- Rates: Corrective risk rebound runs out of steam
US stock markets on several occasions failed to take out first resistance, suggesting a return to the sell-off lows. Given large monetary policy actions, we expect a return of the traditional negative correlation between stocks and (core) bonds. US weekly jobless claims are expected to rise further after last week’s huge surge and could help US Treasuries outperforming. - Currencies: EUR/USD nears 1.09 support
Yesterday, investors’ preference for the dollar continued at the start of the new quarter as sentiment returned risk off. Even so, in this move the yen outperforms and the euro underperforms. There is no obvious explanation for the euro weakness, but the halt in the intra-EMU spread narrowing also suggests some investor reluctance as the EU policy response.
The Sunrise Headlines
- US stocks were slammed as investors brace for a long economic slowdown. The DJ underperformed (-4.44%). Asian markets tracked the tumble on Wall Street but modestly pare initial losses. Thailand outperforms (+0.82%).
- The US intelligence community concluded that the Chinese government concealed the extent of its coronavirus outbreak underreporting both total cases and deaths from the disease, Bloomberg reported citing three US officials.
- Florida and Pennsylvania added to the list of US states issuing state-wide stay-at-home orders amid a mounting number of coronavirus cases. Also, president Trump mulls cutting domestic flights between coronavirus hot spots.
- US president Trump will meet with energy executives to discuss ways to help the industry weather an unprecedented oil crash, incl. the option of imposing punitive trade measures on imports of Saudi Arabian crude, WSJ reported.
- The RBNZ announced a new term lending facility that will allow banks to fund themselves at low interest rates for terms of up to 3yrs, in addition to the previously announced term auction facility which provides funding for up to 1yr.
- France is urging a common EU fund to push the bloc through the coronacrisis but proposes it to be limited to 5 or 10yrs and focused on economic recovery to head off German & Dutch objections to mutualising debt obligations.
- US filings for unemployment benefits take centre stage in today’s economic calendar. Jobless claims skyrocketed last week and are expected to surge again. Spain, France and the UK tap the bond market
Currencies: EUR/USD Nears 1.09 Support
EUR/USD nears 1.09 support area.
Investor preference for the US dollar in times of stress still dominated price action on FX markets yesterday. The end of quarter having passed didn’t change that pattern. This also applies to the multiple actions of the Fed in cooperation with other central banks to address USD liquidity. US eco data which, probably mainly for technical reasons, printed better than expected, were still no key driver for USD trading. The yen in some way kept (or is it regained?) its safe haven status next to dollar. USD/JPY closed the session slightly lower at 107.17. The trade-weighted dollar rose, but modestly (close 99.67). The euro clearly underperformed with EUR/USD coming within reach of the 1.09 support (close at 1.0964)
This morning, Asian markets show a mixed/calmer picture after the WS sell-off yesterday, but there are no signs on a more substantiated rebound yet. The yuan hit the weakest level in six months, but rebounded later (USD/CNY 7.1030 area). USD/JPY hovers in the low/mid 107 area. EUR/USD struggles in the mid 1.09 area.
Today, there are plenty of US eco data. However, if any, probably only the US jobless claims have potential to move (FX) markets. However, even the reaction function of the USD (especially of EUR/USD) to bad US data isn’t straightforward. Poor news even tended to cause USD outperformance. The lack of high profile EU respons might be a factor. Intra-EMU spreads also don’t narrow further. We expect the ECB fire-power to be sufficient, whatever the EU political response, but investors apparently still have reservations on the structure of that response.
Of late, we assumed USD liquidity run could slow and that the USD could enter a cautious sell-on-upticks pattern. The trade-weighted USD for now still doesn’t contract this view, but the euro underperforms. The EUR/USD 1.09 support area remains our ‘tactical’ reference. A break below would make the picture again fragile/negative.
Yesterday, the EUR/GBP decline slowed but the pair still touched a new ST correction low (close 0.8861). Today, there are few data with market moving potential. We remain are a bit puzzled on this week’s sterling outperformance. Admittedly, it partially euro weakness. The drop below EUR/GBP 0.90 was a euro negative/sterling positive from a technical point of view. Still, we stay cautious to join this sterling rebound, but for now there is no trigger to fight this EUR/GBP decline. The GBP/USD rebound at least shows signs of losing momentum.
USD-trade-weighted DXY) : ‘Global’ USD rebound stays modest
