Rates: Core bond sell-off grinds to a halt
The two-day core bond sell-off grinded to a halt yesterday with the Bund even recording small gains. Today’s eco calendar is thin with only German Ifo while the Juncker/Trump meeting is a wildcard. Technical charts still suggest that core bonds are prone for more losses. European investors will take tomorrow’s ECB meeting into account. We expect a non-event.
Currencies: Turmp-Juncker meeting to decide on next EUR/USD move.
Yesterday, changes in core yields were too small to inspire further guidance for FX trading after Monday’s move. Today, the focus of global markets will be on the Trump-Juncker meeting. The euro probably needs a constructive outcome of this meeting. Sterling rebounds further as UK PM May will take the lead in the EU-UK Brexit negotiations.
The Sunrise Headlines
- US stock markets did well yesterday, with most major indices closing with gains and NASDAQ Comp ending unchanged (-0.01%). Asian markets is following the US example but with Chinese underperforming.
- US President Trump and European Commission president Jean-Claude Juncker will meet later today to discuss EU-US tariffs. Meanwhile, US agriculture officials announced a $12bn aid programme for US farmers being hurt by tariffs.
- UK Prime Minster Therese May has taken control over the Brexit negotiations. The current Department for Exiting the EU would be downgraded and May will continue her drive to keep the UK close to the European Union.
- The European Commission laid out plans to fund the cost of setting up controlled centres to process asylum claims within 8 weeks and send back failed migrants to their country of origin. Italy has already said that it rejects the idea.
- Mexico’s new NAFTA negotiator, Jesus Seade, said to believe it is almost inevitable that a deal will be reached in the coming months. Seade will travel to Washington later this week to revive the NAFTA talks with the US.
- Republicans in the US House of Representatives unveiled an election-year tax plan that promises tax cuts for individuals and business owners days before they head home to campaign for the congressional elections of November.
- Today’s eco calendar contains the IFO Expectations for July in Germany and of course most importantly the Trump-Juncker summit in Washington
Currencies: Turmp-Juncker Meeting To Decide On Next EUR/USD Move
Trump-Juncker meeting to decide on next move ?
Yesterday, there was little follow-through price action Monday’s rise in US yields that also lifted the dollar. Changes in yields/yield differentials were small. EMU PMI’s were mixed, but a manufacturing performance temporarily supported the euro. Risk sentiment (while positive) was also no clear guide for FX trading. EUR/USD closed the day at 1.1687, little changed from Monday. Similar picture for USD/JPY. Investors stay cautious on yen shorts ahead of next week’s BOJ meeting. USD/JPY closed unchanged at 111.20. Overnight, Asian equities are trading mixed. Japan slightly outperforms. The yuan is holding near yesterday’s low, but there are no additional losses (USD/CNY 6.80 area). Australia headline inflation was marginally softer than expected at 0.4% Q/Q and 2.1% Y/Y, indicating no hurry for the RBA to raise rates. The Aussie dollar eased back to the 0.74 area. Today, the eco calendar contains German IFO confidence and US new home sales. IFO confidence is expected to ease slightly further, but yesterday’s (manufacturing) PMI suggests that the negative fall-out from the trade war might still be modest, at least for now. The meeting of president Trump with EU’s Juncker, will be key for trading. The euro probably needs a constructive outcome (at least no escalation in the tariff war). It is impossible to predict Trump’s tactics. In the run-up to the meeting, investor cautious might prevail, being a tentative supportive for the dollar. EUR/USD is holding the 1.15/1.1850 range. This range won’t be easy to break. Trump’s comments on Fed policy might still cap a leap higher of the USD. Still, the upside momentum of USD/JPY looks to be broken. Investor nervousness on trade might be a slightly supportive for the yen, especially as the Japanese currency is again better bid ahead of next week’s BOJ meeting.
Yesterday, EUR/GBP held a tight range in the 0.8920 area for most of the day. However, late in the session, UK PM May declared that she will take the lead of the Brexit negotiations. This move contains several political risks. However, markets apparently still consider it as slightly reducing the risk of a no deal Brexit. EUR/GBP dropped a few ticks below the 0.89 barrier. Today the CBI retail data are expected to have eased in July. Yesterday’s EUR/GBP price action is slightly positive for sterling short-term. The pair moves further away from the key 0.8968 resistance. A cautiously sterling positive momentum might persist going into next week’s BoE meeting
EUR/USD: Trump-Juncker meeting to decide on next EUR/USD move?
