German bunds showed quite some sharp intraday swings

Markets

• Yesterday, German bunds showed quite some sharp intraday swings. Yields jumped up to four basis points higher after the publication of the ECB policy statement. The ECB omitted its easing bias as it didn’t repeat its intention to increase bond buying if necessary. However, the rise in yields was reversed during the ECB press conference as ECB’s Draghi indicated that a big step to policy normalization was still quite some distance away. For an in depth analysis of the ECB decision . At the end of the day, German yields even declined between 1.6bp (2yr) and 2.7 bp (10-y). On the intra-EMU bond markets, yield spread chances versus Germany mostly narrowed slightly further with Greece (-6bp) outperforming and Italy (+6bp) underperforming. The swings in US Treasuries were much more modest. The US yield curve bear flattened with yields declining up to 2.8 bp at the long end of the curve. Today, global political developments will continue to have in important place in the headlines. However, global bond traders will turn their focus to the US payrolls. A solid report is again expected. January job growth is expected at 205 000. The unemployment rate is expected to decline to a cycle low of 4.0%. After last month’s rise & market reaction, wage growth data (expected at 0.2% M/M and 2.8% Y/Y from 2.9%) will take center stage. Of late, the rise in US yields took a breather. However, another positive surprise, especially from the wage data, will rekindle market expectations that the pace of Fed rate hikes might accelerate later this year.

• Yesterday, the dollar initially gained modest ground against the euro and yen. The euro jumped temporary higher as the ECB dropped its indication that it could still raise the amount of asset purchases if needed. However, the euro strength was short-lived as president’s Draghj’s assessment at the press conference remained soft. In line with EMU yields, the euro reversed initial gains even closed the day substantially lower at 1.2312. Intra-day market reaction also suggests that markets were positioned long euro going into the ECB decision. USD/JPY closed the session little changed at 106.23 as markets still pondered the impact Turmp’s import tariffs. This morning, the BOJ as expected left its policy unchanged. A positive risk sentiment keeps USD/JPY better bid. Later today, the focus for USD trading will also shift to the US payrolls report. Yesterday’s price action in EUR/USD suggests that some further downside in the pair is possible in case of a good US payrolls report. The ECB indicating no substantial change in its policy communication anytime soon might also cap the topside of the euro overall. A break of EUR/USD 1.2155 is still need to improve the technical picture of the dollar against the euro.

• Sterling trading was mostly driven by global factors. EUR/GBP mostly followed the intraday swings of the euro. In line with EUR/USD, the pair traded marginally lower on a daily basis. Today, the UK trade balance data, production and construction output will be published. We expect the data to be only of intraday significance. The broader euro moves might again be the driver for EUR/GBP trading.

News Headlines

• U.S. President Trump agreed to meet North Korean leader Kim Jong Un. The announcement followed after South Korea's National Security Office head Chung Eui-yong told reporters at the White House that Kim had committed to denuclearisation and to suspending nuclear and missile tests. The meeting is expected to take place in May.

• The BOJ keep its policy unchanged as expected, maintaining its commitment guiding short-term interest rates at minus 0.1 percent and the 10-year government bond yields around zero percent. “Japan's economy is expanding moderately, with a virtuous cycle from income to spending operating," the BOJ said in its policy statement.

• Consumer inflation in China accelerated to 2.9% Y/Y in February, the highest since November 2013. Only a rise to 2.5% (from 1,5%) was expected. However, the sharp upswing was largely due to higher food prices related to the China Lunar New Year holidays. PPI inflation decelerated to 3.7% Y/Y from 4.3% Y/Y, the slowest pace in 15 months.

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