The German Bund opened lower in line with improving risk sentiment and the US Note future’s losses in Asian trading. Comments from US top officials in favour of negotiation in the US/Chinese trade conflict provided the main argument. European dealings were characterized by one stretched yawn. Trading ranges of the Bund and the US Note future were extremely narrow and volumes low amid an empty eco calendar. European equity indices held on to opening losses, but are drifting away as the US trading session gets started. Contradicting Chinese comments on the negotiation phase negatively affect stocks and the dollar. Core bonds can’t profit at the moment, but moves on other markets suggest, if any, some support during the remainder of US dealings. US yields add 1.5 bps to 2 bps at the time of writing with the belly of the curve underperforming the wings. Changes on the German yield curve are limited between +0.2 bps and +0.5 bps. Peripheral yield spread changes vs Germany are almost unchanged.
(Currency) markets remain mainly focused on the trade saga between the US and China. This morning, markets considered comments from US officials during the weekend as a sign that tensions could ease. This ‘optimism’ was mainly visible on the equity markets. The impact on FX was limited. During the day, rumours swirled that China was studying the potential consequences of using a yuan devaluation in the trade conflict. Initially, the debate had little impact on the dollar. Later there were again other indications that in depth negotiations between the US and China (with concrete results) were still quite some way off. The dollar again proved to be the weakest link among the majors. EUR/USD rebounded north of 1.23. USD/JPY dropped back below 107. In a broader perspective, the US currency holds an indecisive trading pattern as a cautious bid was blocked after last week’s disappointing US payrolls.
There was no high profile news to inspire sterling trading. It was mainly driven by technical consideration and by the broader moves in the dollar. The afternoon decline of the dollar was also visible in cable. The pair rebounded to the mid 1.41 area. EUR/GBP is holding a tight range close to, but mostly slightly north of 0.87. The absence of negative headlines on Brexit and the expectations for a May BoE rate hike remain marginally sterling supportive.
The Turkish lira felt more selling pressure with EUR/TRY touching a new all-time high, north of 5, as President Erdogan presented a new economic incentive package to boost the economy into the world top 10 ranking economies. His senior aide added that the package will be followed by steps to reduce interest rates.
The Russian ruble is the worst performer in the emerging markets specter after the US slapped new sanctions against the Russian business sector. EUR/RUB surged from 71.5 to 74, the highest level since the end of 2016. US President Trump also criticized Russian President Putin over the weekend for supporting the Syrian government.
German trade data disappointed this morning with exports declining by 3.2% M/M in February, below 0.4% M/M consensus and the biggest monthly drop in two years. It adds to fears that we’ve reached the German growth peak in Q4 2017. Imports decreased by 1.3% M/M compared to 0.5% M/M expectations. The trade balance rose less than forecast, from 17.3bn to 18.4bn.
Bloomberg reports that China is evaluating the potential impact of a gradual yuan depreciation, according to people familiar with the matter, as the country’s leaders weigh their options in a trade spat with US President Trump that has roiled financial markets worldwide. Official added that it’s impossible to negotiate under “current circumstances”. Investors now eye tomorrow’s speech by Chinese president Xi Jinping at the Boao Forum for Asia.