- Rates: Core bonds to gain as investors await G20
Global core bonds gained ground amid nervous trading yesterday. Investors have difficulties in assessing the outcome of tomorrow’s Trump-Xi meeting with headlines sending conflicting messages. The current fragile environment, the looming trade talks and today’s economic data might favour bonds further today. - Currencies: Will US president Trump call for a weaker dollar?
The dollar showed no clear directional trend yesterday as investors await more clear guidance from the G20 summit. Aside for the G20, EMU (CPI) and US (spending and income, Chicago PMI) data have potential to move EUR/USD intraday. We look out for any change in the US FX policy at the G20. Sterling remains under pressure. EUR/GBP nears 0.90 barrier
The Sunrise Headlines
- Wall Street ended a nervous and choppy session mixed. The Dow Jones (-0.04%) underperformed. Asian stocks slip ahead of the much talked-about meeting between Trump and Xi tomorrow. China underperforms, losing up to 1.2%.
- Chinese President Xi lashed out at the US during a meeting of the BRIC countries in the sidelines of the G20 summit, saying that ‘all this [protectionist measures by some developed countries] is destroying the global trade order’.
- Boris Johnson refuses to rule out setting Parliament aside if that’s what it takes to push through a no-deal Brexit – although not his base assumption – on October 31.
- The White House is developing a tax cut plan by indexing capital gains to inflation, according to people familiar. It wants to advance the proposal soon to ensure it takes effect before facing re-election in 2020.
- During an interview IMF chief economist Gita Gopinath said Germany has scope for looser fiscal policy and that it should profit from the possibility to issue debt at negative interest rates.
- White House advisor Kudlow dismissed yesterday’s WSJ report that President Xi would present Trump with a list of demands to resolve the conflict, saying that the meeting is “without preconditions”.
- Today’s economic calendar contains US PCE (core) inflation and the Chicago PMI. Inflation is due in the EMU. The G20 summit kicked off today and will continue until tomorrow with a closely watched US/Sino meeting.
Currencies: Will US President Trump Call For A Weaker Dollar?
Will Trump advocate a weaker dollar at the G20?
EUR/USD trading was erratic yesterday. Investors didn’t take any big directional positions ahead of this weekend’s G20. US and EMU data also failed to give a consistent guidance for trading. The euro initially gained modest ground as regional German inflation data suggested a bigger than expected rise of June inflation, but the harmonized CPI finally printed unchanged at 1.3%. Headlines/expectations on the outcome of the meeting between presidents Trump and Xi were cautiously positive, but with little impact on the dollar. Both EUR/USD (1.1369) and USD/JPY (107.79) closed the day almost unchanged.
This morning, Asian equity indices show modest losses as investors keep sidelined ahead of tomorrow’s meeting between presidents Trump and Xi that is supposed to revive the US-China trade talks. EUR/USD hovers in the 1.1360/65 area. The yen gains marginal ground (USD/JPY 107.65 area). AUD/USD regained the 0.70 market as investors are becoming a bit more cautious on an RBA rate cut next week.
Today, (FX) markets will keep a close eye on the headlines from the G20 meeting. However, the data still deserve some attention too. The first estimate of EMU June CPI is expected unchanged at 1.2% Y/Y. We don’t expect the report to change expectations on ECB policy. US income (0.3% M/M) and spending (0.5% M/M) are expected solid, but expectations for the deflators remain soft (0.2% M/M). Soft inflation indicators might be supporting the case for (preemptive) Fed rate cuts and might be a (slightly) negative for the dollar. This also applies for in case of a negative surprise for the Chicago PMI (expected at 53.5). Regarding the Osaka G20 meeting, a trade truce might be modestly positive for USD/JPY but rather neutral for EUR/USD. We still expect the US to put the issue of a what they consider a too strong dollar on the table. The EUR/USD 1.1300/1.1250 should provide decent support. Topside resistance is coming in at 1.1412 and 1.1448.
EUR/GBP initially hovered in the mid 0.89 area yesterday, but finally sterling weakness pushed the pair for a rest of the recent top in the 0.8975/80 area. Boris Johnson keeping the option of suspending Parliament open if MP’s try to block a no deal Brexit, didn’t help the UK currency. This morning’s UK GFK consumer confidence dropped more than expected (-13 from -10). The EUR/GBP 0.90 barrier is within reach. EUR/GBP 0.9108 marks the early January peak
Dollar going nowhere as markets await outcome of the G20 meeting.
