Global core bonds traded near yesterday’s sell-off lows during European dealings amid an empty eco calendar. Investors counted down to huge batch of US eco data. Inflation (PPI) once more beat expectations, but was offset by mixed business sentiment indicators and disappointing hard data (production). While this combination was no hurdle for a huge bond sell-off yesterday, it was the case today. A lackluster attempt to head to the lows was countered by some short term profit taking. The US yield curve flattens at the time of writing with yield changes ranging between +2.9 bps (2-yr) and -1.6 bps (30-yr). The German yield curve bear steepens with yields 0.6 bps (2-yr) to 1.7 bps (30-yr) higher. On intra-EMU bond markets, 10-yr peripheral yield spread changes versus Germany narrow 2 to 4 bps with Greece (+2 bps) underperforming.

Dollar weakness was still the name of the game early in European dealings. The move occurred amid a positive equity sentiment. EUR/USD filled offers just north of 1.25. However, the risk rally and the decline of the dollar both slowed going into the US trading session. US eco data were mixed, but the PPI price data again surprised on the upside of expectations. US yields, especially at the short end of the curve, held close to recent highs. The data had little impact on USD trading. Maybe the PPI report helped to prevent a new USD downleg. EUR/USD is trading in the 1.2480 area. USD/JPY hovers around 106.40. For now we look out whether the recent pattern of equity gains causing USD selling will persist.

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There were no important UK eco data today (UK retail sales are scheduled for tomorrow). Yesterday, sterling remained in the defensive as the ‘Road to Brexit’ speech of UK foreign affairs Minister Boris Johnson suggested that Britain could be heading for a hard Brexit. EUR/GBP traded temporary north of 0.89, but a real test of the 0.8928 intermediate resistance didn’t occur. Some correction kicked in. This correction continued today. Technical consideration probably prevailed. There were also rumours that the EU could be less strict in the implementation/ sanctioning of rules during the transition period. EUR/GBP trades currently in the 0.8870 area. Cable rebounded to the high 1.40 area, but this is mainly a story of USD weakness.

European equities mostly show modest gains of about 0.25%, with France outperforming (1.3%). US indices try to extend yesterday’s impressive rebound and are gaining between 0.5% and 1.0%.

News Headlines

US President Trump said he would support a 25-cent-per-gallon increase in federal gasoline and diesel taxes to help pay for upgrading American roads, bridges and other public works.

US eco data printed mixed to stronger. US weekly jobless claims continued to hover around multi-decade low (230k), providing more evidence of the strong US labour market. PPI headline (0.4% M/M, 2.7% Y/Y) and core inflation (0.4% M/M, 2.2% Y/Y) rose more than forecast in January, posting yet another upward surprise on the US inflation front. Regional business indicators parted ways with an increase and positive surprise for the Philly Fed Business outlook (22.2 to 25.8) and a bigger-than-expected decline in the Empire manufacturing survey (17.7 to 13). Industrial production disappointed in January (-0.1% M/M) with a downward revision to the December figure (0.4% M/M)


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