- Rates: Fragile risk sentiment may support core bonds
Risk sentiment deteriorated towards the end of Asian dealings as the Pakistani/Indian conflict escalates. German Bundesbank president Weidmann presents the annual report, with special attention to the outlook. EMU EC economic confidence is expected to stabilize in line with the composite PMI. We remain cautiously positive for core bonds. - Currencies: EUR/USD trading higher in the 1.12/1.15 trading range.
The dollar faced different drivers. In the end, the USD currency broke some minor support levels as Fed’s Powell repeated recent wait-and-see approach. EUR/USD tested the 1.14 area. Today, the eco calendar is not that enticing. Some further by default USD selling might continue. Sterling is holding strong even as a no deal Brexit is still an option
The Sunrise Headlines
- US equity markets lost negligible ground yesterday with the DJI (-0.13%) underperforming. Asian equities are giving up gains this morning after Pakistan said to have shot down Indian aircrafts.
- The US House of Representatives voted to block President Trump’s border emergency declaration. If the resolution now passes the US Senate too, president Trump will likely override the decision with a presidential veto.
- Pakistan shot down two Indian aircrafts within Pakistani airspace, in a dramatic escalation a day after the Indian Air Force bombed a terrorist training camp in Pakistan. The Nifty fifty reversed earlier gains and falls 0.5% on the day.
- Luigi Di Maio, Italian deputy PM and 5SM leader, said the party’s poor results in regional elections (e.g. Abbruzio, Sardinia) has no impact on the Italian government after rumours that coalition partner Lega would call early elections.
- The US seeks support from EU leaders to back the US nomination, David Malpass, to head the World Bank. Malpass is a known sceptic of multilateral institutions. EU leaders will look for assurances, e.g. on climate change policy.
- Nigerian President Buhari won for the second time the presidential elections, who were afflicted with delays, technical problems and at least 39 deaths. The opposition People’s Democratic Party called the vote “manipulated”.
- Today’s eco calendar contains the EMU Economic Confidence gauge (Feb). The UK votes on May’s new proposal and Fed chairman Powell speaks. US president Trump meets North Korean leader Kim Jong Un in Vietnam
Currencies: EUR/USD Trading Higher In The 1.12/1.15 Trading Range
EUR/USD creeping higher in the 1.12/1.15 range
The dollar was pushed back and forth by divergent drivers yesterday. US data were mixed with poor housing starts but a solid consumer confidence. The latter supported an intraday USD rebound. Later, chairman Powell reiterated recent Fed mantra that caution on policy should prevail as the Fed wants to see how global headwinds will affect the US economy. The dollar initially held strong, but in the end USD/JPY and EUR/USD broke beyond first minor support/resistance. At the same time, the euro was supported by comforting comments from ECB’s Lane. EUR/USD tested the 1.14 big figure and closed at 1.1389. USD/JPY finished at 110.59, well of recent 111+ ST peak levels. This morning, most Asian indices are trading mixed-to-positive even as US indices failed to preserve initial gains. A soft dollar and cautious Fed approach in the end are not that bad for emerging markets. BOJ’s Kataoka, a well-known dove, said further (monetary and fiscal) stimulus is needed to reach the inflation target. BOJ’s Kuroda sounded more balanced, but also admitted the BOJ has to keep policy easy (including ETF buying). For now, the soft BOJ comments didn’t weaken the yen. USD softness prevails. USD/JPY hovers in the mid 110 area. EUR/USD is trading in the 1.1375 area.
Today, EC confidence is expected to confirm recent sluggish momentum in the EMU economy. A positive surprise isn’t evident, but if so, it might support a euro constructive sentiment. US data (trade balance and inventories) will probably only be of intraday significance. USD traders will keep an eye at the Q&A of Powell’s testimony before the House. We started this week with a cautious bias on the US dollar as the US currency mighty become (slightly) more sensitive to soft US data and their impact on Fed policy. Last week, EUR/USD rebounded off recent lows, but with no strong momentum. Any EUR/USD rebound will develop a slowly as long as EMU data stay unconvincing. Still, yesterday’s break beyond 1.1370 might open the way for further gains in the 1.12/1.15 ST consolidation pattern.
The sterling rebound initially took a breather yesterday, after UK PM May didn’t formally exclude a no-deal brexit. However, the pause in the sterling rebound was temporary. Later in the session, the unwinding of sterling shorts continued. Today, the political debate on Brexit in the UK parliament will continue, but we don’t expect material changes to the Brexit road as painted by UK PM May yesterday. Of late, sterling profited receding chances on a no-deal Brexit. We find that poltical event risk is a bid underestimated, but for now, the sterling up-trend (EUR/GBP decline looks) solid. EUR/GBP is drifting below the 0.8620/00 support.
EUR/USD testing the 1.14 big figure.
