- Rates: Risk sentiment remains very fragile
Market tensions finally eased somewhat on bond markets yesterday, but this morning Asian trading shows that risk sentiment is still very fragile. ECB and Fed meetings appear on investors’ radars and could keep them sidelined following the recent sharp dovish repositioning. We continue to keep a close eye at 2.78%/2.8% support in the US 10-yr yield. - Currencies: Slightly positive yet fragile risk environment to support euro?
The lack of important economic data suggests sentiment will be key for markets today. A mildly positive but fragile risk environment favours the euro over the dollar. We anticipate the upward trend to hold within the established EUR/USD 1.12/15 range. Sterling remains in the defensive
The Sunrise Headlines
- US stock markets closed yesterday’s session in green after they paired intraday losses of close to 2%. Asian bourses opened in red with Chinese indices flat on signs that US-China trade talks are moving along.
- US Treasury Secretary Steve Mnuchin and Chinese VP Liu He discussed the road map for the next stage of trade talks between the two countries, in a sign both parties remain talkative despite the Huawei debacle.
- French President Macron promised a series of measures in an effort to calm the ‘gilets jaunes’ that has put France in a deadlock for weeks. Among others, he will increase the minimum wage and overtime work will no longer be taxed.
- UK PM May starts a tour of European capitals today after delaying the Brexit Parliament vote. The EU already signalled to be open to give more assurances on the Irish backstop, but it won’t renegotiate the deal. May meets Juncker tonight.
- Australia’s housing prices continue to decline as the House Price Index printed -1.5% (QoQ) and -1.9% (YoY), as credit curbs and nervous buyers are postponing purchases.
- The Indian Congress party is set to win key state polls in India, hinting Indian PM Modi’s ruling Bharatiya Janata Party is set for a rare electoral defeat. The blow follows the resignation of Reserve Bank of India’s governor Patel yesterday.
- Today’s economic calendar contains the November PPI’s in the US, the ILO unemployment rate (3mths) for October in the UK and the ZEW Survey expectations for December. ECB’s de Guindos speaks in Frankfurt
Currencies: Slightly Positive Yet Fragile Risk Environment To Support Euro?
Positive yet fragile risk sentiment to support euro?
Friday’s US equity sell-off, slumping Fed hiking expectations and the political tensions between China and the US weighed on investors’ sentiment yesterday. The dollar wasn’t able to profit and even lost a few ticks against the euro. The common currency received some support from better than expected German foreign trade data. EUR/USD briefly touched the 1.1440 area but went south afterwards during technical trade. The move accelerated after UK Prime Minister May decided to pull the brexit vote in Parliament to avoid a quasi certain defeat. Euro weakness pushed EUR/USD to 1.1356, down from 1.1379. USD/JPY showed a stark rebound from intraday lows to close at 113.14.
Asian risk sentiment turned slighty for the better following a statement of Liu He, but remains very fragile. The Chinese Vice Premier said he spoke with US Treasury Secretary Mnuchin and Trade Representative Lighthizer to exchange views on a timetable and road map for future trade talks. Chinese stocks are trading in light green, USD/CNY dropped below 6.91 again. The news is tentatively positive for EUR/USD also. USD/INR rocketed to 72.5 before easing to 71.9 after India’s central bank governor Ujrit Patel resigned unexpectedly.
US’s small business optimism is expected to ease further from 107.4 to a still lofty 107. Producer prices are worth keeping an eye on given last month’s unexpected sharp increase. Headline PPI probably flatlines after increasing a strong 0.6% in October. Supercore PPI (excluding food, energy and trade) however, is likely to show building inflationary pressures. Germany’s ZEW survey expectations is expected to fall further from -24.1 to -25.0. Risks are to the downside given the poor equity performance. Sentiment will probably remain today’s most important market driver however. A slightly better risk sentiment currently favours the euro after yesterday’s hit. We expect a modest drift north of EUR/USD within the 1.12-15 trading range.
Sterling took a hit yesterday following rumours and eventually the confirmation by May the crucial brexit vote is being postponed. The PM seeks more EU concessions in an attempt for her Parliament to swallow the bitter Irish backstop pill. The news propelled EUR/GBP to an intraday high close to 0.91 before trading stable at 0.904. These latest developments illustrate the difficult road ahead. There is no reason to swim against the current sterling tide. We expect the pound to remain in the defensive for the foreseeable future.
A slightly better risk sentiments currently favours the euro over the dollar. Move upwards to hold
