Core bonds traded with a tentatively negative bias this morning. The scheduled talks between the US and North Korea caused a positive risk momentum on Asian markets. The impact of the Trump import taxes was considered as modest as US allies including the EU and Japan advocated that their exports were no security issue for the US. Bond markets settled in some kind of wait-and-see modus, counting down to the US payrolls. US job growth was strong (313 k + an upward revision of the January figure). However, the data series that really matters from markets, the AHE wage growth series, printed at a disappointing 0.1% M/M and 2.6% Y/Y (from 2.9% Y/Y, 2.8% was expected). Core bonds spike briefly up and down looking for direction. Bond yields finally trended slightly higher. However, the moves remain very modest. The combination of good job growth and modest inflationary pressure propelled US equities. The US yield curve bear steepens with yields between 2.5 (2-y) and 4.4 (bp) higher at the time of writing. Increases in German Bund yields are more modest ranging between unchanged for the 2-year yield and +2.2 bp for the 10-y yield. Spreads of intra-EMU bonds versus German Bunds were little changed today.
No big story to tell on USD trading today. EUR/USD preserved yesterday’s post-ECB decline, but there was little follow-through price action. Interest rate differentials widened a bit further in favour of the dollar, but didn’t help the US currency. This pattern didn’t change after the US payrolls. Job growth was very strong but wages again disappointed. This caused only a subdued market reaction both on interest rate markets and in the USD price action. EUR/USD filled bids in the 1.2275 area around the time of the publication of the payrolls, but the decline was blocked. The pair hovers again in the 1.23 area. USD/JPY tries to further extend intraday gains. The pair is additionally supported by a positive stock market reaction and soft BoJ talk. The pair tries to regain the 107 barrier, but it is a tough battle.
Sterling trading was again driven by technical considerations. UK data were mostly weaker than expected. The UK January trade deficit widened again on a monthly basis. Manufacturing production grew a meager 0.1% M/M and 2.7% Y/Y, below consensus. Construction output was also weaker than expected. Even so, sterling gained gradually further ground against the euro. Underlying euro softness after yesterday’s ECB press conference was maybe still at work. The rejected topside test of the EUR/GBP 0.8930/50 resistance was probably also in play. EUR/GBP is currently trading in the 0.8970 area. Cable is changing hands just in the 1.3850 area.
US job growth was very strong in February. The US economy added a stellar 313 000 jobs in February. The market only expected job growth of about 205 000. Data off the previous months were also upwardly revised. Still, the unemployment rate was unchanged at 4.1%. However, the most important part of the report for markets, wage growth, disappointed again. Average hourly earing rose only 0.1% M/M and 2.6% Y/Y. A rise of 0.2% M/M and 2.8% Y/Y was expected. So for now, there is no confirmation yet that a buoyant labour market is already resulting in a sustained acceleration of wages and prices as was suggested last month.
UK January activity disappointed again, suggesting a slow start for the UK economy in 2018. Manufacturing production rose a meagre 0.1% M/M and 2.7 % Y/Y (0.2% M/M was expected). Overall industrial production rebound 1.3%M/M and 1.6% Y/Y, reversing December decline due to the closure of the Forties pipeline. Still, overall production was below consensus. UK construction activity also tumbled 3.4% M/M to be 3.9% lower compared to the same month last year. The UK goods trade deficit widened again to 12.325 bln from 11.771 bln in December.