Rates: Eco data are expected to be bond supportive
The March rebound in Chinese PMI data doesn’t persist in this morning’s April figures. Weaker data and disappointing earnings push core bonds higher. The Q1 EMU GDP reading could be a reality check. Downside risks to most of today’s eco data suggests core bonds will hold their upward momentum.
Currencies: dollar to cede some ground ahead of tomorrow’s Fed meeting.
EUR/USD initially hovered sideways on mixed US and EMU eco data yesterday. However, the dollar finally met some modest selling pressure. Investors area maybe reducing some USD long exposure as recent soft US price data will dominate the Fed’s assessment at tomorrow’s policy meeting. Today’s data might allow this EUR/USD rebound to continue.
The Sunrise Headlines
- US equities eked out small gains yesterday. The Nasdaq “outperformed” (+0.19%). Asian shares are trading mixed. China manages to stay in positive territory despite softer than expected PMI’s. India underperforms (-0.75%).
- Chinese PMI’s came in weaker than expected. Caixin’s private manufacturing PMI also decreased to 50.2 (down from 50.8). The official manufacturing PMI edged lower from 50.5 to 50.1. Services slipped from 54.8 to 54.3.
- Belgian preliminary GDP growth increased 0.2% QoQ (1.1% YoY) during the first quarter, the lowest rate since 2017Q3 and down from an upwardly revised 0.4% QoQ in 2018Q4.
- IMF’s Christine Lagarde said she expects the US and China to reach a trade deal, adding she did not see the US slipping into a recession after the stronger than expected US GDP growth figures.
- French GDP expanded 0.3% QoQ (1.1% YoY), matching expectations. Household consumption (0.4%) rebounded after flatlining in 2018Q4 while exports slumped (0.1%). Fixed investment (0.3%) more or less stabilized vs. the previous quarter.
- UK’s opposition Labour party is to unveil its Brexit strategy during the party’s ruling council today. Labour is divided by pro EU members seeking a second referendum and lawmakers from Leave voting districts.
- Today’s economic calendar is of high importance. Inflation and Q1 GDP growth in the EMU will be closely watched. The US publishes the Conference Board consumer confidence and Chicago PMI. US-Sino trade negotiations restart
Currencies: Dollar To Cede Some Ground Ahead Of Tomorrow’s Fed Meeting
Some USD caution ahead of Fed policy decision?
EMU EC confidence data disappointed again yesterday but US spending an income data also failed to convince, keeping EUR/USD in balance. Later, the dollar gradually came under selling pressure. Investors maybe started to reduce some USD long exposure as soft US price data will also get ample attention in the Fed assessment when deciding on monetary policy tomorrow. EUR/USD closed at 1.1186 (from 1.1151 on Friday). USD/JPY again failed to regain the 112 big figure and closed at 111.65.
Asian equity markets are trading mixed to slightly lower. China outperforms even as the both the official and the Caixin PMI’s disappointed, raising caution on a hoped-for improvement in economic activity going forward. The impact of the data on the yuan is limited. Dollar softness still prevails this morning. EUR/USD is trading in the high 1.11 area. USD/JPY (111.50 area) is also losing some further ground.
The eco calendar is well filled today. French GDP expanded at 0.3% QoQ. EMU Q1 growth is expected to pick up to 0.3% Q/Q (from 0.2%). Italy will also publish Q1 growth data. Germany will publish April CPI data. In the US, the Chicago PMI and Consumer confidence have market moving potential. We are not convinced on the expected ‘pick-up’ in EMU growth. That said, yesterday’s price action suggests that the (FX) market is becoming a bit less sensitive to poor EMU data and is giving more weight to potentially soft US data going into tomorrow’s Fed decision. We don’t draw any LT conclusions yet, but if EMU data come out as expected and US data don’t bring a big positive surprise, there is maybe room for some further USD selling/reduction of euro shorts. EUR/USD tries to regain the previous 1.1177/87 support area. A sustained return above could ease the downside pressure short-term. For now, the EUR/USD 1.1110/19 support area looks quite solid.
EUR/GBP regained some ground in the 0.86 big figure yesterday. The move was mainly inspired by a similar EUR/USD rebound at that time. This morning, UK GFK consumer confidence stabilised at a soft level (-13). For now, there is no indication that the negotiations between the conservative party and labour will yield a Brexit compromise anytime soon as both parties are internally divided on the Brexit process. We expect the BoE to maintain a neutral assessment at Thursday’s policy meeting. More sideways trading in the 0.86 big figure is likely.
EUR/USD tries to regain the 1.1177/87 previous bottom going into tomorrow’s Fed policy decision.
