EGBS: Bunds Shown Signs Of Stabilising, But 50-day EMA Pierced
May-09 09:27
After catching up to yesterday’s weakness in US Treasuries, Bund futures have shown tentative signs of intraday stabilisation. Futures are -73 ticks at 130.44, just off session lows of 130.38. Initial support at the 50-day EMA (130.60) has been pierced though, and a clear breach of this average would signal an extension of the current corrective pullback, with sights on 129.92 (Apr 11 low).
- Bond weakness has been driven by optimism surrounding the trade outlook, with focus on meetings between the US and China this weekend. Over the medium-term it is worth remembering that tariffs on China would need to come down significantly from current levels to make any trade with the US economical. Even targeted levels of around 60% may be too high.
- The German curve has steepened, with 2s10s up 3bps to 79bps.
- 10-year EGB spreads to Bunds are mixed, with semi-core paper a touch tighter to Bunds and peripherals somewhat wider. We think it may be difficult for the 10-year BTP/Bund spread to see further tightening towards the 100bp handle without meaningful progress on US-EU trade deals.
- This morning has seen dovish ECBspeak from Rehn and Simkus, consistent with previous remarks in late April.
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FOREX: Broad Dollar Weakness Pervades, USDCHF Prints Below 0.8400
Apr-09 09:16
- Although off its worst levels, the session has been characterised by a resumption of US dollar weakness, which sees the ICE dollar index down 0.5% ahead of the NY open. USD outflows have combined with a further souring of risk sentiment, as market participants continue to gauge the impact of such restrictive US trade policy.
- This dynamic briefly saw the DXY back below 102.00 and contributed to EURUSD reaching as high as 1.1089. With volatility remaining extremely high, and markets continuing to ponder the best expression for the rapid swings in risk sentiment, EURUSD did move aggressively back to 1.1000, before stabilising somewhat. Additionally, ECB rate cut pricing has picked up, providing an additional Euro headwind to contend with.
- Safe havens remain the key beneficiaries, with both JPY and CHF rising around 0.6% on the session. USDJPY fell to within two pips of the most recent cycle lows at 144.56, keeping bearish momentum firmly in place. A break of this level would signal scope for an extension towards 144.13, a Fibonacci retracement point, and 143.43, the Oct 2 ’24 low.
- For USDCHF, the pair briefly broke below 0.8400 for the first time since September. Trend indicators continue to point south, and the market’s focus will be on 0.8333, of which a break would place USDCHF at its lowest level since the removal of the peg in 2015.
- AUDUSD screens as the best performing major pair, rising 0.85%. It is important to put this into context, given the aggressive move down to 0.5915 in early APAC trade. Spot remains ~1.25% off the Tuesday highs.
- Earlier today, all eyes were on USDCNH as it broke above 7.40, reaching as high as 7.4273 before gravitating back to 7.3820 at typing . The moves come as USD/CNY saw the highest fix since 2023 this week. Chinese Premier Li Qiang said his country has ample policy tools to “fully offset” any negative external shocks.
GILT AUCTION RESULTS: Disappointing auction but little follow through
Apr-09 09:10
- Disappointing 5-year gilt auction with the lowest accepted price coming in below the pre-auction mid-price (and indeed coming in at the lowest level since the first 15 minutes of gilt trading today).
- The tail of 1.0bp was wide but the bid-to-cover of 2.95x was still respectable.
- Despite the disappointing result overall, the 4.375% Mar-30 gilt price has still moved higher, and currently exceeds the average auction price. Gilt futures also moved higher, following other core bonds, with gilt futures hitting their intraday high (outside of the opening minute of trading today). This suggests there has been little follow through from the auction.
ECB: Rehn Offers More Explicit Support For April Cut
Apr-09 09:05
More explicit signalling from Rehn than in previous comments that he will support an April cut here (via RTRS):
- "ECB'S REHN: DOWNSIDE RISKS HAVE MATERIALISED SINCE MARCH RATE MEETING"
- "ECB'S REHN: CASE FOR CONTINUING RATE CUTS AT APRIL MEETING IS SUPPORTED BY DOWNSIDE RISKS MATERIALISING"
It's not all that surprising though. Following Rehn's appearance at an MNI Connect event on March 18, our sense was that the bar to him not voting for a cut in April was quite high, with growth concerns emanating from US tariff uncertainty featuring more prominently than possible inflationary impacts.
