Rates: Risk sentiment to set the tone
The US 10-yr yield touched first resistance last Friday as stock markets flourished. Risk sentiment will drive intraday gyrations on bond markets today as well amid an empty eco calendar and in absence of US investors (MLK Day). These conditions might last until Thursday when January EMU PMI’s will be released and when the ECB meets.
Currencies: EUR/USD decline to slow?
At the end of last week, the dollar remained well bid even as sentiment on risk was positive. EUR/USD has returned to the 1.12/1.15 trading range. After the recent correction, technical support is lining up. Last week’s sterling rally also did run into resistance as there is still little progress on the Brexit saga
The Sunrise Headlines
- US equity markets closed Friday’s session with gains mounting over 1%. Asian equities opened in green this morning, as China offered new concessions to eliminate its trade imbalance with the US.
- US-Sino trade talks continue to make progress as the Chinese government offered to ramp up purchases of US goods. However, discussions on more technical matters as intellectual property are remaining more laborious.
- The US shutdown heads into its 5th week, as US President Trump made a first substantive offer, which Democrats immediately shot down. However, the Senate Majority Leader McConell promised to bring the plan to a vote this week.
- UK PM May returns to Parliament today as she concluded talks with lawmakers from all sides. She will probably brief her MP’s of little progress in the cross-party Brexit talks. She is now said to seek changes to the Irish backstop plan.
- China’s economy further cooled down in the 4th quarter as GDP rose 6.4% (Y/Y), vs. 6.5% in Q3 and its slowest pace since ‘09. However, government actions to cushion the deceleration are starting to be seen in the Dec. economic data.
- Thousands of Greeks marched in Athens yesterday to protest a name deal with the neighbouring Republic of Macedonia. Law enforcements estimated that about 60,000 people had turned up to protest the ‘Prespes agreement’.
- Today’s economic calendar is very thin as US markets are closed in observance of Martin Luther King Day. UK PM May returns to Parliament and the IMF releases its World Economic Outlook update
Currencies: EUR/USD Decline To Slow?
EUR/USD correction to slow?
The dollar initially showed no clear trend on Friday. US and European equities profited both from headlines on progress in the China-US trade talks. Later, US yields rose more than German/EMU ones and this finally triggered some USD outperformance. US December production data were strong, but U. of Michigan consumer sentiment declined much sharper than expected. However, it didn’t break the USD’s momentum. The trade-weighted dollar jumped to the 96.35 area. EUR/USD eased from 1.14+ levels to close the day 1.1363. USD/JPY had a good run and finished at 109.78. This morning, the China Q4 GDP showed a further slowdown, but the report was largely as expected (6.6% growth YTD Y/Y; 6.4% Y/Y in Q4). Regional equity markets mostly show modest gains. US equity futures are losing slightly ground. The dollar is holding most of Friday’s gain. EUR/USD is trading in the 1.1375/80 area. USD/JPY hovers in the mid 109 area. There are no important data in EMU today. USD markets are closed in observance of Martin Luther King Day. Technical factors and global market sentiment will have to guide USD trading. Last week, there was no straight forward narrative for USD trading. The USD correction on a softer Fedapproach from early this year had run its course. Global sentiment on risk remain constructive, but it had no further negative impact on the dollar as US yields rebounded in lockstep. Medicore EMU data also hampered any euro progress. At the end of the week, the dollar even outperformed. EUR/USD settled again in the established 1.12/1.15 trading range. We start the week with a neutral bias on EUR/USD. The attempt of a topside break is rejected. Later this week, EMU confidence data (ZEW, ifo PMI) might bottom. The ECB will probably also maintain a rather constructive tone on the EMU economy. US politics (shutdown) and the earnings season are wild cards. Last week, the dollar outperformed, but the EUR/USD decline might slow as technical support is lining up from 1.1309 to 1.1270 area.
Sterling fell prey to profit taking on Friday. Earlier last week, the UK currency captured a better momentum as investors saw a rising chance that a no deal Brexit could be avoided. Today, UK PM will set out her plans after the Brexit deal was rejected last week. For now, it looks that a breakthrough in the UK Parliament will be difficult to reach. The EU is said to be divided on the length of a Brexit delay. In this context, further GBP-gains don’t look evident
EUR/USD: dollar outperforms, but EUR/USD support is lining up.
