Rates: US 10-yr yield tests 2.61% support
The US 10-yr yield is extensively testing 2.61% intermediate support following disappointing eco data and a strong 10-yr Note auction. A drop below this level suggests a return to the key 2.5% area. Eco data and supply suggest more outperformance of US Treasuries today.
Currencies: EUR/USD rebounds, partially on USD softness
EUR/USD rebounded further off the 1.12 support yesterday. This move was partially driven by soft US CPI data. However, last week’s post-ECB euro negativism is also fading. The data in EMU and the US might be mixed to tentatively EUR/USD supportive today. Sterling suffered a moderate setback as the outcome of the Brexit process remains highly uncertain
The Sunrise Headlines
- US equity markets printed mixed yesterday with gains/losses varying between -0.38% (DJI) and +0.44% (Nasdaq). Asian equities are mixed with Japanese and Chinese indices underperforming.
- UK Parliament has largely rejected PM May’s Brexit proposal again, with a vote of 391 to 242. Parliament will now vote on a no-deal withdrawal later today. If that is voted down too, a 3rd vote to extend Article 50 will take place tomorrow.
- US Trade Representative Robert Lighthizer warned US-Sino trade negotiations are at risk of failing, speaking to the Senate finance committee. He said “major, major issues” still needed to be resolved before an agreement can be reached.
- Italian PM Conte reassured that the Chinese ‘Belt and Road’ initiative in Italy is purely a business opportunity for the country. He said the proposition doesn’t create legal obligations and pledged maximum attention on China telecoms.
- Japanese producer inflation rose 0.2% (M/M) in February after the -0.6% (M/M) decline in January and more than consensus (+0.1%). Core machine orders dropped -5.4% (M/M) in January, down from -0.1% in December.
- Australian consumer confidence declined -4.8% (M/M) in March, compared to the 4.3% increase of February. The Westpac Consumer conf. Index sharply declines to 98.8 in March vs. 103.8 in February. AUD loses limited ground.
- Today’s US eco calendar contains February producer inflation data and January durable goods orders. The EMU prints January Industrial Production. ECB’s Coeuré speaks and the US, Germany, Italy and Portugal tap the market
Currencies: EUR/USD Rebounds, Partially On USD Softness
EUR/USD rebounds off 1.12 support
EUR/USD showed some intraday swings yesterday, but the euro held an upward bias moving further away from the 1.12 support. Early in the session, the euro profited from the risk on due to the ‘Brexit deal’ between the EU and the UK. Later, the focus turned to soft US inflation data cementing expectations for the Fed to stay firmly on hold. They resulted in lower US yields and a modest USD decline. Remarkable, despite a flaring up of potential Brexit chaos, EUR/USD outperformed other major currencies against the dollar. EUR/USD closed at 1.1288. USD/JPY was less affected by the USD softness and closed at 111.36. Overnight in Asia, the risk rebound from earlier this week slowed. There were no important enough data to fuel investor hope that the global growth slowdown might be easing. The headlines on the (US-China) trade talks are mixed signals. Japan Machine orders disappointed and so did Australian consumer confidence. The Aussie dollar is losing a few ticks (AUD/USD 0.7050 area). USD/JPY (111.30) is trading little changed, EUR/USD is holding in the high 1.12 area.
The EMU January production, the US PPI and orders for durable goods will be published today. EMU production data are expected to rebound. The figure is a bit outdated. Even so, a constructive report might support the view that a cautious bottoming might be starting in EMU. In the US, market expectations for the durables are not that high, but PPI might be soft. Global sentiment and Brexit remain wildcards. At least yesterday, Brexit uncertainty didn’t hurt the euro much. Earlier this week, the EUR/USD picture was rather cautious/diffuse as it is influenced both by domestic EMU related issues (ECB etc.) and by market sentiment on global growth. This week, post-ECB euro negativism eased. Sentiment on the dollar softened as markets look forward to next week’s Fed meeting. The 1.12 range bottom is still close but looks again more solid. The euro has still no prospect on interest rate support anytime soon. However, better EMU eco data might moderate the euro negative sentiment. Sterling initially profited from the last minute EU-UK Brexit deal yesterday. However, GBP positivism evaporated as the advice from UK Attorney General Cox indicated that the deal would still be unacceptable for brexiteers. This was exactly what happened in the meaningful vote. EUR/GBP closed at 0.8650. Today, UK Parliament will vote whether or not to reject a no-deal Brexit. A rejection might be marginally supportive for sterling, but visiblity on the next poltical steps remains extremely low. We don’t frontrun on positive news and stay cautious on sterling.
EUR/USD: rebounds from 1.12 range bottom, partially on USD softness
