Markets
Global core bond markets took a slow start to the trading week, eking out small gains in line with last week. US Treasuries slightly outperform Bunds. The Bund is close to 159.75 resistance (which corresponds with 0.62% in the 10y German yield), but a test didn’t occur. The eco calendar couldn’t inspire trading. St. Louis Fed Bullard kept his role as one of the most dovish members on the FOMC board. Inflation readings (EMU and US) and Fed chair Powell’s testimony before Congress are keeping many investors sidelined. US yields decline by 1.2 bps (2-yr) to 2.7 bps (10-yr) at the time of writing. The German yield curve bull flattens with yields 0.1 bp (2-yr) to 2.2 bps (30-yr) lower. 10-yr yield spread changes versus Germany are nearly unchanged with Italy (-5 bps), Spain (-4 bps) and Portugal (-3 bps) outperforming. Next weekend’s Italian election, which risks producing a political stalemate; doesn’t seem to bother investors. The Kingdom of Belgium launched its debut green OLO via syndication. The 15-yr bond (€4.5bn Apr2033) was priced to yield MS -14 bps, compared to initial price takings in the MS -11 bps area. The green bond printed spot on the regular OLO-curve. Orderbooks closed above €12.7bn.
The dollar started the week on a soft footing in Asia and early in European dealings this morning. There was no high profile news to explain the move. A positive risk/equity sentiment coincided with USD weakness as was often the case of late. Interest rate differentials narrowed slightly against the dollar/in favor of the euro, but we doubt that this was a factor. Whatever, dollar softness eased/was reversed during the afternoon session, despite soft comments from Fed’s Bullard. FX Markets are looking forward to tomorrow’s hearing of Fed Chairman Powell on the Hill tomorrow. There are also plenty of (EMU and US) eco data later this week. Markets apparently don’t want to be too much short dollar going into these events. USD/JPY rebounded back to the high 107 area., EUR/USD reversed this morning’s gains and trades again in the low 1.23 area, awaiting the events to come.
Hawkish comments from BoE’s Ramsden this weekend supported sterling early this morning. At the same time, the UK Labour Party had signaled that its leader would reveal his support for the UK to stay in a customs union with EU after Brexit. This was seen as putting pressure on UK PM May and raising chances on a softer Brexit. EUR/GBP dropped to the 0.8775 area. Jeremy Corbyn’s speech was more or less as expected. The Labour leader said he doesn’t want a new referendum on Brexit, but advocated that a customs union could serve the party’s priority to get the best deal for jobs, living standards and the economy. The sterling rally stalled as the speech didn’t bring any high profile news anymore. The reaction of pro-EMU conservative party members is still highly uncertain and so remains the overall UK roadmap to Brexit. EUR/GBP trades again near the 0.88 barrier. Cable hovers near 1.40.
News Headlines
Labour leader Corbyn in a speech on Monday backed a customs union with the EU after Britain leaves the EU next year, setting the stage for Labour lawmakers to join Conservative rebels in supporting the necessary amendments to trade legislation.
An era of low productivity growth and high world demand for safe assets may be anchoring appropriate central bank policy rates at a low level, St. Louis Fed Bullard said.
US, Mexican and Canadian negotiators seek to narrow disagreements on how to overhaul the NAFTA trade deal despite renewed signs of tension between Mexico and US President Trump over his planned border wall.
