Sunrise Market Commentary
- Rates: Dovish Draghi pushes European bonds higher
Today’s trading may be interesting. Eco data may be slightly bond negative, but overwhelmed by geopolitical risk & weekend habit to de-risk positions, end-of month buying, technical consideration (Bund) and the impact of yesterday’s ECB meeting (European bonds). - Currencies: Euro rebound blocked by soft Draghi comments
Yesterday, EUR/USD declined off the recent recovery top as ECB’s Draghi dismissed calls for a policy normalization. Today , the EMU CPI and the US Q1 growth take center stage. There might be some further profit taking on the EUR/JPY and EUR/USD if sentiment on risk eases and if European bond yields decline further after yesterday’s soft ECB speak.
The Sunrise Headlines
- US equities ended nearly flat (Dow, S&P) to modestly higher (NASDAQ). The S&P held within reach of the all-time highs but a retest didn’t occur maybe as investors wanted to see results of Alphabet & Amazon and Q1 GDP.
- Asian equities show modest to moderate losses overnight as geopolitical risks on North Korea flared up. Trump said he sees chances of a major, major conflict with the country though he prefers a diplomatic solution.
- A Saturday EU summit in Brussels will serve as a stage for EU leaders to talk up unity and warn British officials against sowing division in the hope of securing a better exit deal. UK PM May said the rest of Europe will line up to oppose us.
- The U.S. government will remain open, for a few days at least. Lawmakers filed a 7-day stopgap spending bill that buys more time for them to cobble together an omnibus package. Trump says he will sign the bill if presented to him.
- Brent oil had a rollercoaster ride, threating the $50/barrel level on news Libya will restart two of its largest oil fields and doubts the OPEC production cuts will be enough to push inventories lower. However, a spectacular rebound followed.
- Alphabet and Amazon spun out some earnings magic. The former posted $20.12 billion in sales, above the $19.75 billion estimate, and profit topped consensus. Amazon beat by 40 cents and projected revenue that may exceed the consensus in Q2. Both shares skyrocket in after trading.
- Busy calendar today with EMU inflation, US, France and UK Q1 GDP releases and US Michigan consumer sentiment highlights going toward next week’s FOMC meeting. European earning results include Barclays, Sanofi, RBS…
Currencies: Euro Rebound Blocked By Soft Draghi Comments
Euro rebound blocked after ECB press conference
On Thursday, the Trump tax plan didn’t provide clear guidance for the dollar. The focus for euro trading turned to the ECB’s press conference. ECB’s Draghi kept a balanced message. Good growth is counterbalanced by soft underlying inflation. So, for now, there is no strong enough reason for FX markets to anticipate early steps to policy normalisation. The interest rate differential between the dollar and the euro widened. EUR/USD dropped from 1.09 to the mid 1.08 area and closed the session at 1.0873. USD/JPY held a sideways range in the lower half of 111.
Overnight, Asian equities are ceding modest ground even as some tech bellwethers in the US posted strong results after the close. Geopolitical tensions (North Korea) an end of month profit taking are probably to blame. Japanese eco data were mostly good, confirm a further gradual recovery, but the CPI data remained soft. The yen trades little changed. USD/JPY still holds a tight range in the low 111 area. EUR/USD maintains yesterday’s post-ECB decline and trades around 1.0865.
Today, the eco calendar is again well filled. EMU April HICP inflation is expected to rebound to 1.8% Y/Y for the headline and 1% Y/Y for the core from respectively 1.5 and 0.7% Y/Y in March. We see upside risks as German and Spanish CPI surprised on the upside. France, Spain and Belgium publish Q1 GDP figures. We expect solid figures. In the US, Q1 GDP, Michigan consumer sentiment and the Chicago PMI will be published. Q1 GDP is expected at a meagre 1% Q/Qa. Q1 US growth will be disappointing, but risks are on the upside of expectations.
In a daily perspective, the eco data might be mixed for EUR/USD trading. Of late, higher EMU price data had the potential to support the euro, but the figure shouldn’t come as a surprise. At the same time, markets look convinced by yesterday’s soft ECB inflation assessment. If sentiment on risk would turn a bit softer (end of month profit taking?) and if European yields decline a bit further after yesterday’s soft ECB speak, EUR/JPY and the EUR/USD might lose some further ground. A cautious risk sentiment might also be a slightly negative for USD/JPY. So, the topside in EUR/USD looks a bit better protected after this week’s rally.
This week, FX trading was driven by the global risk trade as (European) political event risk eased. This supported USD/JPY but also EUR/USD and EUR/JPY. Market speculation that the decline in EMU political event risk could bring forward the ECB normalisation process supports the euro, too. However this hope is erased, at least temporary, after ECB’s Draghi’s press conference yesterday. From a technical point of view, the rebound of USD/JPY suggests a bottoming out process might have started, but the pair needs to regain the 112.20 level (neckline ST double bottom) to improve the picture. EUR/USD extensively tested the topside of the MT range (1.0874/1.0906 area) late March. The pair returned to the range top after the French election and set minor new highs. We look out how this test turns out. If EUR/USD would regain the 1.10 barrier, next resistance comes in in the 1.1145/1.13 area (US pre/post-election swings). The jury is still out, but we are not convinced that the time is already ripe for a sustained break higher of EUR/USD.
EUR/USD rebound running into resistance as ECB’s Draghi dismisses calls for early policy normalization
EUR/GBP
EUR/GBP eases after this week’s rebound
Sterling already received a better bid on Wednesday and the rebound continued on Thursday. We didn’t see any specific story behind move. Cable jumped temporary north of 1.29 and then settled near the big figure. EUR/GBP drifted back south to the 0.8450 area. At noon, the CBI reported sales were very strong at a multi month high, supported by good weather conditions. The report was sterling supportive, but sterling had already realized an important part of its intraday gains at the time of the publication. In the afternoon, EUR/GBP trading joined the euro decline after the ECB press conference. The pair closed the session at 0.8425 (from 0.8487). Cable finished the session at 1.2904.
Overnight, GFK consumer confidences declined slightly from -6 to -7, in line with expectations. Today, the first estimate of the Q1 UK GDP will be published. An easing of growth to 0.4% Q/Q from 0.7% Q/Q is expected. A soft report shouldn’t come as a surprise for markets and only the details from the supply side will be available. So given the GBP positive momentum, we don’t expect a strong negative sterling reaction. A softer euro might also weigh slightly on EUR/GBP.
Early last week, EUR/GBP dropped below EUR/GBP 0.84 support, (temporary) improving the sterling picture. The pair came within reach of the key 0.8305 support (Dec low), but no real test occurred. After this week’s rebound, the range bottom is better protected. Longer term, Brexit-complications remain a potential negative for sterling. Nevertheless on technical considerations we are inclined to reconsider a cautious EUR/GBP buy-on-dips approach
EUR/GBP correcting lower .as post-Macron rebound peters out
