European stock markets joined the rally which started on WS yesterday as high rank US and Chinese officials indicated the start of a negotiating period after placing hawkish opening bets in the trade conflict. Main indices opened around 1.5% higher and managed to maintain momentum, recording gains of more than 2% currently. US stock markets build on yesterday’s increase and open 0.5% higher. Second tier EMU eco data were mixed and had no influence on today’s dealings. US weekly jobless claims unexpectedly picked up, but were distorted by Easter holiday. Core bonds grinded gradually lower throughout the session on the improvement in risk sentiment. Both the US and German yield curves bear steepened. Traded volumes were lower than on the previous two days with some investors side-lined ahead of tomorrow’s payrolls and a speech by Fed-governor Powell. US yields add 0.6 bps (2-yr) to 2.4 bps (30-yr) while changes on the German curve range between +0.9 bps (2-yr) and 2.6 bps (30-yr). 10-yr yield spread changes versus Germany are barely changed with Greece underperforming (-13 bps).
The dollar profited from the easing in trade tensions and the improvement in risk sentiment with several crosses hitting first technical levels. The trade weighted greenback (DXY) hit first resistance at 90.45. A break would pave the way for a test of the more important 91-area. USD/JPY trades north of 107. A move above 107.29 would end the negative momentum in the currency pair. EUR/USD tested 1.2240, which is this month’s low and settles currently around 1.2250. We’d argue in favour of technical breaks and an improvement for the dollar’s short term perspectives if tomorrow’s payrolls (and especially earnings) beat consensus.
Sterling couldn’t profit from the improving risk climate today. EUR/GBP climbed gradually from 0.8720 to 0.8740. A disappointed services PMI could have been a possible explanation, but timing of the release doesn’t coincide with the sterling losses. Technical factors are probably at play.
EMU eco data printed mixed today. The final EMU services PMI faced a slight downward revision in March, from 55 to 54.9 (coming from 56.2 in February). Businesses across the euro zone ended the Q1 2018 with their weakest expansion since the start of 2017 as bad weather and a strong currency combined to curb growth in new orders. Retail sales disappointed in February, rising 0.1% M/M and 1.8% Y/Y while also February data were reviewed lower to -0.3% M/M and 1.5% Y/Y. Producer price inflation accelerated a tad faster than forecast (0.1% M/M vs 0% M/M) while stabilizing at 1.6% on a yearly basis.
Heavy snow and weak consumer demand weighed on British services businesses last month, which grew at the slowest rate since just after the vote to leave the EU in June 2016. The services PMI declined from 54.5 to 51.7 while consensus only expected a smaller setback to 54.0.
US weekly jobless claims rose more than forecast last week to the highest level in almost three months (242k from 218k). However, holidays related to the Easter weekend probably played a role.
Italian President Sergio Mattarella faces an uphill task trying to put together a new government, with centre-right parties split on their priorities and the centre-left vowing to head into opposition.
EUR/TRY rose above 4.95, heading to a record high close with the Turkish lira hit by renewed concerns about the central bank’s ability to tackle inflation after a report that President Erdogan criticized last month’s rate hike.