Political and economic nervousness abounds, SocGen's Kit Juckes says

SocGen strategist Kit Juckes spied potential trading opportunities in the European single currency versus the US dollar and pound, amid renewed doubts about the US economy and lingering caution ahead of the French presidential elections.

That nervousness was evident, he said, in the big reaction to US car sales data for the month of March on Monday, with an underwhelming set of yields sending US Treasury yields sharply lower as concerns that the US economy is losing momentum resurfaced.

He also referenced newswire reports that the upcoming meeting between US president Donald Trump and his Chinese counterpart Xi Jinping was weighing on sentiment in Asia as a factor behind strength in the Japanese yen on all its crosses.

"It’s not obvious how the market escapes this nervous mood ahead of Friday’s payroll data, but if we end up with an even longer period of range-bound US yields then ultimately, the urge to find yield will overpower other market emotions. It’s mostly a question of biding time this week however," Juckes said.

Traders' are also nervous, to a certain extent, ahead of the French elections despite polls showing centrist candidate Emmanuel Macron and Marine Le Pen still well ahead of the pack with under three weeks left to go until the first round of voting on 23 April, he said.

Reflecting those nerves, the depressed level of German 10-year Bund yields at just 0.27% and spreads versus similarly-dated French and Italian bonds at 67 and 203 basis points each spoke volumes about the mood in markets and were robbing euro bulls of any "encouragement".

"The temptation is to think that French pre-election nerves are just that, and the opinion polls can’t be THAT wrong."

In that case, buying euro/dollar or euro/pound at current levels would be a good idea, Juckes said.

Then again, perhaps "the better part of valour is to go short GBP/CHF at 1.2475," he added.

As a parting shot, the strategist described current real or inflation-adjusted yields on Gilts as "absurdly low" and the value of Sterling as "cheap".