Rates: Will calm return to (interest rate) markets?
European equity markets had their worst performing day since the Brexit referendum in June 2016. Risk-aversion supported core bonds, pushing yields below some key support levels. Calm returned on US markets however and continued in Asia this morning. Can sentiment improve in Europe as well? US payrolls catch the eye on the eco calendar today.
Currencies: dollar little affected by sharp swings in equities and interest rates
The dollar lost temporary ground yesterday as markets further question the US growth outlook and the possible consequences for the Fed policy. However, in the end, EUR/USD held perfectly with the established range. Today, the US payrolls, global risk sentiment and the OPEC meeting are the potential drivers for USD trading. We expect current EUR/USD consolidation to continue.
The Sunrise Headlines
- US stock markets opened deeply in red yesterday but recovered gradually intraday. Losses were eventually limited to -0.3%. Nasdaq ended in green. Asia is trading with gains this morning, with Chinese indices lagging behind.
- Following a similar statement from China, Trump tweeted his confidence in reaching a trade deal within the truce period. The tweet came after Canada’s arrest of a top Huawei executive sparked trade fears just days after the truce.
- During an Opec meeting on Thursday, members agreed to slow oil production to halt the recent price slide but failed to agree on about how to share the cuts. Opec+ meets today but the Saudi energy minister isn’t confident to reach a deal.
- As of tomorrow, Merkel is no longer the leading lady of the CDU party as the party gathers to elect a new n° 1 today. The leading candidates are the centred Kramp-Karrenbauer – Merkel’s protégé – and the more right-leaning Merz.
- BoJ’s Kuroda defended his ETF-buying before parliament. The programme is facing criticism of distorting the stock market. However, with inflation well below the 2% target, it’s premature to consider ending the purchases, he said.
- PM May is said mulling a delay of next week’s Brexit vote. That would buy her time to ask for more concessions from Brussels. However, the latter said it is waiting to see what happens in the vote before deciding about any concessions.
- Today’s economic calendar provides markets with US payrolls data and the Michigan consumer confidence. We also keep an eye at Canada’s job report. Fed’s Brainard is scheduled to speak
Currencies: Dollar Little Affected By Sharp Swings In Equities And Interest Rates
USD hardly reacts to swings on other markets
The global risk-off repositioning continued with vigour yesterday as investors feared a flaring up of US China trade-tensions. Initially, the risk-off trade had only moderate impact on EUR/USD or USD/JPY. At the start of the US session, US yields and the dollar faced another forceful (temporary) setback. US 2-year yields spiked lower and the dollar suffered. The move was probably the result of both of modest ADP job growth and cautious comments from Fed’s Kaplan. However, part off the risk-sell-off was reversed later. At the same time, US yields and the dollar also showed signs of intraday bottoming. EUR/USD closed at 1.1374 (from .1344). USD/JPY also closed off the intraday low at 112.68 (from 113.19 on Wednesday). Overnight, Fed’s Powell in a speech maintained a positive assessment on the economy and on the US labour market. The direct impact on US yields and the dollar was modest. Most Asian equity markets try a cautious rebound after recent sell-off, but it is much too early to draw firm conclusions. The dollar is gaining marginal ground against the euro and the yen. The eco calendar contains the US payrolls today and, of lesser importance, the Michigan consumer confidence. US November payrolls growth is expected to ‘ease’ to 198k (from a strong 250k). Wage growth is expected at 0.3% M/M and 3.1% Y/Y. Maybe risks are for a slightly softer payrolls report. Question is whether a mildly soft figure should cause a further decline in US yields and/or the dollar. The jury is out, but if the decline in US yields and the USD slows, it might be an indication that enough growth uncertainty is discounted after recent repositioning. This might be marginally USD supportive. That said, the repositioning in the first place occurred in the equity and interest rate markets. For now, we don’t see a trigger for EUR/USD to start a new directional trend. More technical driven trading in the 1.12/1.15 range might be on the cards. The political debate preparing next week’s Brexit vote in Parliament continued yesterday. All kinds of proposals/options are aired, including a delay of the vote. However, for now, visibility on the outcome of the process remains very low. In this context we expected more erratic directionless EUR/GBP trading going into the weekend. For now, we see no trigger for a sustained sterling comeback
EUR/USD hold tight sideways range despite sharp swings in global equities and interest rates
