Market movers today
Fears of a trade war between the US and Europe could reignite today after Trump's announcement yesterday that the US is proposing tariffs on EU goods worth USD11bn in response to EU subsidies to Airbus. While the amount is less than 0.1% of EU GDP, it would further increase tensions between the EU and US and stoke fears that Trump could move on to add tariffs on cars from the EU.
Focus continues on Brexit news today . PM Theresa May visits Chancellor Merkel and President Macron ahead of the EU summit tomorrow, Wednesday, see Reuters . Meanwhile, in London, law makers will have a 90-minute debate on May's proposal to delay Britain's departure date to 30 June from 12 April. For more on Brexit see Brexit Monitor: Long extension despite Brexit fatigue , 8 April 2019.
On the data front, US small business optimism for March is due. After a big drop from November to January, the index rebounded in February and consensus looks for a small further increase.
An EU-China summit will take place in Brussels today. The two sides have struggled to agree on a joint declaration in preparation for the meeting, see SCMP .
Otherwise the markets will be waiting for the ECB meeting as well as the EU summit on Brexit tomorrow.
Selected market news
Risk appetite remained intact yesterday, as equities eked out further gains. Stock markets were mixed overnight in Asia, though, with Chinese stocks higher but Japanese equities trading in red territory. The news on Trump tariffs on EU will probably cause headwinds for European equities today.
Oil prices continued to push higher, with Brent oil moving above USD71 per barrel. Concern over supply in Libya continues to lift prices.
EUR/USD moved up yesterday following news that the ECB is in no hurry to review a tiering system. Bloomberg cited people with knowledge on the matter saying that EU President Mario Draghi's call to reflect on softening the impact of negative rates on banks had spurred limited action inside the ECB.
US-China trade talks continue , albeit not physically but via video conference. A White House official said yesterday that the US is not yet satisfied about all outstanding issues but that progress was made at high-level talks last week, see Reuters . Trump said last week the talks would likely take another four weeks, but that a deal was very likely.
Scandi markets
There are no releases in Scandi today. We are waiting for inflation data out of both Norway (tomorrow) and Sweden (Thursday).
Fixed income markets
There is no key economic data due today and the markets are in a wait-and-see mode as they wait for the ECB meeting on Wednesday.
The Bund spread is slowly sliding towards the lower bound on our expected trading range for 2019, which 50bp to 60bp, where we would again go long the Bund spread. The 5Y- 10Y flattening of the swap curve and core-EGB curve has taken a pause, and we have seen a modest steepening. We still see more potential for a flatter curve 5-10Y in the Eurozone, while 10-30Y is more tricky given the issuance of long-dated core- and semi-core EGBs as well as agency bonds such as the recent 16Y EFSF deal and the upcoming 20Y Green bond from the Netherlands.
The Dutch Debt Office (DSTA) announced yesterday that it would sell up EUR6bn in a new 20Y Green bond on 21 May. This should not be a surprise for the market as the DSTA had announced the issuance of a new green bond in its 2019 funding outlook. Today, the Austrian Debt Office will tap in the 4Y and 10Y segments for up to EUR1.25bn. As it is a small tap, it is likely to be met with the usual overbidding. Italy announced yesterday that it plans to sell up to almost EUR8bn in 3Y, 7Y and 15Y benchmarks on Thursday.
FX markets
In Global Research – What a US-China trade deal will bring to the markets, 8 April 2019, we discuss the possible contents of a US-China trade deal. We think it is likely to come sometime before the end of Q2 and expect it to be extensive. We look for a deal to, among other things, largely roll back tariffs. A trade deal would support a recovery in China and emerging markets and stabilise euro-zone growth at a time when past monetary easing also starts to support. In FX markets, we expect a trade deal to support commodity currencies versus notably the JPY through both the China and the risk channel. EUR/USD should also see support in 3-6M but the initial reaction could be somewhat muted; a break of recent ranges is not in the cards.
The one SEK-related potential market mover to look out for today is the speech by Riksbank Deputy Governor Ohlsson regarding the inflation target. Even though we do not anticipate any new policy signals from this, any hints of a shift in position (he is regarded as a hawk) could very well be SEK-negative.
The NOK has found support from the rise in oil prices, with EUR/NOK back in the low 9.60s. The monthly GDP releases are notoriously volatile and we doubt today’s release will have much impact on the NOK with the oil price still in the driver’s seat. The most important events for the week remain domestic inflation tomorrow and Swedish inflation on Thursday.
