survey outcome was below the consensus forecast of 53.00.
Polish inflation declined to 2.0% Y/Y in December from 2.5% Y/Y in November. The figure was marginally lower than expected. However, the move mostly reflected a base effect from end 2016 that was not repeated in 2017. The zloty maintained recent gains despite the softer inflation report. EUR/PLN trades in the 4.16 area.
