- Rates: Italy set to launch new 30-yr syndicated benchmark
Today’s eco calendar is empty apart from US and Italian supply. The Italian debt agency probably launches a new 30-yr syndicated benchmark deal. We expect demand will be there, benefiting peripheral bonds. Core bonds are stuck in no man’s land. More sentiment-driven trading within existing technical ranges is probable. - Currencies: EUR/USD drifting lower in the 1.15/1.13 ST range
The news flow from Europe was mixed yesterday rather than negative, but it didn’t help the euro. EUR/USD is drifting below the 1.14 big figure. There are few data to guide trading in the major FX cross rates. Italian and US bond auctions might influence intraday sentiment. Sterling stays in the defensive as PMI’s indicate that Brexit uncertainty is weighing on growth
The Sunrise Headlines
- US equity markets gained ground yesterday with gains varying between 0.50%-0.75%. Half of Asian bourses are closed due to the Lunar New Year holiday, Other bourses are mainly trading in green this morning.
- US President Trump called for bipartisanship in his State of the Union address, with a special focus on border wall funding. Next, he announced the meeting with North Korean leader Kim Jong Un will take place Feb 27-28 in Vietnam.
- Rumours suggest that ECB officials don’t see any urgency to offer new long-term loans to banks (e.g. TLTRO’s), as they are not convinced about the necessity for more liquidity in the market. ECB spokesman declined to comment.
- The Brexit debates continues as UK PM May is in Northern Ireland to discuss modifications to the Irish backstop, while Irish PM Varadkar travels to Brussels today. May meets with European Commission President Juncker tomorrow.
- The French government’s discontent with the EU’s is growing as the latter is expected to veto a rail merger (Alstom/Siemens). France calls for an overhaul of the bloc’s antitrust rules and a stronger backing for its companies.
- Reserve Bank of Australia chief Philip Lowe unexpectedly shifted to a more neutral policy outlook (probability of next move – rate cut or hike – 50/50) after the bank left policy rates unchanged yesterday without altering its bias.
- Today’s economic calendar is empty. Earnings season continues with Q4 results of amongst others GM. The US taps the market, while Italy will likely launch a new 30-yr syndication today
Currencies: EUR/USD Drifting Lower In The 1.15/1.13 ST Range
EUR/USD extends downside drift
The dollar held the benefit of the doubt yesterday. EUR/USD extended its gradual rebound off last week’s correction top, reached on Thursday, soon after the Fed policy decision. As such, the news flow was not too bad for the euro. EMU PMI’s were less weak than expected, but (FX) markets focused on poor readings in France and Italy. There were also rumours that the ECB was unlikely to change (ease) its guidance on rates in March. It hardly helped the euro. A break lower in cable also weighed on EUR/USD. The US manufacturing ISM was close to expectations with little impact on FX trading. EUR/USD finished at 1.1406. USD/JPY held close to the 110 mark but couldn’t sustain above. In his State of the Union, US president Trump reiterated the need to build a wall on the Mexican border, but didn’t elaborate on market sensitive items. Most Asian equity indices show modest gains. The Aussie dollar (more than) reversed yesterday’s post-RBA gain. In a speech, Governor Lowe clarified that the RBA has currently a neutral stance. Developments in the labour market will decide whether the next rate move will be a hike or a cut. AUD/USD lost about a full big figure and nears the 0.7140 area. EUR/USD is drifting below the 1.14 handle. USD/JPY (109.75) is losing a few ticks.
The eco calendar is thin today. The US trade balance will probably only be of intraday significance for USD trading, at best. Markets will keep an eye at an (expected) sale of 30-y Italian bonds and the auction of 10-y US Notes. Of late, sales of long-dated EMU bonds went smooth. If this is again the case for today’s Italian auction, it might remove a source of euro caution. Last week, the post- Fed USD decline (EUR/USD rebound) halted soon, mainly due to poor EMU data. The subsequent USD rebound was not impressive, but gradually continues. The day-to-day momentum is USD supportive & cautious on the euro. However, we don’t seen a strong case for the pair to drop below key support. Intermediate support at 1.1390 is currently under test. The 1.1290/67 area is the next line in the sand.
Sterling remained in the defensive yesterday. The composite (50.3) and services (50.1) PMI’s suggested that the UK economy might be heading for stagnation. Cable dropping below 1.30 triggered additional sterling selling. EUR/GBP closed at 0.8809. Today, there are no UK eco data. After yesterday’s GBP-decline, trading might sift into wait-and-see modus ahead of tomorrow’s BoE meeting.
EUR/USD: drifting lower in the 1.15/1.13 ST trading range
