Global core bond markets held a positive bias as rising equity volatility supported a bid for safe havens. End of month extension buying probably remained mildly positive as well. Bunds and Treasuries extended yesterday’s rebound early in European trading. The fall-out from the sell-off in tech equities eased (at least temporary), capping further bond gains. However, equity trading turned again more volatile after the open of the US equity. So, the jury is still out. US eco data were mixed and unimportant for bond trading. The focus remains on equities. At the time of writing, German yields decline less than 1 bp. US yields decline between 0.5 bps (2y) and 2.5 bps (10y). The US Treasury sells $15 bln 2-year floating rate notes and $29 bld 7-year bonds this evening.
The dollar held up well overnight despite a sell-off in (US) tech shares that continued in Asia this morning. USD/JPY in particular held ‘strong’ despite substantial equity losses. Dollar strength was probably also at least partially due to end of month/quarter position squaring. This USD bid was also visible in the trade-weighted dollar (DXY) which rose to 89.60 (from a correction low just below 89 yesterday). The price move in EUR/USD remained modest initially, but the broader bid for the dollar finally pushed the pair lower from the 1.2420 area to below 1.2350. US eco data were mixed with US GDP upwardly revised to 2.9% from 2.5% Q/Qa. Wholesale inventories rose a bigger than expected 1.1% M/M. The data suggest ongoing positive growth momentum in the US economy, but they won’t have a lasting impact on USD trading. Interest rate differentials between the US and Germany stay off recent highs, but were also no big driver for USD trading. Order-driven activity prevailed. USD/JPY is trading in the 106.20 area. Tomorrow’s PCE deflators might provide some more ‘economically inspired’ guidance for the dollar.
Sterling was temporary supported by headlines that the UK was working on a constructive solution to solve the issue of the Irish border post-Brexit. There are no details yet. UK economic news was mixed. CBI retail data were weaker than expected, but poor weather conditions were to blame. A BoE survey published showed UK companies are increasingly reporting shortages of skilled labour. Until now this had only a limited impact on pay growth, but the BoE gradually sees some upward wage drift. This might support the case for higher BoE rates later this year. EUR/GBP trades little changed in the 0.8750 area. Cable eased from the 1.42 area this morning to the low 1.41 area currently, but this is primarily due USD strength rather than GBP weakness.
The balance of the CBI distributive trades survey declined to -8 in March from +8 in February, suggesting lower sales. The market consensus expected a positive balance of +7. According to CBI, the impact of a stagnating household income and weak consumer confidence was reinforced by unusually cold winter weather in March.
US Q4 2017 GDP was upwardly revised to 2.9% Q/Q (annualized) from 2.5% earlier. Q3 growth was 3.2% Q/Qa. Growth in consumer spending was upwardly revised to 4.0% from 3.8%. A decline in inventories weighed on growth, but the negative impact was smaller than initially reported. Net exports subtracted 1.16 percentage points from GDP.
Advance data from the Commerce department indicated that February US goods trade deficit widened slightly from $75.3 bn to $75.4 bn in February. The February deficit was upwardly revised from $74.4 bn. Goods exports rose 2.2% M/M to USD 136.55 bn. Imports rose 1.4M/M to 212.90 bn.