- Rates: Underperformance of US Treasuries; Trump’s State of the Union is a wildcard
Risks for the US non-manufacturing ISM are tilted to the upside of expectations. Together with approaching US supply (3y-10y-30y), it could cause further underperformance of US Treasuries vs German Bunds. US President Trump’s State of the Union after the US bell is a wildcard for trading which could influence global markets via risk sentiment. - Currencies: USD/JPY tries to regain the 110 barrier
The dollar traded with a cautiously positive bias yesterday, mainly driven by technical considerations. Today, the US non-manufacturing ISM is interesting. However, last Friday’s strong US data didn’t help the dollar much. So, more consolidation in the major USD cross rates might be on the cards. The State of the Union of President Trump is a wildcard.
The Sunrise Headlines
- US equity markets gained ground yesterday with technology shares outperforming (Nasdaq +1.15%). Most Asian bourses are closed due to the Lunar New Year holiday. Australia (+1.95%) outperforms.
- The RBA left the policy rate unchanged at 1.50%, as expected. RBA governor Lowe said that the low level of interest rates will further support the Australian economy and bring the unemployment down and inflation closer to target.
- The Nikkei Japan PMI Composite declined to 50.9 in January, down from 52.0 because of a deteriorating manufacturing sector. The Nikkei Japan PMI Services rose from 51.0 to 51.6, spurred by a pick-up in domestic demand.
- The US special ambassador for North Korea will meet with North Korean officials on Wednesday in Pyongyang to prepare for a special summit later this month between US President Trump and North Korean leader Kim Jong Un.
- US President Trump is said to pick David Malpass as the US nominee to lead the World Bank. The choice for the senior Treasury Department official and Trump loyalist is portentous as he is a known sceptic of multilateral institutions.
- Venezuelan crude exports are declining sharply as President Maduro’s regime struggles to find buyers for the crude shipments after new US sanctions. The US restrictions are aimed to redirect crude revenues to opposition leader Guaido.
- Today’s economic calendar contains services ISM (US) & PMI’s (UK & final EMU) and EMU retail sales. Germany and the US sell bonds. President Trump delivers his State of the Union after the closing bell
Currencies: USD/JPY Tries To Regain The 110 Barrier
USD/JPY tries to regain 110 mark
In technical trade, the dollar drifted higher yesterday. There was little news to inspired global USD (FX) trading. US yields gained marginally, maybe still supported by strong US data on Friday and by upcoming US bond supply this week. However, the move was far from impressive as were the USD gains. USD/JPY broke temporarily above 110, but the attempt failed even as US equities rallied later. EUR/USD finished at 1.1438 (from 1.1456). USD/JPY closed at 109.89 (from 109.50 on Friday) Trading in in Asia shows no clear trend as several markets are closed. EUR/USD is currently trading in the 1.1435 area. USD/JPY (108.90) is losing a few ticks as a new attempt to regain the 110 level failed again. The Aussie dollar is in good shape. The AUD initially dropped to the 0.72 area on poor retail sales data. However, at its policy meeting, the RBA maintained a positive assessment on the economy. The impact of declining house prices on consumption spending remains a source of uncertainty. Still, the bank didn’t shift to an easing bias as some in the market had expected. AUD/USD is again trading in the 0.7260 area. The calendar contains the final EMU PMI’s and December retail sales today. The data are expected soft. In the US, the non-manufacturing ISM is expected at 57.1 (from 58.0). This is still a lofty level for this point in the eco cycle. We don’t see many reasons for a negative surprise. In theory this can be USD supportive, but the USD didn’t gain much on strong data last Friday. The 3-y auction and the State of the Union of President Trump are wild cards. Last week, the post-Fed USD decline halted soon, mainly due to poor EMU data. The subsequent USD comeback also had no strong legs. More sideways EUR/USD trading might be in the cards. Given the price action last week, we assume the EUR/USD downside to be rather well protected. USD/JPY maintains a constructive momentum. A break beyond the 110 resisistance would further improve the technical picture.
Yesterday, EUR/GBP hovered in the 0.8750/75 area for most of the day. The pair dropped temporarily on press headlines that the UK would not delay the import of EU goods in case of a no deal Brexit, but the move was very short-lived. This morning, BRC retail sales were OK. Later today, the services PMI is expected to ease to 51.0. A break below the 50 barrier might cause om sterling negative headlines. Brexit talks between the UK and EMU continue. However, a workable solution is not evident. A cautious BoE (Thursday) and a soft inflation outlook might also cap further GBP-gains
USD/JPY tries to regain the 110 barrier
