- Rates: First signs of fatigue in the Bund?
Mixed EMU PMI’s were no longer sufficient to add to Bund gains. On the contrary. Some investors decided to take some profit with the Bund testing first minor support. We hope to see a confirmation of this shift after today’s German Ifo Business sentiment. Consensus expects a stabilization in February with risks slightly tilted to the upside. - Currencies: EUR/USD idled in 1.13 area as (US & EMU) data fail to give guidance
The euro temporary outperformed the dollar yesterday, but finally US & EMU data were not able to give clear guidance for trading in the euro or the dollar. Today, German Ifo business sentiment might have some intraday significance for EUR/USD trading. Fed speaking on the balance sheet roll-off is a wildcard for (USD) trading.
The Sunrise Headlines
- US equities posted modest losses yesterday on weak economic data. Asian equity markets are mainly trading in red this morning with China outperforming on hopeful signals from the China/US trade negotiations.
- US President Trump will meet China’s vice-premier and lead negotiator Liu He today. The meeting caps the latest round of trade talks, with both parties working towards a (preliminary) deal to avoid a new round of tariffs.
- The European Union expects that UK PM May will be forced to request a three-month delay to Brexit. The bloc sees this as a ‘technical extension’ to give the UK Parliament time to pass the necessary legislation.
- Australian PM Morrison tried to reassure investors that the relationship with China is not as bad as it looks, following the ban on Australian coal imports in a Chinese port. He said the move is common, but asked China for clarification.
- Bank of Canada Governor Poloz signalled that the BoC is in no rush to continue monetary tightening. He said that interest rates eventually need to move up into neutral range, but the economic uncertainty warrants patience for now.
- The Reserve Bank of New Zealand said that proposals to increase bank capital requirements could raise borrowing costs. RBNZ governor Bascand hinted a rate cut could be necessary to offset the resulting tighter monetary conditions
- Today’s eco calendar contains German IFO Business sentiment. Fed’s Clarida speaks, while Fed’s Bullard, Harker, Quarles and Williams discuss the Fed Balance Sheet. ECB Draghi features at a low key event. Italy sells bonds.
Currencies: EUR/USD Idled In 1.13 Area As (US & EMU) Data Fail To Give Guidance
Mixed US/EMU data cement EUR/USD stalemate
EMU and US data were mostly mediocre yesterday and didn’t provide clear directional guidance for their respective currencies. Initially it looked that the euro could slightly outperform. The EMU composite PMI rebounded modestly. ECB members were not keen to provide concrete guidance on a new TLTRO program. The US durable orders and Philly Fed business outlook also reinforced the feeling that US growth might be over its peak. At first, USD-German interest rate differentials narrowed slightly as EMU yields rose. EUR/USD came within reach of Wednesday’s ST top, but a real test didn’t occur. Later, a further rise in US yields restored the balance. EUR/USD closed again little changed at 1.1336. USD/JPY also held in well-known territory, closing at 110.70.
Risk sentiment in Asia initially turned more cautious overnight as investors await more concrete news from the US-China trade talks. Japan core inflation (ex fresh food 0.8% Y/Y) rose marginally, but didn’t change the prospect for monetary policy or for the yen. USD/JPY is trading near 111.75. EUR/USD is also going nowhere (1.1340 area). The kiwi dollar (NZD/USD 0.6775 area) remains under pressure. The RBNZ indicated that tighter monetary conditions due to higher bank capital requirements, if necessary, might be counterbalanced by a rate cut. Today, there are no US data. In Europe the final German Q4 GDP and German IFO confidence are interesting. Several Fed governors will speak, mostly after the close of European markets. Yesterday, EUR/USD rose temporarily as the EMU PMI’s were not that bad. A similar reaction is possible in case of a decent IFO. However, with several ‘global issues’ issues still clouding the eco outlook, it is unlikely to kick-start a clear directional EUR/USD move. Fed members speaking the balance sheet is USD wildcard. EUR/USD rebounded off last week lows but euro sentiment remains fragile. Of late, we assumed progress on trade issues and better EMU data are needed for a more protracted EUR/USD comeback. There are hopeful signs on trade, but the jury is still out. EUR/USD 1.1216 marks the Nov low. EUR/USD 1.1187 is 61% retracement (2016 low/2018 top).
The sterling price action more or less followed the tone of the Brexit headlines yesterday. Sterling resilience prevailed, but initial intraday gains evaporated as the hope in a ‘quick’ solution was said to be over-optimistic. EUR/GBP closed little changed at 0.8692. This morning’s headlines suggested that the EU preparing for a three-month Brexit delay. Of late, markets tended to be positioned for a scenario that a no-deal Brexit could be avoided. This hope helped to put a floor for sterling, despite plenty of Brexit noise. EUR/GBP 0.8621/17 is key MT support.
EUR/USD idled in the mid 1.13 area as (US & EMU) data fail to give guidance
