Rates: Slow start to trading week?
Market settings suggest a calm start to the trading week on bond markets with an empty eco calendar and subdued trading volumes because of a US public holiday. Attention later this week turns to Fed speeches, including Fed chair Powell, US eco data (CPI & retail sales), the Italian budget reply and the possible climax of brexit talks.
Currencies: EUR/USD touching new 2018 correction low
Last week, dollar softness after the US mid-term elections didn’t last long. The prospect for further Fed policy normalization soon put the dollar again in the driver’s seat. This morning, this ‘by default’ US-buying pushed EUR/USD to a new 2018 low. Recent sterling rally ran into resistance as markets realize that it won’t be easy for PM May to get a Brexit deal approved.
The Sunrise Headlines
- US stock markets closed last week’s trading session in red with losses mounting between -0.75% and -1.65%. Asian equities opened mixed this morning with Chinese indices outperforming on tax cut news.
- Brexit momentum is once again fading. PM May’s effort to address her ministers over the weekend fell short as the Irish backstop remains unresolved. Tomorrow there is a new cabinet meeting that may feature a Brexit discussion.
- Saudi Arabia announced it will cut crude oil production in December with 500k barrels a day because of lower demand, despite Russia saying that the current excess supplies are short term. The Brent oil price settles back above $70/barrel.
- China’s Finance Minister, Liu Kun, said in a statement on the ministry’s website that its country will study and implement tax cuts of a larger scale for Chinese companies and consider more significant fee reductions for companies.
- Japanese producer inflation slowed to 2.9% (YoY) in October, from 3.0% a month earlier (2.8% expected). On a month-to-month basis, the PPI printed 0.3% in October which is steady from September (0.1% expected).
- Russian president Putin stated that he wants to restore a full-scale dialogue with the US about the Intermediate-Range Nuclear Forces treaty. Last month, President Trump warned he would withdraw from it as Russia was violating it.
- Today’s economic calendar is empty apart from second tier Italian industrial production. SF Fed governor Daly speaks on the eco outlook. US markets (except equities) are closed.
Currencies: EUR/USD Touching New 2018 Correction Low
EUR/USD sets new 2018 low
The USD stayed well bid on Friday, extending gains after Thursday’s Fed policy statement. The Fed confirming its intention to continue policy normalization despite recent volatility, left investors with mixed feelings. US yields and the dollar held near recent highs. Global equities struggled to avoid further losses. US PPI printed higher than expected (2.9% Y/Y). The report had little impact on trading, but suggests that inflation will remain on the Fed’s radar. The tradeweighted dollar again tested the 97 barrier, nearing the 2018 top. EUR/USD drifted lower in the 1.13 big figure closing the week at 1.1336. USD/JPY slightly underperformed other major US cross rates as a risk-off sentiment (slightly) supported the yen. The pair finished marginally lower at 113.83. Asian equities show a rather constructive price action this morning, given Friday’s US losses. Oil rebounds as OPEC indicated that it might act to ‘balance’ the market. For now, the rise of the oil price and the equity rebound don’t prevent further USD strength. The trade-weighted dollar regained the 97 market. EUR/USD looks like breaking the 1.1301 2018 low. USD/JPY regained the 114 level. USD/CNY is also drifting higher (6.96). Later today, there are few eco data in Europe and US markets are partially closed in observance of Veterans’ Day. Investors will look forward to the next steps in the Italian-EU budget rift as Italy has to respond to the EC objections by Tuesday. Regarding the data, US CPI (Wednesday) and retail sales (Thursday) probably have most market moving potential. Solid data might support the case for further Fed normalisation. Early last week, uncertainty on the US mid-term election weighed temporarily on the dollar, but the USD soon regained momentum. EUR/USD is falling below the bottom of 1.1621/1.13 range. Given current ‘by-default’ USD bid, a continuation of this trend is very well possible. Next support is seen in the 1.1187/1.1119 area (62 % retracement/Jun 2017 low).
Sterling profited from hope on a EU-UK Brexit deal recently. However, this trade faltered going into the weekend. Solid UK Q3 growth data also didn’t help sterling anymore. During the weekend, headlines/rumours suggested that it won’t be easy of PM May to ‘convince’ hard-line Brexiteers to approve a deal in Parliament. For now, the test of the EUR/GBP 0.87 looks to be rejected. The market assessment on Brexit already made quite some remarkable swings. At least for now, it looks that sterling trading see the glass again half empty rather than half full.
EUR/USD breaking below 2018 correction low as dollar regains momentum post-Fed
