Global core bonds lost more ground during the first half of today’s trading session. The Bund has some catching up to do while better than expected PMI’s inflicted more pain. The US Note future slid away as the US 10-yr yield was lured to the psychological 3% barrier (2.99%). A break didn’t occur, causing technical return action higher in core bonds. European stock markets traded mixed while commodities lost ground after European noon as the US eased sanctions against Rusal. The latter probably helped putting an intraday bottom below core bonds. Changes on the US yield curve vary between +1.4 bps (5-yr) and +0.2 bps (30-yr). German yields add 1 bp (2-yr) to 3.5 bps (10-yr). 10-yr yield spreads vs Germany narrow 1 to 2 bps with Greece slightly outperforming (-4 bps).
The gradual rise of the dollar that started in the second half of last week, continued. There were again plenty of market comments on the US 10-yr yield nearing the key 3.0% barrier. This rhetoric also supported the dollar. The first estimate of the EMU PMI was slightly better than expected (55.2 vs 54.8). EUR/USD tried a shy attempt to go higher upon the release of the French and German PMI’s. However, USD strength prevailed. EUR/USD soon resumed the recent downtrend. The rise of USD/JPY also reaccelerated. The pair regained the 108 barrier. At the start of the US trading session, prices of several commodities declined on headlines that the US may relieve sanctions against a big Russian commodity producer. Lower commodity prices are often a positive for the dollar, but for now additional USD gains remain modest. Even so, the US currency remains well bid, holding within reach of the ST top against the euro and the yen. EUR/USD is nearing the 1.2215 area. USD/JPY hovers in the 108.35 area.
EUR/GBP traded in a sideways range in the 0.8740/80 area today. The pair held up rather well despite euro (EUR/USD) softness, suggesting some underlying sterling weakness was still at work. Cable drifted also below the 1.40 area, partly due to USD strength. There were no important eco data. However, the financial press elaborated on an upcoming debate in Parliament on whether or not the UK should stay in the EU customs union. The issue will probably also be discussed in a high level meeting of PM May’s Cabinet on Wednesday. This might again lead to tensions within May’s Conservative Party which is highly divided on the issue. So, Brexit noise might become a potential negative for the UK currency. Later this week, the first estimate of UK Q1 GDP is expected to be weak (0.3% Q/Q), further questioning the needed of a May BoE rate hike.
The Eurozone composite PMI stabilized unexpectedly at 55.2 in April, beating 54.8 consensus. The services PMI slightly increased in April, from 54.9 to 55 (vs 54.6 forecast) while de manufacturing PMI recorded a fourth straight drop from 56.6 to 56 (vs 56.1 expected). PMI’s are somewhat off the highs reached end 2017/early 2018, but remain at very lofty levels from an absolute point of view, indicating decent momentum as Q2 2018 began.
Aluminum prices dropped 10% in afternoon trading in London after the US Treasury said that it was extending the time limit for winding up business with sanctioned Russian producer Rusal and hinted at easing restrictions on the company that have upended metals trading globally. (FT)
The Belgian debt agency successfully tapped 4 OLO’s today: OLO 82 (€0.89bn 0.5% 2024), OLO 80 (€1.39bn 0.8% Jun2028), OLO 78 (€0.78bn 1.6% Jun2047) and OLO 83 (€0.35bn 2.25% Jun2057). The combined amount sold was the maximum of the targeted €2.9-3.4bn with a total auction bid cover of 1.89. The Belgian debt agency now completed more than half (56.33%) of this year’s official €31bn funding need.