Rates: Risk sentiment shows signs of improvement
Asian stock markets show reliance after a weak opening while other markets also suggest that yesterday’s risk aversion won’t continue. It could slow/halt the slide in core bonds since mid-June. The start of the US supply operation could cause underperformance vs the German Bund. The eco/event calendar is rather uninspiring.
Currencies: Euro holding fairly strong even as trade tensions persist
Yesterday, USD/JPY and EUR/USD were only little affected by the risk-off correction due to raising trade fears. EUR/USD is even trending higher in the 1.1510/1.1851 range. The market apparently already reduced substantial euro long exposure after the ECB meeting. We remain cautious on further sustained euro gains.
The Sunrise Headlines
- US equity markets were hit hard yesterday, with the NASDAQ (-2.09%) underperforming the rest. Asian stock markets continue the trend this morning with all major markets opening in red, but in recovery since.
- Following positive remarks from Moody’s, Standard & Poor has reviewed Greece’s rating from B to B+. They believe the final debt relief deal with the European Stability Mechanism significantly reduces sovereign debt risks.
- The Irish Central bank is leaning toward increasing the so-called counter cyclical capital buffer as the economy strengthens. With this move, it would follow other European nations, such as France, the UK and Sweden.
- BMW has signalled that Brexit could force them to close UK plants. The German car manufacturer said it saw no other option if the company cannot quickly and reliably import components from mainland Europe.
- Despite the deal struck by OPEC+ to increase oil output, what normally would put bearish pressure on oil prices, “price risk is still very much to the upside” according to analysts with supply side problems in Venezuela, Iran and Libya.
- ECB Executive Board member Benoit Coeure has confirmed the ECB will continue to reinvest the principal payments from maturing securities in 2019, which amount to around €15 billion per month.
- Several prominent BOE officials speak at appointment Hearings in London today and Fed’s Bostic and Kaplan will give a speech in the US tonight. US consumer confidence is the sole eco release while the US and Italy tap the market
Currencies: Euro Holding Fairly Strong Even As Trade Tensions Persist
Euro not affected by risk-off correction
On Monday, global equities tumbled as investors feared more fall-out from the trade war. Still, the risk off had only modest impact on the major FX cross rates. EUR/USD even rebounded. US-German interest rate differential narrowed slightly, but we doubt this was the driver. A decent German IFO maybe helped the euro. Market positioning was probably the main factor as investors already scaled back euro longs after the ECB meeting. EUR/USD closed at 1.1704. USD/JPY reversed most intraday losses as White House advisor Navarro downplayed the risk of investment restrictions later in the session. Overnight, Asian equities also trade with modest losses, but the damage remains contained given the sell-off in the US. A tentative sign that the impact of trade tensions might ease a bit, at least for now? USD/JPY remains under moderate downside pressure (at 109.55). EUR/USD extends its gradual rebound and is changing hands north of the 1.17 barrier.
Today, several ECB members will speak. We don’t expect them to question the ECB guidance on interest rates. Even so, their assessment remains interesting. In the US, the Richmond Fed manufacturing index and Consumer confidence from the Conference Board will be released. The consumer confidence is expected stable at a strong 128. This indicator will probably be little affected by the trade conflict. The report might be slightly USD supportive. Yesterday, the flaring-up off trade fear didn’t cause the ‘usual’ risk-off correction in the major FX crosses (several small, less liquid currencies were affected more). Markets will continue to keep a close eye at the trade developments. In a day-to-dayperspective, we have the impression that tensions might ease. This might help to put a bottom for USD/JPY. The picture for EUR/USD is less clear. For now, we assume further consolidation in the 1.1510/1.1851 trading range. There is still plenty of euro event risk to come starting with the EU summit later this week.
Yesterday, sterling remained in the defensive. EUR/GBP was also supported by the EUR/USD rebound. Today, the CBI retail data wil be published. Jonathan Haskel will appear before Parliament for its appointment hearing. Markets will look for its position (hawk-dove) within the MPC. For now, we don’t expect a big reaction of sterling. A better sentiment on risk might be slightly supportive for the UK currency
EUR/USD: extends gradual rebound
