- Rates: Core bonds profit from trade-related risk aversion
Main US and European stock markets lost up to 2% and the technical pictures suggests room for more losses. Core bonds profited from risk aversion and might continue to do so. The eco/event calendar remains thin. A speech by ECB President Draghi and a US 10-yr Note auction are wildcards. - Currencies: EUR/USD still going nowhere even as trade tensions persist
The euro lost temporary ground after the European Commission further downgraded EMU growth forecasts. However, EUR/USD held within established ranges. US-China trade talks continue to set the tone for global trading. At least for now, uncertainty doesn’t help the dollar. Sterling eases a Brexit deal looks still far away.
The Sunrise Headlines
- US equity markets fell by more 1.5% with technology shares underperforming (Nasdaq -1.96%). Asian shares are trading with losses this morning with Japanese shares underperforming on a strong yen.
- China will keep calm against threats of higher US tariffs, calling the approach ‘regrettable’, and has confidence in its ability to face the trade challenges. VP Liu He will arrive in Washington tomorrow to resume the negotiations.
- New Zealand’s central bank cut its interest rates to a historic low 1.50% and hinted at further rate cuts if necessary. Governor Orr said the unexpected weakness in inflation and a weaker employment outlook warranted the move.
- UK PM May and Labour leader Corbyn had another inconclusive round of negotiations, further denting hopes of a cross-party Brexit deal. May faces the UK parliament today, with her government starting to eye other options.
- Japan’s Nikkei services PMI declined from 52.0 in March to 51.8 in April. A strong domestic demand keeps the industry in expansion territory (>50). Subindexes new businesses and export business have both decreased.
- Chinese exports decreased -2.7% (Y/Y) in April, down from a 13.8% (Y/Y) increase in March and well below expectations. Imports expanded by 4% (Y/Y), beating market estimations (-2.1% (Y/Y), leading to a trade surplus of $13.84 bn.
- Today’s economic calendar is close to empty in both the US and the EMU. Speeches by ECB president Draghi and Fed’s Brainard are wildcards. The US and Germany tap the market.
Currencies: EUR/USD Still Going Nowhere Even As Trade Tensions Persist
EUR/USD going nowhere as trade tensions persists
EUR/USD traded with a tentative negative bias yesterday, but all in all the pair was little affected by the global risk-off sentiment. The pair initially hovered in the 1.12 area. Intraday EUR/USD momentum turned a bit more fragile as the EC further downgraded the 2019/2020 EMU growth forecast. However, the intraday swings were confined to the established ranges. EUR/USD closed at 1.1191 (from 1.1199). USD/JPY suffered more from the risk-off sentiment, drifting further south in the 110 big figure to close the day at 110.26.
This morning, uncertainty on the US-China trade talks continues to dominate global trading. High level talks are still said to take place tomorrow. The outcome remains highly uncertain. Asian equities are trading in negative territory. Losses on Chinese markets are modest. Japan underperforms. USD/JPY is testing the 110 level. The Yuan stabilizes (USD/CNY 6.77 area). The China April trade surplus narrowed to $13.84 bln from $32.42 in March, but it is unlikely this report will ease US frustrations. The dollar again hardly profits from the trade tensions. EUR/USD returned to the 1.12 area. The RBNZ cut its policy rate to a record low 1.50% on recent soft inflation and less strong labour data. Another cut in 2020 is possible. NZD/USD dipped temporarily below 0.6550, but currently trades again in the high 0.65 area.
There are few important data except for German March production today. More sentiment driven trade driven by headlines/speculation on the Sino-US trade rift might be on the cards. Of late, the dollar hardly profited from solid US data and/or a context (risk-off) that is usually USD supportive. FX (and other) markets hold on to a scenario of further Fed rate cuts if the global context deteriorates. US/president Trump also doesn’t want a stronger dollar. This maybe caps further USD gains, too. We maintain the view that the EUR/USD 1.1110 support area won’t be that easy to break.
Sterling eased further off the ST top reached at the end of last week. EUR/GBP rebounded further off the 0.85 support area. Comments on the Brexit talks between the government and the labour opposition suggest no meaningful progress. This will probably oblige the UK to hold EU elections at the end of this month. A test of the 0.8473/0.85 range bottom is rejected. For now, we don’t expect sterling to get additional support from investors anticipating a political agreement on Brexit. More trading in the EUR/GBP 0.85/0.87 range might be on the cards.
EUR/USD: uncertainty on global trade doesn’t help the dollar
