- Rates: US Treasuries extend rally after Q1 GDP figures
A mixed US GDP report couldn’t change the tide on the (US) bond market, extending US Treasuries’ gains. Spanish Socialists won parliamentary elections this weekend, avoiding a shift to (extreme) right. Spanish bonds might profit somewhat with the election risk out of the way. This week’s eco calendar includes with Fed meeting (Wednesday) and US payrolls (Friday). - Currencies: Technical and fundamental EUR/USD picture to change this week?
EUR/USD quickly erased a knee-jerk reaction to US GDP figures last Friday. The report was no game-changer, leaving the technical and fundamental picture intact. Today’s calendar probably won’t trigger any material market moves either. Investors start eying the high profile events later this week that do have the potential to change the pair’s fortunes.
The Sunrise Headlines
- US stock markets overturned initial weakness following a mixed Q1 GDP report with main indices closing 0.3% to 0.5% higher. Asian equity markets show a more mixed picture this morning with South Korea
- Spanish Socialists won general elections. Sanchez’ party assembled 123 seats in parliament with coalition options on the left (Podemos and support of small parties) and centre (Ciudadanos). Extreme-right (Vox; 24) entered parliament.
- A tweet by US President Trump pulled Brent crude below $72/barrel. He boasted about consensus between “Saudi Arabia and others’ about increasing oil flow.
- Rating agency S&P affirmed the Italian BBB rating, but the outlook remains negative. Risks included rising government deficits/debt, a deterioration in external financial conditions and policy changes which weaken potential growth.
- Japanese markets are closed starting today up until Monday May 6. The traditional “golden week’ holidays are this year extended by the Coronation of the new emperor.
- CFTC data show that investors turned net long in Eurodollar futures contracts for the first time since June 2016 amid expectations of a Fed rate cut by the end of this year/early next year.
- Today’s eco calendar contains April EMU EC confidence data. March personal income/spending figures and PCE deflators are scheduled for release in the US. Alphabet reports Q1 earnings and BoE governor Carney speaks
Currencies: Technical And Fundamental EUR/USD Picture To Change This Week?
US growth no game-changer for USD
US growth came in at a strong 3.2% QoQ (annualized) last Friday, crushing 2.3% market expectations and up from 2.2% in the last quarter. The details however were rather unconvincing, showing a meagre contribution from private consumption and a boost by inventories and net exports. EUR/USD quickly erased knee-jerk losses and even managed a marginally higher close at 1.1151 (up from 1.1132). USD/JPY reacted similarly and closed only slightly lower at 111.58 vs. 111.63 the day before.
Asian markets are trading mixed after new record (closing) highs for US equities on Friday. Japanese markets are closed through May 6 as the Golden Week holidays kick off. USD/JPY is trading stable. EUR/USD is little changed at 1.1158 after the socialists won the Spanish elections with reasonable coalition options.
Today’s US data (personal income and spending, PCE deflator) are probably of secondary importance as they can be abstracted from Friday’s US growth report. EMU economic confidence is set for a limited decline from 105.5 to 105.0. We see risks skewed to the downside. This would limit any euro recovery from the recent lows below the 1.1177 MT range bottom it has been trading at since the poor EMU (PMI, German IFO) data. Losses in EUR/USD will likely stay limited as well though. We don’t see a strong case for a sustained break below the 1.1110/19 support due to the important economic events that are due later this week (Fed, ISM’s, payrolls, EMU GDP and CPI). US Q1 growth hasn’t changed the (technical and fundamental) picture for EUR/USD but this week’s eco calendar might.
Lack of important data and progress in brexit resulted in sideways sterling trading last Friday. Rating agency S&P kept UK’s AA rating with a negative outlook as the risk of a no-deal brexit persists. EUR/GBP was little impressed and closed unchanged at 0.863. “Difficult’ talks between May and Labour’s Corbyn continued this week in an effort to avoid holding European elections but a breakthrough soon is unlikely. We expect more sideways trading in the run up to a back-loaded event calendar (UK PMI’s, Bank of England) as both euro and sterling weakness keep each other balanced.
Technical and fundamental EUR/USD picture to change after this week’s data?
