Rates: US eco data to mute or amplify growth worries?
US eco data are key this week with retail sales, (non-)manufacturing ISM’s, durable goods orders, ADP employment and payrolls all up for release. We expect an asymmetric market reaction with core bond gains in case of weakness, but holding firm in case of strength, especially at the start of the week.
Currencies: EUR/USD to test the 1.12 bottom range?
The euro is well supported during Asian trading hours. Today’s (US and EMU) data however might trigger a test of the EUR/USD bottom range at 1.12. We maintain the view still that there is no reason for the couple to break through the downside sustainably as any dollar reaction on a positive (US) surprise is probably short-lived.
The Sunrise Headlines
- US equity markets closed last Friday’s trading session with gains up to +0.82% (DJI). Asian equities are all trading higher this morning with Chinese bourses (+2.5%) outperforming on stronger-than-expected Chinese manufacturing PMI’s.
- UK Parliament will again take a vote on several Brexit options today after PM May’s deal was voted down for a 3rd time on Friday. PM May is said to prepare an alternative, possibly trying to put her deal for a 4th time to a vote.
- Turkish president Erdogan’s ruling party (AKP) has lost regional elections in the capital city Ankara and in many key Mediterranean coastal cities, but the AKP-led alliance remains the biggest Turkish party with over 50% of the vote.
- China’s State Council said it would continue to suspend the additional tariffs on US vehicles and auto parts, following the US decision to delay tariff hikes on Chinese imports. Trade talks continue this week in Washington.
- US President Trump threatened to close the Mexican border if Mexico doesn’t stop illegal immigrants from reaching the US. Trump has also cut aid to Central American countries that he accused of purposely sending migrants to the US.
- China’s Caixin Manufacturing PMI rose to 50.8 in March, up from 49.9 a month before and above expectations (50.0). Japanese Q1 Large/Small manufacturing Outlook disappointed and posted its worst quarterly performance since 2016.
- Today’s eco calendar contains US retail sales (Feb). The ISM Mfg index (Mar) is printed in the US, UK, Norway, Spain and Sweden. The EMU releases consumer inflation data (Mar). The UK Parliament holds a 2nd round of indicative votes.
Currencies: EUR/USD To Test The 1.12 Bottom Range?
EUR/USD to test 1.12/15 bottom range?
EUR/USD’s downtrend continued on Friday. The couple recouped early losses following again mixed EMU data but couldn’t lock in gains as another defeat of May’s brexitdeal caused nasty spillovers to the common currency. At the same time, dollarbulls shrugged off slighty weaker but outdated spending and inflation data, instead clinging on surprisingly strong housing data and a better then expected (final) U. of Michigan consumer confidence. EUR/USD entered the weekend slightly lower at 1.1218 (down from 1.221) amid a constructive risk sentiment. USD/JPY finished at 110.86 (from 110.63).
Asian markets thrive this morning. China’s official manufacturing PMI confidence (50.5) beat estimates (49.6) by quite a margin, a recovery later confirmed by the private Caixin PMI (50.8 from 49.9). The data eased concerns about slowing global growth. Risky assets, Chinese in particular, are well supported. The euro is a usual beneficiary of positive trade/growth related news. EUR/USD jumped higher to 1.124 area. The (trade-weighted) dollar (DXY) dips below 97.2. USD/JPY’s risk-on uptrend halted near 111.20 before retracing some of the profits despite Japan’s Q1 Tankan (manufacturing) survey printed below expectations.
In today’s economic calendar the US takes centre stage. Retail sales are expected lower (core 0.3%) following January’s stark recovery. We see upside risks given the unabated consumer confidence. The ISM manufacturing is expected to climb to 54.5. We side with consensus as a steep increase after a partial weather-related decline in February is probably capped by the overall growth slowdown concerns that recently reached the US. Nevertheless, any dollar reaction in case of a positive surprise might remain muted, especially in the run-up to Friday’s closely watched March payrolls data. Risks to EMU headline inflation (1.5% expected) are tilted to the downside. EUR/USD drifted close near the recent lows of the 1.12/1.15 MT range. Today’s data might trigger a test of the range bottom but we maintain the view that there is no compelling reason to break below the 1.1187/1.12 support sustainably. The pound gained in the run-up to May’s third try to push her deal through Parliament last Friday, but the vote resulted in yet another defeat. Sterling took a hit and slipped back to EUR/GBP 0.86. Today the second round of the parliamentary ‘coup’ takes place. MP’s will vote on a brexit’shortlist’ but it remains to be seen whether this will break the brexit stalemate. We remain cautious on sterling long exposure as long as there is no indication on how this process will turn out.
EUR/USD: drifted lower in the 1.12/1.15 range. Today’s data might trigger a downside test
