Global core bonds lost more ground today with US Treasuries underperforming German Bunds ahead of tonight’s 10-yr Note auction. Higher oil prices in the wake of Trump’s rejection of the Iran deal continue to have only a marginal negative impact. FI, FX and stock markets’ reaction to his decision remain muted overall. Today’s eco calendar was empty apart from softer than expected US PPI data. However, the reaction to the report was very modest. Markets are looking forward to tomorrow’s CPI data. US yields increase by up to 3.0 bps (10-yr) at the time of writing. The US 10-yr yield passed the psychological 3% threshold again. The German yield curve bear steepens with yields up to 1.3 bp higher (30-yr). BTP’s slightly underperform, but the ‘damage’ remains limited. The Italian spread trades marginally wider compared to a slightly tighter spread for most other EMU countries. 5SM and Lega are trying to buy time to reach a government without triggering fresh elections.
Today, the USD rally shifted into a lower gear. This morning, it initially looked that combination of higher oil prices, higher US yields and a stronger dollar that regained of late would continue after president Trump decided to exit the Iran nuclear deal. EUR/USD touched a new ST correction low in the 1.1825 area. Interest rate differential also still widened slightly further in favour of the dollar. However, it was not enough to extend the USD rally. EUR/USD rebounded. We didn’t see a specific trigger for this intraday reversal. The EUR/USD filled offers just below the 1.19 big figure after the publication of softer than expected US PPI data. However, the impact of the report on USD trading was limited and short-lived. USD bulls probably await additional info from this evening’s US 10-y auction and even more from tomorrow’s US CPI release. Or is euro selling easing? Contrary to what was the case of late, USD/JPY outperformed USD/EUR today. The pair maintained most of this morning’s gain and trades in the 109.75 area. EUR/USD is changing hands in the 1.1875/80 area.
Today, sterling trading was modestly driven by technical considerations. If anything, the UK currency traded with a slightly positive bias. In this respect, investors ignored very weak April BRC retail sales published this morning. Sterling investors are looking forward to tomorrow’s BoE policy decision. Markets apparently prepare for a ‘hawkish hold’ scenario. The BoE might keep the door open for a rate hike later this year if the poor UK Q1 economic performance would prove to be temporary. EUR/GBP trades currently in the 0.8740/45 area. Cable rebounded to the 1.36 as the recent USD rally is running into resistance.
5SM leader Di Maio and Lega leader Salvini made a last-ditch effort to form a government together, asking President Mattarella to delay by 24 hours his plan to appoint a non-partisan premier.
Turkish President Erdogan summoned economy officials for a meeting at the palace in Ankara to discuss the slide of lira to a record low, according to two officials who declined to be identified due to sensitivity of the information. EUR/TRY dropped from 5.15 towards 5.05.
EUR/SEK declined from 10.45 to 10.35. The Swedish krona gained ground after April CPI data printed in line with forecasts (0.4% M/M & 1.9% Y/Y). The data further question the markets dovish reading of the previous Riksbank meeting. Yesterday’s Minutes of that meeting also supported the SEK for the same reason.