- Rates: Core bonds regain momentum
The correction lower on the core bond rally during the first two weeks of April seems to be put to bed after yesterday’s strong rally. We embrace core bond’s new momentum with markets preparing for a more profound grow slowdown. Investors keep next week’s Fed meeting in the back of their minds. - Currencies: Dollar jumps beyond key resistance
The dollar extended gains yesterday. The trade-weighted dollar surpassed the 97.70 resistance and EUR/USD dropped below the 1.1177 range bottom. The dollar continues to profit from the relative US economic outperformance. Today, eco data are probably of second tier importance. For no there is no reason to row against the US positive momentum.
The Sunrise Headlines
- US equity markets lost modest ground yesterday (-0.2%) after setting all-time closing highs on Tuesday. Asian equities are trading mixed this morning with Japanese indices outperforming and Chinese indices underperforming.
- The Bank of Japan left its policy rate unchanged at -0.10% and pledged to keep interest rates ultra-low through at least the spring of 2020 as the BoJ forecast that inflation won’t hit the 2% target for at least another three years.
- The Bank of Canada abandoned previous indications about future rate rises and left the benchmark overnight rate unchanged at 1.75%. The BoC also reduced its 2019 domestic growth outlook. The loonie weakened on the news.
- Influential hardliners of UK PM May’s conservative party urged PM May to provide a clear timetable for her departure. However, the lawmakers decided, for now, not to change party rules so the PM could be ousted more easily.
- North Korean leader Kim Jong Un arrived in Russia and met with Russian president Putin for the first time. North Korea is seeking diplomatic support for backing in nuclear negotiations with US President Donald Trump.
- South Korea’s GDP growth shrank 0.3% (QoQ) in the first quarter of the year, the biggest fall since 2009, as exports contracted by 2.6% suffering from the US-China trade war. In year on year terms, growth fell from 3.1% to 1.8%.
- Today’s US eco calendar contains durable goods orders and capital goods shipments (excl. air) for March. Sweden’s Riksbank meets. The ECB publishes its Economic Bulletin, while ECB de Guindos speaks. Q1 earnings season continues.
Currencies: Dollar Jumps Beyond Key Resistance
Dollar jumps beyond important resistance
The USD jumped beyond important resistance levels yesterday (DXY 97.75 area). There were no US data and US yields were downwardly oriented. Even so, the dollar enjoyed a ‘by default’ bid as other major currencies suffered from an ongoing economic underperformance. In this respect, German IFO confidence disappointed again, suggesting ongoing sluggish growth in Europe’s major economy. EUR/USD initially hovered in the 1.12 area but fell below the 1.1187/77 support later to close at 1.1155. USD/JPY closed above the 112 mark (112.19). Overall dollar strength also weighed on most emerging markets currencies.
Asian equities show a mixed picture this morning with China and Korea underperforming. The Korean won suffers a substantial loss as Korea Q1 growth unexpectedly contracted (0.3% Q/Q). The BOJ left policy unchanged and committed to keep rates at current low levels at least through the spring of 2020. Still, the yen reversed most of yesterday’s loss against the dollar as investors adapt positions ahead of the golden week holidays. USD/JPY returned to the 112 area. EUR/USD consolidates after yesterday’s break lower (1.1155 area).
Today, there are few data in EMU. US durables orders are expected to rebound after a mediocre February performance. The series is volatile but the report (ex transportation) might confirm the outperformance of the US economy. US jobless claims are expected to stay low (200k).
Ongoing poor EMU data (PMI’s) last week pushed EUR/USD back to the low 1.12 area. At the same time, the dollar is supported by relative resilience of the US economy. The continuation of this story pushed EUR/USD yesterday below the 1.12/1.1177 MT range bottom. The break higher in the trade-weighted dollar (DXY) above the 97.70 area confirms the overall positive USD momentum. We expect any further USD gains to develop in a gradual way. Even so, for now, there is no reason to row against the USD positive tide. Next support comes in at 1.1110/19 (May/June 2017 lows).
EUR/GBP and cable flowed the broader price moves of the dollar and the euro yesterday. EUR/GBP dropped from the 0.8680 area to close at 0.8644. There were plenty of Brexit rumours, but no clear sign of progress. Today, the CBI order data are interesting but probably won’t have a lasting impact on sterling trading. The political pressure on UK PM May persists. Headlines on a potential new referendum on Scottish independence are also no help of for sterling. Euro and sterling weakness might keep each other in balance short-term.
DXY (USD-TW): dollar retains benefit of the doubt and breaks beyond key resistance
