Markets:
We can be rather brief about today’s trading session on core bond markets. Both the Bund and the US Note future hovered near opening levels with US Treasuries underperforming as the US House passed a two-yr budget bill and ended a brief government shutdown. The eco calendar was empty and risk aversion on European stock markets had little spill-over effects. US yields add 1.5 bps (2-yr) to 2.9 bps (10-yr) at the time of writing. The German yield curve bull flattens with yields declining by 0.7 bps (2-yr) to 3.3 bps (30-yr). On intra-EMU bond markets, 10-yr yield spread changes versus Germany widen up to 4 bps (Italy) with Portugal (+7 bps) and Greece (+28 bps) underperforming.
The dollar developed a similar indecisive trading pattern as was the case yesterday. EUR/USD hovered up and down in the 1.22 big figure. The dollar slightly outperformed the single currency this morning as risk sentiment remained very fragile. However, it was insufficient for the dollar to make a decisive step higher. Later in the session, the dollar ceded again slightly ground as global equity selling eased, at least temporary. EUR/USD trades in the 1.2265 area. USD/JPY hovers around 109. There were no important eco data to guide USD trading. Developments on interest rate markets/interest rate differentials also failed to provide a clear directional driver for USD trading. USD traders still don’t really know how to adapt USD positions in the wake of the recent spike in global volatility.
Sterling strengthened temporary yesterday as the BoE signaled that it might raise rates at a faster pace than anticipated until now. However, the gains could not be sustained. Overall risk-aversion and lingering uncertainty on Brexit kept investors cautious to add sterling long exposure. The sterling positive momentum dwindled further today. UK eco data were mixed. Production suffered from a (temporary ) shutdown in an oil pipeline. The UK trade deficit was also wider than expected. Sterling started a new gradual downleg after the data. The decline accelerated around noon as EU’s Barnier warned Britain that a post-Brexit transition period is not a given. The comments are another indication that Brexit negotiations are proceeding on a bumpy road. EUR/GBP spiked higher in the 0.88 big figure (currently 0.8875). Cable tumbled temporary below 1.38, but rebounds slightly as the dollar regained some ground this afternoon (currently 1.3840 area).
News Headlines:
The US Congress ended a brief government shutdown by reaching a wide-ranging deal that is expected to push budget deficits into the $1 trillion-a-year zone. The bill passed by a wide margin in the Senate and survived a rebellion of conservative Republicans in the House of Representatives thanks to the support of some Democrats. President Donald Trump signed the measure into law on Friday morning.
Norway’s economic recovery continued in the fourth quarter led by rising consumer spending and investments. Mainland economic growth, which excludes oil and shipping, expanded by 0.6% Q/Q. At the same time, January CPI was reported soft at 1.6% Y/Y. Core inflation even slowed to 1.1% Y/Y, raising questions on whether the Norges bank will raise rates this year. The Norwegian Krone came under further pressure. EUR/NOK jumped to the 9.87 area.
A post-Brexit transition period is "not a given", the European Union’s Brexit negotiator Michel Barnier warned Britain, saying London had raised "substantial" issues with the plan proposed by the bloc.
British industrial output declined 1.3% M/M in December due to the temporary shutdown of a major oil pipeline, but growth in manufacturing (0.3% M/M and 1.4% Y/Y) pointed to solid growth at the end of 2017.Construction output also showed a surprise surge in December. At the same time, ONS data showed Britain’s goods trade deficit widened more than expected to 13.6 billion pounds in December, due to rising crude oil prices and higher imports.
