Markets
Global core bonds enjoyed a cautious safe haven bid as markets tried to get some insight in the next turn of the US foreign trade policy. The protectionist declarations of US President Trump remain a sources of global uncertainty and are weighing on risky assets. However, Trump’s plans are facing strong headwinds inside and outside the US. So , markets still see a chance of the US President easing its stance. At least for now, the trade debate doesn’t look like changing the Fed’s intentions to continue policy normalization. Even so, during the day, US Treasuries again slightly outperformed German bunds even as the ECB isn’t expected to announce a substantial change in policy /communication at tomorrow’s policy meeting. At the time of writing, US yields decline between 0.5 and 1.5 bp, the 5y/10 y sector outperforming. German yields are marginally lower on a daily perspective with the 30-y outperforming (-2.6bp). Despite a cautious risk-off sentiment, 10-y intra-EMU spreads versus Germany mostly narrow, Greece and Portugal outperforming (-5 bp).
The headlines on a potential trade war between the US and its major trading partners continued to dominate the headlines on the financial newswires after Gary Cohn resigned as economic advisor of US president Trump. For now the losses of the dollar are contained. EUR/USD hovers in a sideways range in the lower half of the 1.24 big figure. USD/JPY found a bottom in the mid 105 area after a one-off decline on the Cohn news overnight. There were no important eco data in EMU. The ADP labor market report showed job growth of 235 000 in the US private sector in February, confirming that the US labour market remains very healthy. The focus of FX traders is currently on the trade story rather than on US data. However, as strong US data make Fed governors ever more considering the option of four rather than three rate hikes this year, they at least help to limit the damage for the dollar. EUR/USD is trading near 1.2420. USD/JPY is again nearing the 106 barrier. This evening, the Fed will publish its Beige Book preparing the March 21 Fed policy meeting. Tomorrow, the focus turns to the ECB policy meeting.
Sterling continued trading with a tentative negative bias today. The EU published a draft proposal for the EU/UK relationship in the post-Brexit era. Meetings between EU and UK politicians over the previous days already indicated that the water between the two parties remains deep. The EU proposes a cooperation that is far less tight than the UK had hoped for, but this wasn’t a surprise. That said, the political stalemate persists and the countdown to the formal separation next year continues. This remains a negative for sterling. In line with recent price action the moves/losses of sterling remained modest. EUR/GBP intraday touched the highest level since end November last year. The pair trades currently in the 0.8940/50 area. EUR/GBP 0.9033 is the next high profile resistance on the charts. Cable trades in the 1.3875 area as sterling softness is counterbalanced by USD weakness.
News Headlines
The EU offered Britain a free trade deal for the post-Brexit era. However, the cooperation will be much more limited than London had called for. The EU says its position “reflects the level of rights and obligations compatible with the positions stated by the U.K.,” but if Britain’s positions shift, the EU “will be prepared to reconsider its offer.” The EU also indicated that Britain would be treated like any other third country in respect of financial services.
ADP research Institute said the US private sector added 235 0000 jobs in February. The January figure was upwardly revised from 234 000 to 244 000. The data suggest ongoing strong US labour market conditions at the start of the year. Investors are now looking forward to the US payrolls to be published on Friday.
The economy in the EMU expanded by 0.6 percent in the final quarter of 2017, Eurostat confirmed today. Euro zone GDP rose 2.3 percent in 2017 as a whole, the fastest growth rate since 2007 (3.0%).
