Earnings, Chinese growth figures and EMU PMI’s
|Global core bonds suffered significant damage last Friday. Better-thanexpected Chinese lending data were the unusual trigger of a significant profit taking move which lasted into the US close. They lifted the risk mood and shelved economic doom scenarios, at least for now. Q4 earnings season kicked off with better-than-expected results for JP Morgan. University of Michigan consumer confidence printed just below consensus and didn't impact trading. The German yield curve bear steepened in a daily perspective with yields adding 1.9 bps (2-yr) to 7.2 bps (30-yr). Changes on the US yield curve ranged between +3.8 bps (2-yr) and +6.9 bps (5-yr) with the belly of the curve underperforming the wings. 10-yr yield spread changes vs Germany ended broadly unchanged with Greece (-12 bps) outperforming.
Asian risk sentiment is positive this morning with China and Japan outperforming, gaining over 1%. US Treasury Secretary Mnuchin delivered positive trade comments while Reuters reports that the US eased demands that China should cut industrial subsidies. The US Note future slightly outperforms the Bund this morning.
Today's eco calendar is extremely thin with only the April US Empire Manufacturing survey. Consensus expects a rebound from 3.7 to 8, undoing the decline from March. We endorse the idea of a rebound, but fear it won't be that big. Speeches by ECB Villeroy and Fed Evans are wildcards for trading. Goldman Sachs and Citigroup are amongst the firms reporting Q1 earnings today. Earnings might play an important market-driving role in coming weeks depending on whether or not firms downwardly adjust their outlook given slowing growth momentum. Apart from earnings, we eye Chinese growth data (Wednesday), EMU PMI's and US retail sales (both on Thursday). We start the week with a neutral bias following Friday's significant correction.
Long term view: markets concluded that the ECB missed out on this cycle. They even start pondering the possibility of an additional deposit rate cut. The downtrend in the German 10-yr remains in place so far. Regarding Fed policy, markets now discount a 60% probability of a Fed rate cut by December. The US 10-yr yield fell closed above the lower bound of the previous 2.5%-2.79% trading range. A confirmation this week would turn the technical picture more neutral again.
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