- Rates: Core bonds eyeing global risk sentiment
Global core bonds gained ground yesterday as ongoing growth concerns and fading positivism about US-Sino trade talks put a halt to the risk rally of late. With today’s eco calendar uninspiring, investors will start eyeing tomorrow’s ECB meeting and EMU PMI’s. We expect a neutral opening for both UST’s and German Bunds with a cautious tendency downwards. - Currencies: EUR/USD stabilizes, USD/JPY rebound on soft BOJ inflation outlook
A risk-off sentiment left EUR/USD trading in a limbo yesterday. Today, the eco calendar is thin. Risk sentiment in Asia is not too bad. EUR/USD shows tentative signs of bottoming. USD/JPY rebounds as the BOJ softens its inflation outlook. Sterling profits as markets see a rising chance of a Brexit delay
The Sunrise Headlines
- Risk off held sway over equities yesterday. US stock indices coloured red and had Nasdaq underperforming (-1.9%). Sentiment during Asian trading hours is fragile as most markets are trading in negative territory
- The Bank of Japan held as expected rates steady at -0.1% and its 10-yr yield target at about 0%. Forward guidance for policy rates was unchanged. 2019 inflation forecasts, however, were slashed from 1.4% to 0.9%. JPY slipped.
- The UK Labour party is likely to support the Cooper-proposal that aims to extend the Brexit deadline until the end of the year if May fails to strike a deal. The proposal is also already backed by several Tory rebels.
- Chinese finance ministry officials said they will “appropriately” step up fiscal spending this year to support the economy, which grew at the slowest pace since 1990, data showed on Monday. The government is also considering to reduce social security fees to alleviate small companies.
- US Senate Majority Leader McConnell is preparing for a vote on Thursday, both on a proposal by Trump and by Dem’s. While unlikely to pass, it could set the stage for necessary negotiations to end the US government shutdown
- White House advisor Larry Kudlow denied rumours that the US cancelled trade talks due to a lack of progress. He added the meeting with China’s VP Liu He, scheduled for next week, will be extremely important and “determinative”.
- Today’s economic calendar is little inspiring. We will be watching the Richmond Fed Man. Index and Q4 earnings in the US, EC consumer confidence in the euro zone and CBI data for the UK. Germany taps the bond market
Currencies: EUR/USD Stabilizes, USD/JPY Rebound On Soft BOJ Inflation Outlook
EUR/USD stabilizes. USD/JPY rebounds after BOJ
EUR/USD touched a minor correction low yesterday. European equities traded with a negative bias. ZEW German investor confidence (current situation) declined more than expected, but a bottoming in the expectations component provided a glimmer of hope. US yields also declined substantially, preventing a real USD rally. Later in US dealings, US equities also suffered substantial losses on rumours that US-Sino trade talks didn’t go that easy. The rumours were later denied by Larry Kudlow. EUR/USD closed a risk-off session little changed at 1.1360 (from 1.1365). USD/JPY finished at 109.37 (from 109.67).
Asian equities show modest losses this morning, but remains limited given yesterday’s US sell-off. Markets apparently are drawing some comfort from the prospect of a stimulating policy from the Chinese government/PBOC. The BOJ left its policy unchanged, as expected, but cut its inflation forecast. USD/JPY rebounded to the 109.80 area. EUR/USD is holding a very narrow range near 1.1365.
Today’s eco calendar is again thin in the US and in EMU. Risk sentiment will again be the main driver for global trading. The political developments with respect to the US government shutdown and headlines on the fate of the China-US trade talks might affect global sentiment. The corporate earnings season is in full swing as well. US yields show tentative sings of bottoming after yesterday’s decline and US equity futures show modest gains. This might be a positive environment for USD/JPY especially as the BOJ cut its inflation outlook. The drivers for EUR/USD trading are less straight-foreward. EUR/USD settled again in the established 1.12/1.15 range after an upside test was rejected. We turned neutral on EUR/USD, looking forward to this week’s EMU sentiment indicators and the ECB policy meeting. Last week, the dollar outperformed, but we look out whether the EUR/USD decline might slow as technical support is lining up from 1.1309 to 1.1270 area.
Sterling resumed its rebound of late, mainly driven by markets seeing a growing chance that Brexit will be delayed. It looks that at least a part of the Labour Party might consider to support this scenario. Sterling was additionally supported by solid UK labour market data. Today, the CBI order data will be published, but the focus remains on Brexit. A delay won’t solve the Brexit chaos, but a least for now it supports a sterling constructive momentum. 0.8665 is next intermediate support.
EUR/USD holding tight range north of the 1.1309 support area
