Rates: US 10-yr yield eyes 3%
Strong eco data, higher oil prices and heavy supply keep core bonds under downward pressure as trade tensions ease. The same factors remain at play today. The US 10-yr yield is closing in on the psychological 3% mark while the German 10-yr yield entered the upper part of its 0.3%-0.5% trading range.
Currencies: dollar holding tight ranges
Yesterday, the euro took a strong start supported by ongoing positive investor sentiment on Italy. However, the positive momentum couldn’t be sustained. EUR/USD (and most other major USD cross rates) are locked in tight ranges. For now, there is no trigger for a directional move. Sterling traders are pondering the chances of ‘real brexit progress’ in the near future.
The Sunrise Headlines
- All US equity markets gained ground on Tuesday, with NASDAQ (+0.61 %) outperforming. Asian markets however, all started the day in red with losses over 0.50%. Trade war concerns still persist despite the positive US trade day.
- The EU and the UK are preparing for a special November summit to sign the Brexit deal, even though key issues remain unresolved. The date could be announced at the EU Salzburg summit of next week.
- Canada and the US are continuing talks over the renewal of Nafta. Canada is ready to offer limited access to its dairy market, but expects concessions from the US on how to settle future trade disputes and cultural protections in return.
- Hungarian PM Orban faced the European Parliament yesterday. He is accused of eroding democracy and neglecting EU laws. The EP wants to vote whether the country has to be punished, possibly by suspending Hungary’s voting rights.
- France and Germany’s top economic advisers are urging for a revision of eurozone budget rules. Both countries think current rules are unenforceable and may have worsened the sovereign debt crisis.
- Oil prices extended gains after rising the most since June as API data showed a drop in US inventories. Looming sanctions against Iran also raised expectations of tightening supply.
- Today’s US eco calendar is rather empty, with only PPI numbers for August in the US. Fed’s Brainard speaks in Detroit tonight and the Fed releases its beige book.
Currencies: Dollar Holding Tight Ranges
Dollar holding tight ranges
Yesterday, EUR/USD trading showed two faces. European markets initially tried to decouple from a hesitant sentiment in Asia, supported by a further improvement of the investor assessment on Italy. European equities opened in positive territory and EUR/USD filled offers north of 1.1640. However, optimism faded soon and EUR/USD slipped below 1.16. Eco data in Europe (ZEW confidence) and the US (NFIB small business confidence) were better than expected but ignored. A rebound of US equities had no clear directional impact on the dollar. Global USD trading is still holding rather tight directionless ranges awaiting news from pending trade issues and keeping an eye on EM developments. The US 2-yr yield setting new cycle highs helps putting a floor for the US currency. EUR/USD closed at 1.1606 (from 1.1594). USD/JPY finished with a modest gain at 111.63. Overnight, Asian equities still underperform the US, showing modest losses. EM stress still lingers with the INR setting a new low against the dollar. Most USD cross rates including the trade-weighted dollar (DXY) and EUR/USD are holding within established ranges. Today, the eco calendar remains thin. EMU production (expected soft) and US PPI prices are usually no market movers. Fed speakers and the US 10-y auction are wildcards. The Fed will also published its Beige book preparing the September 26 Fed meeting. Of late, the USD, including EUR/USD, mostly held tight ranges. Ongoing trade tensions or EM stress were only a temporary support for the dollar. EUR/USD is blocked in a tight 1.1520/ 1.1750 consolidation pattern. We still see no trigger to unlock this stalemate short term. USD traders are awaiting a new trading theme or high profile eco news.
Recently, sterling rebounded off recent lows as markets anticipated the EU and the UK were making progress on reaching a brexit deal. Remarkably, yesterday sterling didn’t profit from stronger than expected wage growth. This morning, headlines suggest that the EU and the UK are preparing to sign some kind of brexit deal at a November summit. For now, there are no meaningful further sterling gains. Markets, including sterling, apparently stay cautious as the internal division on brexit in the conservative party isn’t solved yet. We maintain the view that ‘real’ brexit progress is needed to justify a sustained comeback of sterling.
USD (trade-weighted DXY): Dollar still going nowhere even as ST interest rates are rising further
