Sunrise Market Commentary
- Rates: Hard for Draghi to surprise in a dovish way
We expect the ECB to hold its monetary policy unchanged. From a market point of view, we think that it’s hard for Draghi to surprise in a dovish way, suggesting that there is little upside for the Bund. US yields surpassed resistance levels after a stellar ADP report. The break needs to be confirmed after the payrolls (Friday) and Fed meeting (Wednesday). - Currencies: Dollar holds near recent highs as US data remain strong
Yesterday, the dollar was supported by higher core yields. A strong US ADP report was an additional positive, but no break of key technical levels occurred. Today, the focus turns to the ECB press conference. The ECB will confirm the need for ongoing stimulus, but references to higher inflation or better eco data might be temporary supportive for the euro.
The Sunrise Headlines
- US equities closed between flat (Nasdaq) and 0.33% lower (Dow) as an ebullient ADP-report and lower oil prices failed to inspire. Overnight, China (-1%) underperforms Asian stock markets after weaker CPI data.
- The US energy department reported a ninth consecutive rise in crude stockpiles, which last week jumped by 8.2m barrels, triggering a sell-off in both major oil benchmarks that plunged nearly 5%, to the lowest level since December.
- China’s PPI accelerated to its fastest pace in nearly nine years in February (7.8% Y/Y) as prices of steel and other raw materials extended a torrid rally. CPI, however, cooled more than expected to its mildest pace since January 2015 (0.8% Y/Y) as food prices fell, remaining well below the government’s 3% target.
- French Socialist Party heavyweight Delanoë, the popular former mayor of Paris, said he would back centrist Macron to stop far-right leader Le Pen from winning. The announcement was a further blow to Socialist candidate Hamon.
- Ratings agency Moody’s says Australia might lose its AAA sovereign credit rating should the country’s conservative government give up on deficit repair, raising the stakes ahead of the annual budget in May.
- The ECB is expected to stick to its guns today by keeping policy rates and its asset purchase programme unchanged as EMU core inflation remain lethargic. However, will the central bank tweak its forward guidance?
- Today’s eco calendar contains only US jobless claims apart from the ECB meeting. Ireland and the US tap the bond market.
Currencies: Dollar Holds Near Recent Highs As US Data Remain Strong
USD within reach of key resistance
On Wednesday, the dollar initially traded cautiously higher. The up-move accelerated after a very strong US ADP report. Especially USD/JPY profited from higher US yields (and a constructive risk sentiment). The 114.95 resistance came again on the radar, but a real test didn’t occur. USD/JPY even finished the session at 114.35, off the intraday top. The gain of the dollar against the euro was more modest. EUR/USD closed the session at 1.0541 (from 1.0566).
Overnight, Asian equities are trading in negative territory, except for the Japanese stocks. USD strength is an ambiguous factor for regional currencies. Chinese inflation data were very diffuse with the CPI much lower than expected, but the PPI rising to 7.8%. The sharp setback in oil is also a negative for some markets in the region. USD/JPY is holding in the mid 114 area. The dollar also remains better bid against the euro. EUR/USD trades in the 1.0530/35.
Today, markets will keep an eye at the US jobless claims, even as its survey period lags the period for the payrolls survey week. Another very low figure might keep the dollar well supported after yesterday’s very strong ADP labour report and going into tomorrow’s US payrolls. However, today’s focus will be on the ECB press conference. ECB’s Drahgi will maintain the line from the January press conference and stress the need for generous stimulus to reach the inflation target in a sustainable way. However, some tweaks as possible (see fixed income part). A modest positive euro reaction on the tweaks is possible. Over the previous days, the euro was quite resilient to the overall USD rebound. Investors were maybe a bit cautious to go euro short ahead of the ECB decision. In a day to-dayperspective, it will be difficult for EUR/USD to break below the 1.0494 support in a sustainable way as an (albeit marginal) change in the ECB tone might be euro supportive. At the same time, USD investors might turned a bit more cautious ahead of tomorrow’s payrolls. That said, USD/JPY was recently more sensitive to USD positive news than USD/EUR.
Global context: Last week, the focus shifted from US fiscal policy to Fed’s monetary policy, as the Fed signalled a March rate hike. The dollar is holding near the recent highs, but the rally slowed as a March rate hike is discounted. EUR/USD 1.0494 and USD/JPY 114.95 were tested, but no break occurred. Some ST USD consolidation might be on the cards today. The payrolls are the next key issue for USD trading. USD/JPY 111.60/111.16 (Range bottom/38% retracement of the 99.02/118.66 rally) remains a key and solid support. Last week’s correction suggests that it is too early for a break higher in the absence of important USD supportive news. In EUR/USD 1.0829/74 is the short-term line in the sand with intermediate resistance at 1.0679. A sell EUR/USD on upticks remains favoured
EUR/USD nearing 1.0494 support going into the ECB press conference. Break won’t be easy today.
EUR/GBP
Sterling hardly profits from ‘positive’ budget message
On Wednesday, the recent sterling decline continued going into the formal lecture of the budget statement in Parliament. EUR/GBP filled offers just below 0.87. Later in the session, sterling enjoyed an intraday short squeeze as the ORB raised the 2017 growth forecast to 2.0% and as the 2016/17 budget result was expected to be better than projected in November. At the same time, the growth forecast for the years after 2017 were revised slightly lower. The UK will also continue its efforts to further reduce the budget deficit in the next years. EUR/GBP finished the session little changed at EUR/GBP 0.8663. Cable finished the session at 1.2168 (from 1.2200). So, sterling continued to trade soft.
Overnight, the RICS House price balances was little changed at 24% from 25. The report had no noticeable impact on sterling trading. Later today, there are no important eco data on the agenda in the UK. So, after yesterday’s budget, the focus might return to the Brexit debate. We don’t expect any spectacular developments today. Scottish PM Sturgeon in an interview flagged that autumn 2018 might a good time for a new independence referendum in case of a hard Brexit. Sterling sentiment softened of late. The euro was in better shape at the end of last week, helping EUR/GBP to break the 0.8592 resistance, which improved the short-term EUR/GBP picture. We don’t expect a sustained EUR/USD rebound , but a combination of temporary euro consolidation and ongoing sterling softness might trigger some further ST EUR/GBP gains. A sustained break north of 0.8645 (levels is still nearby) would reinforce the ST positive momentum. Longer term, we keep a sterling negative view, as the Brexit will negatively impact the UK.
EUR/GBP: clears first resistance at 0.8592. 0.8645 resistance under test
