The German Bund opened lower today, catching up with the Note future’s weakness in yesterday’s US close. Trading developed in a narrow sideways range after this opening. The US Note future marginally underperformed with US yields lured by key resistance levels. The 5-yr yield tested the 2.42% mark (2011 top), but a break didn’t occur. The US 10-yr yield pierced through 2.6% and heads for a test of the 2016 & 2017 top at 2.63%/2.64%. The move in the US Note future was a slight extension of yesterday’s reflation boost. Today’s mixed US eco data didn’t impact trading. The German yield curve bear steepens at this moment with yield changes ranging between -0.3 bps (2-yr) and +2.2 bps (30-yr). The US yield curve shifts in similar fashion with yields 0.8 bps (2-yr) to 2.6 bps (30-yr) higher. 10-yr yield spread changes versus Germany are narrowly mixed with Italy, Spain and Portugal outperforming (-3 to 4 bps). The Austrian treasury launched a new 10-yr bond via syndication (€4bn Feb2028). The bond was priced to yield MS -18 bps compared to MS -17 bps guidance. Total bids exceeded €15bn.

USD trading was technical in nature today. After a nice rebound yesterday, the dollar gained few more ticks in Asia this morning, but the additional ‘gain’ couldn’t be sustained. The dollar even faced again modest selling pressure during European dealings. This was especially the case for USD/EUR. USD/JPY showed a bit more resilience. ECB’s Weidmann at a conference in Frankfurt rejected IMF calls for Germany to reduce its surpluses. The impact on markets was limited. The interest rate differentials widened again slightly in favor of the dollar. It was not enough to help the dollar, as was often the case of late. The US data were mixed and mostly softer than expected (housing data & Philly Fed), but jobless claims declined to a very low 220 000. The data hardly affected USD trading. EUR/USD trades in the 1.2240/50 area. USD/JPY hovers near 111.20. In a broader perspective, the dollar trades off the intraday lows, but there is still no clear technical sign that a more sustained USD rebound might be on the cards.

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Over the previous days, sterling was in relatively good shape even as there were no eco data or Brexit news to support the move. EUR/GBP maintained most of yesterday’s (largely euro inspired) decline. A break below the 0.8810 area could open the way to the 0.8700 range bottom which we assume to be solid. The December UK retail sales data scheduled for tomorrow are the next point of reference for sterling trading.

Most European equity indices trade with limited gains after a big underperformance versus the US yesterday. US indices open with marginal losses today awaiting more guidance from earnings from bellwethers in the coming days.

News Headlines:

Britain’s statistical agency has made mistakes in its measurement of the telecoms sector, failing to spot huge cost-efficiencies of up to 90% over a five-year period, it admitted this week. The error, which covers the period from 2010-2015, means that inflation statistics may have been significantly too high and economic growth figures too low.

Republican leaders in the US Congress stepped up their efforts to pass a temporary extension in funding government operations and avert a shutdown, scheduling a vote on the measure for later today.

US filings for unemployment benefits plummeted to the lowest level in almost 45 years (220k) in a sign the job market will tighten further in 2018. Building permits printed close to expectations for December (-0.1% M/M), but housing starts disappointed (-8.2% M/M). The January Philly Fed Business outlook dropped more than forecast, from 27.9 to 22.2. Details showed declines in the activity components while price components surged.


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