- Rates: Chinese growth data put worst growth scenario’s (temporarily?) to bed
Core bonds edge lower this morning as Chinese eco data shelve most pessimistic growth scenarios, at least for now. The US 10-yr yield regains the 2.5%-2.55% area, turning the technical picture more neutral again. European investors build in some more caution ahead of tomorrow’s EMU PMI’s. - Currencies: EUR/USD holds ground above 1.13 after strong Chinese data
EUR/USD slipped below 1.13 yesterday, yet temporarily. This morning’s Chinese growth figures displayed economic resilience and pushed the couple back above 1.13. Market moves stay fairly subdued however as more important data and earnings are due in short notice. Sterling stays in defensive mode even as Brexit temporarily moved to the background
The Sunrise Headlines
- US equity markets closed yesterday’s session little higher with technology shares outperforming (Nasdaq +0.30%). Asian equities are largely trading higher this morning with Chinese indices struggling to profit on strong growth data.
- The US government is considering other potential nominees for the two open seats on the Fed board as President Trump’s preferred candidates, Cain and Moore, have drawn widespread criticism, incl. from Republican Senators.
- US crude inventories unexpectedly decreased (-3.1m barrels) last week, adding to the concerns of a shrinking global market. The news pushed the price for one barrel Brent crude oil to $72, the highest level in five months.
- Chinese GDP grew faster than expected in the first quarter of this year. The economy expanded 6.4% (YoY) vs. 6.3% expected. Industrial production and retail sales both beat estimates in March, supporting the growth.
- New Zealand’s first quarter inflation dropped to 1.5% (YoY), down from 1.9% the quarter before and below market expectations (1.7%). The New Zealand dollar slid on the result to a three-month low
- The Canadian right-wing United Conservative Party (UCP) retook office in Alberta, Canada’s largest oil-producing province. The UCP aims to take Canadian PM Trudeau under fire ahead of the federal elections in October.
- Today’s US eco calendar only contains second-tier data. Canada, the UK and the EMU (final) print consumer inflation data for March. Fed governors Harker and Bullard speak, while the Fed’s beige book is released. Q1 earnings continue.
Currencies: EUR/USD Holds Ground Above 1.13 After Strong Chinese Data
Chinese growth data supports EUR/USD
A strong Asian session initially supported euro buying yesterday. EUR/USD retreated from its intraday high around 1.1314 however. Reuters reported that “a significant minority” of ECB officials doubt the projected growth recovery in the second half of this year. The couple staged a comeback on a lack of enthusiasm within the ECB regarding deposit tiering. EUR/USD eventually did slip below 1.13 (1.1281) as US/German interest rate differentials widened in favour of the dollar, despite weak US industrial data. USD/JPY closed unchanged at 112.
China’s growth data took centre stage during today’s Asian session. 2019Q1 GDP growth slightly beat estimates and other high profile data equally showed resilience. EUR/USD jumped back above 1.13. The Aussie dollar advanced near 0.72. The Chinese yuan performs rather disappointingly, suggesting some investor fatigue. The kiwi dollar (0.67) slipped after soft (inflation) data before recovering on the Chinese data. The yen traded a similar pattern. USD/JPY changes hands close at 112.
Today’s economic data flow basically ran dry after the Chinese batch this morning. The numbers at first sight have further eased investor growth concerns. But will the anedotical evidence in the Fed’s beige book later today do so too? Speeches by Fed’s Harker and Bullard are wildcards for trading. Meanwhile the earnings season gains traction. The next important point of reference are tomorrow’s EMU PMI’s.
Global economic sentiment has recently turned for the better. Chinese GDP data did not completely debunk that. Last week’s price actions shows the euro is still net benefiter of such circumstances. The currency recaptured 1.13 but the situation remains fragile. We watch for Q1 earnings and EMU PMI’s to further confirm the sentiment turnaround. We maintain the view that a EUR/USD break lower isn’t evident given the Fed’s wait-and-see bias unless EMU/US data come in surprisingly weak/strong. A break above 1.13 introduces resistance at 1.1448.
Yesterday’s UK job report was strong. Nevertheless, sterling traded with a slight negative bias, testing the upper bound of the 0.85/0.865 range (EUR/GBP closed at 0.864). Brexit temporarily moved to the background as British MP’s enjoy the Easter holidays. March CPI data might trigger some sterling volatility today. However, it won’t change the BoE’s assessment. In a broader perspective we stay cautious on sterling as long as Brexit and the political impasse drags on. We assume the EUR/GBP 0.85 support area to be solid.
EUR/USD dipped below 1.13 only temporarily after Chinese growth data does not completely debunk growth optimism for now
