- Rates: Interesting eco calendar probably lost market-moving potential
The post-Fed rally continued yesterday on core bond markets with more outperformance of US Treasuries. The German 10-yr yield hit 0.15% support. Today’s eco calendar is very interesting, but probably lost most of its market-moving potential after dovish signals from the ECB and the Fed. Stronger payrolls might nevertheless slow the bond rally. - Currencies: EUR/USD returns in the 1.12/1.15 range. Topside test rejected
The post-Fed USD decline eased soon yesterday. EUR/USD did run into resistance, but this was partially due to euro weakness on poor EMU data and soft ECB comments. Today focus turns to the US eco data. The balance of the data might be more supportive for the dollar than for the euro
The Sunrise Headlines
- US equity markets rallied higher yesterday to cap their biggest monthly gain in three years. Technology shares outperformed. Asian equities are trading mixed with Chinese indices outperforming before being closed for the week.
- US President Trump said he will meet with Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as top negotiators on both sides are signalling substantial progress in the two days of high-level talks.
- Bundesbank President Weidmann said that Germany’s economic weakness will persist in 2019 and cause a significant lower growth. However, he added that the temporary slowdown shouldn’t deter the ECB from normalizing policy.
- UK PM May is seeking Labour support to get her Brexit deal through. They are discussing to enhance British employment rights and environmental protections after Brexit, as well as money for deprived parts of the country.
- US President Trump will suspend US obligations under the Intermediate-Range Nuclear Forces Treaty, a pact with Russia since 1987 that was a pillar of international arms control. The US accuses Russia of noncompliance.
- China’s Caixin PMI manufacturing decreased to 48.3 in January, down from 49.7 in December and below expectations (49.6). It is the second month of contraction in manufacturing sentiment and the biggest drop since July 2015.
- Today’s economic calendar is richly filled with payrolls, hourly earnings and the ISM Manufacturing Index in the US. Canada and the UK print the Manufacturing PMI as well with CPI inflation up for release in the EMU
Currencies: EUR/USD Returns In The 1.12/1.15 Range. Topside Test Rejected
EUR/USD fails to hold above 1.15 mark
The post-Fed USD decline already slowed yesterday. EUR/USD failed to sustain above 1.15. This wasn’t only due to a revival of the dollar. It was also to a large extent a sign of euro weakness. EMU data remained poor and European equities failed to join the US risk-rally. The euro declined further pressure after comments from BuBa’s Weidmann. He expects soft German growth in 2019 but doesn’t see it as reason for the ECB to delay policy normalisation. Still, the comments weighed further on the euro. EUR/USD closed at 1.1448 (from 1.1480). USD/JPY drifted south early in the session, but rebounded supported by a continuation of the US equity rally. The pair closed only marginally lower at 109.89.
Asian equities are trading mixed. China outperforms even as the Caixin manufacturing PMI (48.3) drifted further into contraction territory. The yuan (USD/CNY 6.74 area) returns part of this week’s gain. Uncertainty on China growth also weighs on the Aussie dollar (AUD/USD dropped below 0.7250). USD/JPY is trading little changed this morning (USD/JPY 108.90 area) and so does EUR/USD 1.1440 area). The eco calendar is well filled. In the US, the payrolls and the manufacturing ISM are in the spotlights. In Europe, EMU CPI and final manufacturing PMI’s are scheduled for release. EMU headline CPI is expected to ease further to 1.4%. It probably won’t help the euro even as the decline is mainly oil-driven. US job growth is expected to slow to 165k after a strong report (312K last month).The report might be distorted by the shutdown. The manufacturing ISM is expected to ease slightly to 54.0. We don’t see strong arguments for a big negative surprise. If so, today’s data might turn out to be (slightly) USD supportive and tentative euro negative. Yesterday, we looked out for further USD losses in the wake of Powell’s soft U-turn. However, the EUR/USD failure to regain the 1.15 level in a sustainable way is disappointing for euro bulls. EUR/USD remains blocked in the 1.12/15 range. Short term, a topside break looks far from evident.
EUR/GBP initially hovered in the mid 0.87 area yesterday, but declined later. We didn’t see much of high profile Brexit news. There are headlines on all kinds of political moves behind the scenes. A Brexit delay is still not excluded. However, big part of the EUR/GBP decline was probably euro-driven. Aside from Brexit headlines, the UK manufacturing PMI is expected to ease from 54.2 to 53.5. We assume more order-driven trade in EUR/GBP near current levels.
EUR/USD: returning in the 1.12/1.15 range as topside test/break failed
