Sunrise Market Commentary
- Rates: More sideways trading?
Core bonds gained some ground on Friday and traded slightly higher in Asia, but in absence of Japanese traders (holiday). So, a slightly risk-off sentiment may dominate at the start of European trading. However, with the eco and event calendar nearly empty, we bet on a sideways oriented session maybe with a slight upward bias.
- Currencies: Dollar still looking for a post-Fed bottom
On Friday, US consumer confidence was ok, but failed to change fortunes for the dollar. This morning, sentiment is slightly risk-off as the G-20 didn't repeated its intention to avoid all kinds of protectionism. The risk-off sentiment might continue to weigh somewhat on core yields. In context, the dollar might remain in the defensive.
The Sunrise Headlines
- US equities closed Friday's session flat to marginally lower in dull, be it volatile, trading. Asian equities trade slower to mixed on disappointment about the G-20 inability to restate their rejection of all forms of protectionism.
- Chinese housing prices defied restrictions designed to cool the nation's property market. The cost of new homes gained in 56 of 70 urban areas last month, compared with 45 in January
- The G-20 couldn't say more about trade in its statement than that it will “work to strengthen the contribution of trade”. According to participants, US Mnuchin didn't have a mandate to negotiate new or creative wordings on trade policy.
- Moody's cut the outlook on Turkey's Ba1 rating to negative, citing persistent political uncertainty after last July's failed coup. S&P raised Iceland's rating to A from A- and increased the Russian outlook on its BB+ rating to positive.
- S&P kept Portugal's BB+ rating, stable outlook unchanged. A fragile banking system and high private/public debt are of concern, but the fiscal situation and growth improves. Only DBRS gives the country still an investment grade.
- Trump followed his awkward meeting with Merkel by slamming Germany on Twitter. "Germany owes vast sums of money to NATO & the US must be paid more for the powerful, and very expensive, defence it provides to Germany!"
- The eco calendar is virtual empty today. Only highlights are an Eurogroup meeting on amongst others Greece and speeches from ECB Weidmann and Chicago Fed Evans. Belgium holds an regular OLO auction
Currencies: Dollar Still Looking For A Post-Fed Bottom
USD correction continues
On Friday, US eco data, including the Michigan consumer confidence were OK, but not strong enough to change USD sentiment for the better. Interest rate differentials were still marginally supportive for the euro. Post-Fed USD softness persisted. EUR/USD finished the session at 1.0738 from 1.0766 on Thursday. USD/JPY closed at 112.70 (from 113.31).
Overnight, Asian equities are trading with a slight risk-off bias. This is due to the G20 disappointment. The communiqué doesn't say anymore that the G-20 will intend to avoid all forms of protectionism, mirroring the US shift to more protectionism. Japanese markets are closed today. Even so, USD/JPY remains under pressure from ongoing overall USD weakness. USD/JPY trades around 112.60, near the lowest level this month. EUR/USD is trading around 1.0765. So, the post-Fed top (1.0782) remains also within reach. After a pause in the second half of last week, the oil price is again under pressure as supply concerns remain present.
Today, the eco calendar is completely empty. Regarding events, the Eurogroup meets on Greece, pension systems, the budgetary plans and the implementation of the Stability and Growth path. On Friday, Greece FM Tsakalotos said he expected to reach a deal by April 7 Eurogroup meeting. The problem is complicated though by signals the US is critical about IMF participation. ECB Weidmann speaks, as does Chicago Fed Evans. Last week, USD yields and the dollar drifted south even as the Fed hiked its rates. At the same time, the euro was well bid as markets pondered the chances of an early change in the ECB policy after hawkish comments from ECB's Nowotny. In a longer term perspective, policy divergence between the Fed and the ECB will probably remain big enough to support further USD gains. Yellen suggested that, considering the eco developments, the Fed policy might be relatively close to the ‘dot-path'. The day-to-day USD momentum remains soft though. A cautious riskoff sentiment and a further decline of oil might keep the dollar on the defensive short-term as there are no important US eco data/events to turn momentum in favour of the dollar. So, short-term are in no hurry to the jump in to add to USD long exposure. We wait for strong enough US data that might put a floor on the current USD correction
Global context. EUR/USD 1.0874 resistance remains the line in the sand with intermediate resistance at 1.0829. We maintain the view that a sustained break of EUR/USD above this area will be difficult. The US/German (EMU) interest rate differential remains at an absolute high level. Especially at the short end of the curve, the differential might even re-widen. The fundamentals/ interest rate differentials are also supportive for USD/JPY, but of late the momentum/technical picture is not really convincing. We maintain the working hypothesis that the 111.60 range bottom should hold.
EUR/USD holding near ST top as dollar softness persists
Political uncertainty to cap GBP rebound?
On Friday, there were no eco data in the UK. Trading in sterling was order-driven and technical in nature. Cable showed some erratic swings in the mid/high 1.23 big figure . The pair closed the session at 1.2396, near the intraday high. The rise in cable was at least partially due to USD softness. EUR/GBP reversed Tuesday's late session rebound (Nowotny). So, from this point of view, sterling still maintained a cautious bid in the wake of Thursday's (more hawkish) BoE policy statement. EUR/GBP finished the session at 0.8663 (from 0.8733 on Thursday).
Overnight, the Rightmove House price measure rose 1.3% M/M to be up 2.3% Y/Y. However, the improvement doesn't help sterling. During the weekend, the debate on a Scottish independence referendum continues. A clash between London and Edinburgh highlights the higher number of institutional issues that could complicate the Brexit procedure. Sterling is reversing a (small) part of Friday's rebound this morning. The cautious risk-off sentiment mighty also be a slightly negative for sterling. There are no other important UK eco data today. So, political headlines (Scotland/Brexit) will remain in focus. At the end of last week, both sterling and the euro were in good shape. Some EUR/GBP consolidation might be on the cards. Despite Thursday's somewhat more hawkish BoE approach, we don't see a real risk for BOE tightening anytime soon. So, any rebound of sterling shouldn't go too far.
Last week, the sterling decline took a breather. Some time ago, EUR/GBP cleared the 0.8592 resistance, improving the MT technical EUR/GBP picture. We don't expect a sustained EUR/USD rebound, but a combination of temporary euro consolidation and ongoing sterling softness as the Brexit negotiations are nearing, might trigger some more ST EUR/GBP gains. The 0.8854 correction top is the next key resistance. The nervous swings over the previous days suggest that a clear break beyond 0.8854 will be difficult without important (UK negative) news.
EUR/GBP: post-BoE sterling rebound to slow as political uncertainty grows?