- Rates: Solid US eco data to put and end to corrective bond gains?
The technical and sentiment-driven corrective action higher in core bond markets shows signs of ending this morning. Latest trade news is again more positive. Today’s batch of US eco data is expected to solidify the hypothesis that US eco data won’t deteriorate further and strengthen the Fed’s case to stop cutting policy rates. - Currencies: EUR/USD shows tentative signs of bottoming
The EUR/USD decline finally halted yesterday. The move mainly occurred on a further decline in US yields rather than on ‘positive’ EMU eco news. Headlines on trade will remain an important factor for global FX trading. US eco data might come out rather positive, but we assume that a big positive surprise is needed to trigger sustained further USD gains.
The Sunrise Headlines
- WS closed little changed yesterday (up to 0.08%) after a bag of mixed economic data left investors struggling for direction. Asian markets are benefiting from renewed trade truce optimism. Australia outperforms (+0.87%).
- WH economic advisor Larry Kudlow said US-China negotiations over the first phase of a trade deal were coming down do the final stages with the two sides in close touch, reviving hopes that the trade war may near an end.
- The NY Fed announced plans to conduct longer-term repo operations of 28 and 42 days in the coming month. The central bank thereby aims to mitigate year-end market risks
- China’s central bank caught markets off guard today by injecting 200bn yuan through its medium-term lending facility. The PBOC’s liquidity boost is aimed at helping lenders through the tax season amid tighter money market conditions.
- The intensifying violence in HK is seeping through its currency and money markets as traders bet the currency’s resilience won’t last. Liquidity in the FX market is the tightest since the late 1990s and interbank rates are climbing.
- BoC governor Poloz said yesterday he believed that technological advances are boosting productivity. Signs are already emerging in labour market data with unemployment at record lows and wage inflation picking up nicely.
- In today’s economic calendar all eyes will be on US eco data. Investors will gauge whether the consumers still manage to underpin what marks the longest expansion in US history. Final EMU inflation data will be published
Currencies: EUR/USD Shows Tentative Signs Of Bottoming
Tentative signs of EUR/USD bottoming?
There was still no dominant theme to guide global (FX) trading yesterday. Uncertainty on the content and the timing of a US-China trade deal kept investors in a wait-and-see mode. Germany avoided a recession in Q3, but that wasn’t enough to propel the euro. US data (PPI higher, jobless claims also higher) were mixed. A further decline in US yields finally took some shine off the dollar. EUR/USD bottomed and closed at 1.1022. USD/JPY also eased further to end the day at 108.42.
This morning, Asian equities are in better shape as White House advisor Larry Kudlow sounded optimistic on US-China trade talks. USD/JPY (108.60 area) is rebounding. EUR/USD (1.1020 area) tries to maintain yesterday’s late session rebound. The yuan gains a few ticks (USD/CNY 7.0150 area). The Canadian dollar (USD/CAD 1.3225 area) also regains some ground after recent setback on comments by BoC governor Poloz that Canada wage inflation now exceeds 4%. Today, headlines on trade remain a source of potential volatility and might push global sentiment in either direction. Regarding the data, the focus is on US retail sales and, to a lesser extent, on the Empire manufacturing index and US production. We see expectations for (core) sales as reachable. However, a big surprise is probably needed for the US data to affect the dollar in a lasting way.
Recently, a correction on the global reflation trade supported the haven currencies like the yen, but also the dollar. At the same time, EMU data didn’t convince euro bulls. The October EUR/USD rally met resistance near 1.1175 and later dropped below the 1.1073 neckline. The EUR/USD picture remains unconvincing, but targets of the ST double top are nearby (1.0967). Yesterday, there were first tentative signs of a bottoming out process. However, further confirmation is needed. Even so, the broader USD rally also shows signs of topping out.
Yesterday, UK retail sales disappointed, but as was most often the case of late, the data had no lasting impact on sterling trading. Markets still assume a victory of Boris Johnson’s Conservative party as the most likely outcome of next month’s election. This is keeping the pound well supported. More EUR/GBP trading near current levels is likely as long as expectations on the election out persist. That being said, quite some good news is discounted already for sterling at current levels
USD (trade-weighted -DXY) rebound running into resistance..
