- Rates: Temporary reprieve
Global core bonds lost some ground yesterday as risk sentiment improved. Today’s empty eco/event calendar suggests that risk settings and potential comments in the trade dispute will be driving intraday gyrations. Tomorrow’s EMU PMI’s are the next real benchmark. - Currencies: Dollar shows no clear trend. EUR/USD nears 1.1110 support
USD/JPY profited from higher US yields and a better risk sentiment yesterday. EUR/UISD showed no clear trend. Fed minutes might be mildly USD supportive today. A test of EUR/USD 1.1110 is possible. Sterling spiked temporary higher on UK PM’s May’s Brexit proposal, but optimism faded soon as she received little political backing.
The Sunrise Headlines
- US equities managed to hold on to opening gains, rising by around 0.8% on a daily basis. Asian investors are reluctant to join the party with regional indices currently near opening levels with a slight South Korean outperformance.
- China’s ambassador to the US , Cui Tiankai, said that Beijing is ready to resume trade talks with Washington. He blamed the US from changing its mind an breaking the tentative trade deal.
- Japanese core machine orders rose more than expected in March, 3.8% M/M vs 0% expected. However, the data date back from before the new trade war escalation. Exports remain under pressure, falling 2.4% Y/Y in April.
- UK PM’s May’s final gamble, offering a ‘new’ Brexit deal which included the possibility of a 2nd referendum, rapidly backfired with heavyweight Tories, DUP allies and Labour leader Corbyn all condemning her offer.
- The NY Times reports that, according to sources, the Trump administration is considering to limit Chinese video surveillance giants’ (eg Hikvision) ability to buy American technology.
- St. Louis Fed governor Bullard, voter, said that the central bank might have overdone it with its December rate hike, but thinks that monetary policy is right now. He would consider a rate cut if inflation got stuck in a rut.
- Today’s eco calendar contains UK April inflation data and Minutes from the previous Fed meeting. ECB President Draghi and chief economist Praet speak, as do Fed Williams and Bostic. Germany taps the bond market.
Currencies: Dollar Shows No Clear Trend. EUR/USD Nears 1.1110 Support
EUR/USD nears 1.1110 support
The dollar traded mixed yesterday. USD/JPY profited from the risk rebound and from higher US yields as Powell confirmed the Fed’s wait-and-see bias. EUR/USD traded sideways in the mid 1.11 area for most of the day. The pair jumped briefly higher on headlines that UK PM May would allow a second referendum if her Brexit deal was approved. The move was soon reversed as UK PM May received little support for her approach. EUR/USD closed the session little changed at 1.1161.
Asian equities trade mixed this morning despite a nice rebound in the US. Markets wait for new steps in the US-Sino trade dispute. Chinese officials say they are prepared to continue talks. At the same time, the US is said considering blacklisting several other Chinese companies, illustrating that tensions might resurface at any time. The yuan trades marginally weaker (USD/CNY 6.9125). USD/JPY eases after yesterday’s rebound (109.45 area). EUR/USD is trading marginally softer (1.1155).
The eco calendar is thin. Markets will closely monitor the Minutes of the May Fed meeting. There might be some internal debate on next policy steps, but the majority of the FOMC will likely support the current wait-and-see stance. The Fed holding back on rate cuts (for now) might be marginally USD supportive, but the Fed view was well documented in speeches of late. Headlines on the trade war remain a wildcard for USD-trading. They will probably mostly affect USD/JPY rather than EUR/USD.
EUR/USD has returned to the lower part of the 1.1265/1.1110 ST trading range. For now, the dollar retains the benefit of the doubt, but we maintain the working hypothesis that EUR/USD 1.1110 support won’t be easy to break without real negative EMU news.
EUR/GBP spiked temporary lower in the 0.87 big figure after UK PM May’s latest effort to seek a compromise on her Brexit deal (see above). Her proposal got little support from her own party, the labour opposition and the DUP. So, Brexit uncertainty is as high as it ever was. The focus now turns to the internal battle to succeed UK PM May. UK April CPI is expected to rebound north of 2.0% today, but the report will probably have little impact. We stay cautions on sterling as long as the visibility on Brexit remains as foggy as it is now. EUR/GBP 0.8840 resistance remains the next technical reference
EUR/USD nears the bottom of the 1.1265/1.1110 ST range
