Rates: Trade truce extension lifts (Chinese) stock markets
Chinese stock markets gain up to 5% as US President Trump extended the trade truce beyond March 1 because of significant progress made in trade negotiations. Other regional bourses climb up to 1%. Spillover effects to FI and FX markets are negligible, but the story might nevertheless become the main trading theme amid an empty eco/event calendar.
Currencies: EUR/USD to profit from easing trade tensions
EUR/USD held in the 1.13 big figure on Friday. Comments from a Fed monetary policy forum failed to unlock the USD stalemate. This morning, US president Trump announcing a prolongation of the US-China trade truce is sending mixed signals for the dollar. For now, we see it as a tentative supportive for EUR/USD.
The Sunrise Headlines
- US equities closed Friday’s session in green with gains up to +0.91% (Nasdaq). Asian equity markets are edging higher this morning with China heavily outperforming (+4%) as the US will delay tariffs on Chinese import.
- US President Trump said he will extend the March 1 deadline to raise tariffs on Chinese goods. He said that “substantial progress” is made and hinted on a meeting with Chinese president Xi to conclude an agreement, possibly in March.
- UK PM May again postponed a parliamentary vote on her Brexit divorce agreement to March 12, only 17 days before Brexit day. May is said to seek a two month delay, while the EU is rumoured to pursue a 21-month extension.
- US President Trump leaves for Vietnam today for the second summit with North Korean leader Kim Jong Un later this week. Trump said to be happy as long as N-K keeps to refrain from weapon testing, but said not to lift sanctions
- Tensions rise in Venezuela as current President Maduro repelled foreign aid convoys. National Assembly leader Guaido said he will make an official request with international powers to consider “all options” to liberate the country.
- The Italian anti-establishment Five Star party is set to take a new blow in the regional elections on the island of Sardinia. League party senator Solinas (44%) lead the polls, followed by the centre-left (30%). 5SM polled third (16%).
- Today’s eco calendar contains the Chicago Fed Nat Activity Index for January and the Dallas Fed Manufacturing Activity for February. Bank of England’s chief Carney and Fed’s Clarida speak. The EMU calendar remains empty.
Currencies: EUR/USD To Profit From Easing Trade Tensions
EUR/USD to profit from prolonged trade truce?
EUR/USD still hovered within the 1.13 big figure on Friday. The German Ifo index again failed to meet market expectations and capped an early EUR/USD attempt to move higher. Later, the focus turned to the Fed monetary policy forum. Fed members signalled caution on policy normalisation. The Fed balance sheet will probably remain larger for longer to provide a comfortable level of liquidity. However, the direct impact of the Fed-headlines on USD trading was limited. EUR/USD closed little changed at 1.1335. USD/JPY finished the week at 110.69. This morning, Asian markets are starting the week in risk-on modus as US president Trump said he will postpone hiking tariffs on Chinese imports beyond the March 1 deadline. Asian equity indices show decent gains, with mainland China outperforming. The yuan strengthened and is trading in the USD/CNY 6.68 big figure. The impact on other major (USD) cross rates was less straightforward. EUR/USD (1.1345 area) is gaining a few ticks. USD/JPY (currently 110.60 area) reversed an earlier rebound (yen weakness) even as BOJ’s Kuroda reiterated the central bank can take action if prices don’t converge to target.
Today, US data (Chicago Fed Nat activity index & wholesale data and Dallas Fed index) will only be of intraday significance. The easing of trade tensions contains some mixed elements for EUR/USD trading. A better trade context is a positive for Europe. At the same time, the US is aiming for a weaker dollar against to yuan. This might cause spill-over effects on other USD cross rates. At the same time, the euro remains a cheap funding currency in a global risk-on context (in theory euro negative). We are inclined to see easing trade tensions as mildly euro supportive. Later this week, key US data (Q4 GDP) and the semiannual testimony of Fed’s Powell before Congress might also affect trading. Last week EUR/USD rebounded off of recent lows euro, but with no strong momentum. A better context on global trade might give EUR/USD more solid downside protection, but better data are probably needed for sustained EUR/USD gains. USD softness might also become a market topic. EUR/USD might drift higher in the 1.12/1.15 ST range.
Sterling remained well bid pn Friday. Despite a lack of news, investors assumed that talks behind the scene would be to avoid a no-deal Brexit. Later this week, Brexit will return to the UK Parliament. UK PM May is expected to ask more time with a final vote on March 12. At the same time, there are ever more headlines that the EU and the UK are preparing for a Brexit delay. Of late, sterling prove quite resilient. A delay scenario might be a ST sterling supportive. However, it a longer-term perspective it might cement a status of uncertainty
EUR/USD to profit from easing trade tensions?
