Looking for clues from the ECB and Fed
|Global core bonds ended a tad softer in yesterday's low-volume trading session. US Presidents' Day kept US investors at home while the EMU eco calendar didn't contain any noteworthy releases. The downtick occurred after France announced the near term launch of a 30-yr syndicated deal. The fact that such "news" has an impact on intraday gyrations says it all. The German yield curve steepened with changes ranging between -1.1 bp (2-yr) and +2.3 bps (30-yr). ECB chief economist Praet repeated governor Villeroy's message that the central bank could adapt its rate guidance if the economy sharps slowly, explaining the outperformance of the front end of the curve. A new downgrade of the eco outlook at the March 7 meeting could for example prompt the ECB to delay its current communication of unchanged rates at least through the Summer. 10-yr yield spread changes vs Germany narrowed by 4 bps for Italy and by 6 bps for Greece and Portugal.
Asian stock markets trade mixed this morning. China underperforms slightly. US-Sino trade talks restart in Washington with Vice Premier Liu He meeting with US Trade Representative Lighthizer and Treasury Secretary Mnuchin. The German Bund and US Note future suggest a neutral opening for trading.
Today's eco calendar contains German ZEW investor sentiment. The forward looking expectations component is expected to rebound from -15 to -13.6, but we see upside risks given the January stock market comeback. The more important PMI (Thursday) and Ifo business sentiment (Friday) indicators will be released later this week. Speeches by ECB vice-governor de Guindos and chief economist Praet will be scrutinized for hints on fresh TLTRO's and the likelihood of near term forward guidance changes. The market's very dovish positioning probably limits market moving potential on such news. Cleveland Fed's Mester speech could offer more insights on the US central bank's plans with regard to the BS run-off. Rumours suggested that changes (pace, end date, composition) could already be announced at the March 20 meeting.
Technically, the German 10-yr yield fell through the lower bound of the 0.15%-0.31% range, suggesting a return to the psychological 0% mark or even to negative levels. The US 10-yr yield trades in a 2.49%-2.78% sideways range.
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