Markets
Global core bonds corrected higher today. The move mainly occurred ahead of the start of the US trading session. Additional gains for oil and stocks couldn’t counter the upleg. The end of this week’s US supply operation and a preference for a more neutral positioning into next week’s important events probably added to today’s technical repositioning. Technically, the US 30-yr yield failed to break above 3.22% resistance, which probably added to moves. EMU headline inflation as expected was downwardly revised from 1.4% Y/Y to 1.3% Y/Y. The German yield curve bull flattens at the time of writing with yields 1.5 bps (2-yr) to 4.3 bps (30-yr) lower. The US yield curve shifts in similar fashion with yields 0.8 bps (2-yr) to 3.1 bps (30-yr) lower. Peripheral yield spreads vs Germany add 4 to 6 bps. Belgian OLO’s don’t underperform after the Kingdom’s announcement that it intends to issue an inaugural syndicated green OLO next week (OLO 86 Apr2033).
USD trading was also mostly technical in nature. Core yields eased further but the move was again more or less parallel between the US and EMU, leaving little guidance for EUR/USD trading. Investors are probably looking forward to next week’s EMU event risk with the ECB meeting, the Italian elections and the outcome of SPD member vote on a new German government coalition. With the market positioned long euro/short dollar, this might cap the topside in EUR/USD. The pair hovers near the 1.23 big figure. At the same time, USD/JPY also maintains a slightly negative bias (currently 106.80 area). The combination of both EUR/USD and USD/JPY tendencies pushed EUR/JPY back lower in the key 132/131 support area. For now, the move remains orderly with little impact on other markets. However, EUR/JPY still deserves monitoring.
Sterling traded with a positive bias against the euro, and to a lesser extent against the dollar. There was a brief intraday drop (reportedly due to low liquidity), but it was reversed soon. UK PM PM May will give her speech on Brexit on March 02. For now, we didn’t seen any concrete new steps of progress in the run-up to next month’s Brexit negotiations. BoE’s Ramsden in a speech indicated that Brexit is likely to weigh on UK productivity. This also contains an upward inflation risk, supporting the case for further BoE policy tightening. EUR/GBP drifted below 0.88. Cable hovers below 1.40. We maintain the view that more concrete progress on Brexit is needed to cause sterling gains beyond the 0.8690 support.
News Headlines
EUR/SEK jumped well beyond the psychological barrier of 10.00, marking the weakest level of the krona against the euro since November 2016. The minutes of the Riksbank’s latest policy meeting suggest that the timing of a first rate hike might be postponed. Until now, the Riksbank signalled a first rate hike in the second half of 2018.
Canada’s inflation declined in January to 1.7% Y/Y from 1.9% in December as consumers paid less for gasoline and vehicles, offsetting a pick-up in the cost of food. However, the decline was less than expected (consensus 1.5%) while underlying inflation firmed. CPI common, which the central bank says is the best gauge of the economy’s underperformance, rose to 1.8%, the highest since April 2012.
Banks in the European Union will have eight years to write down bad debts backed by collateral under proposals from the European Commission designed to tackle their 759 billion euros ($933.19 billion) in soured loans, a source familiar with the matter said on Friday.
U.S. House Financial Services Committee announces the date of Federal Reserve Chairman Jerome Powell’s semi-annual testimony has been brought forward one day to Feb. 27, at 10 a.m. in Washington, due to a change in the House schedule.
