- Rates: Heavy supply vs risk sentiment
Asian stock market recovered from an intraday blow after the US officially pressed charges against Chinese telco Huawei. The impact on FI markets was hardly visible. Heavy bond supply hangs in the balance today with risk sentiment. Q4 earnings by 3M and Apple risk hurting sentiment. Volumes might remain low though ahead of tomorrow’s Fed meeting. - Currencies: EUR/USD extends rebound as USD is trading soft overall.
EUR/USD regained slightly further ground yesterday after Friday’s ST trend reversal. The dollar remained in the defensive even as sentiment on risk turned negative. FX traders apparently anticipate a soft Fed at tomorrow’s meeting. Sterling reverses part of last week’s gains going into a series of key Parliamentary votes on Brexit today.
The Sunrise Headlines
- US stock indices edged lower yesterday with losses varying around 1% on disappointing Q4 results. Asian equities opened mostly in red this morning with technology shares underperforming on new US-Sino trade worries.
- The US officially pressed criminal charges against China’s Huawei Tech. company on charges of violating US Sanctions on Iran and trade secret theft. China already responded saying the indictments are unfair and immoral.
- The US administration imposed extensive sanctions on Venezuelan state-owned oil firm PDVSA, a move that escalates the pressure on current President Nicolas Maduro to step down. Maduro said to take legal actions in response.
- The US Congressional Budget Office’s forecasts the US deficit to widen in the coming years. However, the budget deficit will pass $1 trillion only in 2022 (vs. previous est. 2020). It also forecasts the economy to slow over the next 3 years.
- UK PM May faces losing control of Brexit to Parliament today in a series of vital votes on the Brexit deal. May herself abandoned the agreement she negotiated with the EU, in order to support a separate proposal to re-write the deal.
- Australia’s NAB Business conditions fell to 2 in December, down from 11 the month before. AUD/USD lost ground on the news, but recovered afterwards on comments of RBA’s Harper who’s expecting the next rate move to be up.
- Today’s eco calendar contains US consumer confidence and S&P housing data. Greece, Austria, Belgium, Germany and the US tap the market. UK Parliament votes on amendments to the Brexit deal. Pfizer and Apple publish Q4 earnings
Currencies: EUR/USD Rxtends Rebound As USD Is Trading Soft Overall
EUR/USD drifts back higher in established range
The dollar extended Friday’s decline/reversal, but losses remained modest. There were no important data. Risk sentiment deteriorated and equity selling accelerated in the US on disappointing earnings. It didn’t help the dollar which also lost interest rate support against several other major currencies including the euro and the yen. US Treasuries outperform ahead of tomorrow’s Fed decision. EUR/USD finished at 1.1428 (from 1.1406). USD/JPY closed at 109.35 (from 109.55).
Asian equities opened in negative territory this morning with tensions between the US and China on Huawei weighing on sentiment. However, losses are gradually reversed and remain limited given yesterday’s US sell-off. The yuan holds strong (USD/CNY 6.74 ). USD/JPY (109.30) reversed an initial loss. EUR/USD (1.1435) remains well bid. The (trade-weighted) USD is holding within reach of yesterday’s lows. The Aussie dollar (AUD/USD 0.7170) dropped temporary on poor business confidence data. However, the move was reversed later.
There are again only second tier eco data in EMU today. US consumer confidence (conference board) is expected to decline further from 128.1 to 124.0. The expected decline looks reasonable given the potential impact from the shutdown. Headlines on the China-US trade conflict will probably multiply in the run-up to official talks later this week. The dollar lost interest rate support over the previous days with markets positioning for a soft Fed. We indicated that EUR/USD looks rather well bid as its ST downtrend halted on Friday. We hold on to that view. EUR/USD might still drift cautiously higher in the 1.12/15 trading range.
Sterling developed a countermove yesterday on recent sharp rises as investors ponder the potential outcome of a series of key votes in parliament today. Of late, it looked that chances for a delay of Brexit were growing. However, yesterday/overnight UK PM May apparently showed willingness to to try new EU negotiations on the Irish backstop. The next steps in this approach are highly uncertain, causing some further profiting taking on sterling. An outcome that questions the delay scenario further might be a short-term negative for sterling. EUR/GBP is again aheading for the 0.87 barrier
EUR/USD rebounds as USD stays in the defensive ahead of Fed meeting
