EU MID-SESSION UPDATE: ECB President Draghi highlights US tariffs and currency moves as a risk to inflation, while European stocks are higher across the board


European equities are trading in the green this morning, subsequently pairing the initial losses that stemmed from Asian and US bourses, which saw risk-sentiment soured by reports of Secretary of State Tillerson being fired and increased caution over trade wars. All major sectors with the exception of utilities are trading higher in the Euro Stoxx, while much of the morning stock movers have been dictated by company earnings, with Adidas (+9%) shares sitting at the top of DAX. Elsewhere, the IBEX underperforms its counterparts as index heavyweight Inditex (-3%) slipped after highlighting concerns over FX headwinds.


Usd weakness amidst ongoing global trade war and White House personnel concerns remains the principle theme, as the DXY continues to reject advances towards the 90.000 level and beyond, which in turn is shifting the technical outlook more bearish. However, Eur/Usd and single currency crosses have been knocked back to an extent by comments from ECB President Draghi and Chief Economist Praet, reiterating that inflation is still below target and therefore policy needs to stay ‘patient, persistent and prudent’. Key downside risks were highlighted – FX and the aforementioned potentially adverse trade developments due to US President Trump’s import tariff proposals. Eur/Usd is back below 1.2400, but holding above the 30 DMA at 1.2345, and also eyeing decent expiry interest from 1.2390-1.2405 (around 1 bn). Conversely, Aud/Usd is testing resistance either side of the 0.7900 handle again and recent peaks just below the big figure, aided by some Chinese data beats overnight and more balanced rather than dovish/cautious RBA rhetoric via Assistant Governor Kent. Chart-wise, yesterday’s 0.7898 high forms the first/nearest bullish target and offers are touted around 0.7925, if 0.7900 is breached. Cable looks capped by the 1.4000 level, and Usd/Cad by 1.3000, while Usd/Jpy is back in the 106.50 area after a further retreat from 107.00+ peaks late last week and earlier this week with the 10 DMA at 106.31 holding in for now. Elsewhere, Eur/Sek just a fraction softer after broadly as forecast Swedish CPI data that will underscore growing calls for the Riksbank to refrain from tightening for longer.   

Fixed Income

Bunds have derived a degree of support from weaker than expected Eurozone ip data, but are still only mid-range between 157.41-67 Eurex parameters having pulled back relatively sharply from the high. It seems that intraday and/or longer term longs were unsettled by the fact that the 10 year future held below the March peak in early exchanges, while a recovery in EU equities has also diminished the safe-haven allure of core bonds. However, Gilts are retaining modest outperformance after Tuesday’s Spring Budget around the 121.50 mark vs 121.60 at best and a 121.41 base, while US Treasuries remain firm and in bull-flattening mode ahead of retail sales and PPI data. Back to Eurozone debt, some underperformance in the periphery and Spanish Bonos especially, with Portuguese and long end German supply looming, and despite a raft of mainly dovish ECB commentary.


In the commodity bloc, oil prices are trading slightly higher with prices finding some slight reprieve from yesterday’s smaller than expected build in the latest API report, alongside the improvement in risk sentiment, which has seen WTI retest USD 61/bbl.