The German Bund opened stronger this morning after a long Easter weekend, catching up with the Note future’s gains in yesterday’s risk-off climate. The contract traded volatile in the first European trading hours which coincided with moves on European stock markets. The Bund returned towards last Thursday’s closing level (previous trade date) by European noon. Risk sentiment improved going into the start of US dealings, capping Bund gains. There was no escalation of the Chinese/US trade war. The US Note future underperforms, coming off yesterday’s highs with key events later this week keeping many investors sidelined (US ADP employment report, non-manufacturing ISM, payrolls & speech by Fed chair Powell). Today’s eco calendar only contained the final EMU manufacturing PMI (confirmed at 56.6) which didn’t leave traces on markets. The US yield curve bear steepens at the time of writing with yields 2.4 bps (2-yr) to 4.6 bps (30-yr) higher. The German yield curve flattens with yield changes ranging between +0.8 bps (2-yr) and -0.8 bps (30-yr). 10-yr yield spreads versus Germany barely moved with Portugal underperforming (+3 bps) and Greece outperforming (-4 bps).
The (intraday) improvement in risk sentiment was mostly visible in a setback for the Japanese yen even if BoJ governor Kuroda said that the BoJ is internally discussing its exit options from the current very easy monetary policy. The timing will of course depend on what happens with the economy, markets and prices at the time and the exit won’t occur in the near future. The BoJ is expected to normalize monetary policy only after the ECB. USD/JPY rebounds from 105.7 to 106.3, while EUR/JPY bounced off the 130-mark towards 130.80. EUR/USD mostly remained an island of calm today. The dollar gradually gained some more momentum with the US/German yield spread widening in favour of the greenback. EUR/USD dropped below the downside of the extremely thin sideways range of the past days (1.2282) just ahead of the US opening bell. Strong US car sells might have delivered the final push, while technical elements were probably at play as well. Main US stock markets rebound around 0.5% at the start of US trading.
Sterling gained marginally ground today with EUR/GBP moving from 0.8760 to 0.8730. The UK manufacturing PMI stabilized at 55.1 in March, while consensus expected a small setback towards 54.7. The PMI suggests that the Bank of England indeed has room to gently hike rates to fight inflation without risking a major setback for the UK economy. GBP/USD showed some intraday price swings, but maintains north of 1.4050.
German monthly retail sales unexpectedly declined in February (-0.7% M/M). The third monthly fall in a row signalled that private consumption may remain weak in early 2018 after failing to contribute to growth in the fourth quarter.
The New York Federal Reserve launched a benchmark US rate today to potentially replace Libor. Market participants hope it will prove more reliable after a long and complex switchover. The Secured Overnight Financing Rate (SOFR) set at 1.80%. SOFR is based on the overnight Treasury repurchase agreement market.
The Czech Republic has been sounding out the EU on winning an exemption from guaranteeing the old debt of EMU member states covered by EU financing mechanisms, as a way to encourage its people to back adopting the euro at some point, daily Hospodarske Noviny reported.