Rates: US Treasuries remain under pressure, Bunds temporary saved by ECB?
The US 10-yr yield reached a new 2018 high, paving the way for a move towards key resistance at 3.05%/3.08%. The new upleg in European yields could be hampered by the ECB meeting. Today’s PMI’s could confirm Draghi’s view that the European growth cycle might have peaked even if momentum remains strong.
Currencies: Dollar profits from higher yields, at least for now
The USD rebound accelerated on Friday. Core bond yields rose across the board, but the dollar profited more than the euro. FX traders will keep an eye at the EMU PMI’s today. Markets might prepare for a rather soft tone at Thursday’s ECB meeting. At the same time, the USD enjoys a constructive flow. The post-Carney correction of sterling might slow
The Sunrise Headlines
- US stock markets ended the final trading session of last week 0.85% to 1.3% lower with Nasdaq again underperforming. Asian risk sentiment is more mixed this morning with China slightly lagging behind.
- ECB policy makers see scope to wait until their July meeting to announce how they’ll end their bond-buying program, according to euro-area officials familiar with the matter (Bloomberg).
- President Trump will urge North Korea to act quickly to dismantle its nuclear arsenal when he meets Kim Jong Un and isn’t willing to grant substantial sanctions relief in return for a freeze of its nuclear tests, officials said. (WSJ)
- Brussels plans to shift tens of billions in EU funding away for central and eastern Europe, diverting money from countries such as Poland and Hungary to those hit hard by the financial crisis such as Spain and Greece. (FT)
- ECB President Draghi said that the EMU growth momentum is expected to continue, but warned that the latest economic indicators suggest that the growth cycle may have peaked.
- US Treasury Secretary Mnuchin said he may travel to China, a move that could ease tensions between the two countries, as international policymakers acknowledged Beijing needs to change its trade practices. (Reuters).
- Today’s eco calendar contains EMU April PMI’s and US existing home sales. Belgium taps the bond market and ECB Coeuré speaks in Frankfurt
Currencies: Dollar Profits From Higher Yields, At Least For Now
Dollar profits from higher yields, at least for now.
On Friday, the USD rebound accelerated. Interest rates/interest rate differentials weren’t the only driver behind rise of the US currency. However, US yields nearing key levels (e.g. 3% for the US 10-y yield) probably added to the USD positive sentiment. EUR/USD dropped below the 1.23 mark and closed the session at 1.2288. USD/JPY trended higher in the 107 big figure even as US equities came under pressure. The pair finished the day at 107.66.
Overnight, Asian equities are trading mixed. However, the regional equity performance is not too bad given to losses in the US on Friday. US yields continue drifting higher. The (trade weighted) dollar is moving toward the top of this year’s consolidation pattern. USD/JPY (107.80 area) is gaining a few ticks. EUR/USD hovers in the 1.2275 area.
Today, the US PMI’s and existing home sales will be published. Markets will also keep a close eye at the first estimate of the April EMU PMI’s. The EMU composite PMI dropped substantially in February and March. A further easing from 55.2 to 54.8 is expected. We see a chance of the deceleration in the PMI/growth momentum to ease. However, a new negative surprise might weigh on the euro. At the IMF meeting, ECB’s Draghi said that the EMU growth cycle might have peaked, but at the same time that confidence in the inflation outlook increased. Still markets might prepare for a rather soft ECB at Thursday’s policy meeting. So, the news flow might be mixed for the euro while the dollar is holding a positive ST momentum. EUR/USD 1.2215 is first support ahead of the key 1.2155 area. We see a good chance of EUR/USD testing thiss range bottom as US yields are keeping an upward bias. On Friday, sterling was looking for a new equilibrium as the repositioning after Thursday’s soft comments from BoE governor Carney petered out. EUR/GBP reversed an early up-tick and settled in the mid 0.87 area. BoE Sauders in a speech indicated that further gradually policy normalization might continue. There are no important eco data in the UK today. EUR/GBP 0.88 is a first relevant resistance area. We look out whether last week’s post-Carney correction has run its course. Some relative euro softness might also hamper the EUR/GBP topside.
USD (trade weighted): nearing 90.50/91 range top area
