- Rates: Slight advantage for core bonds given risk sentiment
Asian stock markets lose ground this morning with Hong Kong leading the sell-off. We expect core bonds to profit somewhat if sentiment spills to Europe and the US. Black Friday will reduce (US) trading volumes. Investors start looking forward to next week’s key US eco numbers (ISMs, ADP & payrolls). - Currencies: EUR/USD decline slows, but key ST support is still nearby
Yesterday, EUR/USD found some support in the 1.10 area. EMU eco data were not too bad, but still didn’t inspire a meaningful euro comeback. Today, German labour market data and EMU CPI probably won’t change fortunes for the single currency. A risk-off environment is a bit mixed for EUR/USD. The 0.85/0.8472 area proves to touch support for EUR/GBP
The Sunrise Headlines
- Yesterday, US markets were closed for Thanksgiving. Asian markets are nudging lower as investors grow cautious over US-China trade developments following the recent escalation in tensions over HK. Hong Kong underperforms (-2.50%).
- Japanese industrial output plummeted by 4.2% (M/M) in October, far below the consensus of -2.1%. A sales tax hike, a super typhoon and weakening external demand continue to drag on the sputtering Japanese economy.
- UK’s prime minister Boris Johnson insisted that he would turn his back on a US trade agreement after Brexit if US president Trump stands firm on keeping the National Health Service on the table.
- Chile’s peso plummeted to a new all-time low of USD/CLP 828.2 for the second consecutive day yesterday amid intensified violent protests. The Chilean central bank announced FX interventions in a bid to stabilise the peso.
- BoJ governor Kuroda announced the BoJ has “ample room” for further easing. The comment comes after a Reuters report disclosed that the BoJ is growing cautious about the consequences of the steep fall in LT governments bonds.
- South Korea and Japan came to terms to hold trade trade talks in December. The countries will review Japan’s tighter export constraints and its removal of South Korea from its “white list”, aiming to ease bitter tensions.
- In today’s economic calendar Canadian and Swedish Q3 GDP numbers take centre stage. In the euro zone, inflation numbers will be closely monitored for any signs of revival. US markets are closing early today.
Currencies: EUR/USD Decline Slows, But Key ST Support Is Still Nearby
EUR/USD decline slows, but key support still close
Major USD cross rates held tight ranges yesterday. US markets were closed for Thanksgiving, reducing global trading volumes. Sentiment on risk turned less enthusiastic after US president Trump signed a bill supporting the protest movement in Hong Kong. Even so, USD/JPY held a tight range in the mid 109 area. EC economic confidence was slightly stronger than expected and German HICP inflation rose from 0.9% Y/Y to 1.2 Y/Y. However, the data again weren’t enough to trigger any sustained euro gains. EUR/USD closed the day at 1.1009 (from 1.0999).
Asian equity markets are falling prey to further profit taking this morning, with Hong Kong underperforming (-2.0%). In Japan, Tokyo headline CPI rose from 0.4% Y/Y to 0.8% but industrial production decline much faster than expected (- 4.2% M/M and -7.4% Y/Y). Slower growth intensifies calls for the Japanese government to set up a substantial fiscal stimulus package. The yen is trading marginally stronger (risk-off). USD/JPY hovers near 109.50. The yuan is losing a few ticks (USD/CNY 7.0350). EUR/USD is going nowhere. (1.1010 area). Today, US markets reopen (but with an early close). In EMU, German retail sales and labour market data will be published. EMU inflation is expected to rise (0.9 Y/Y headline, 1.2% Y/Y core) from very low levels. Recent price action suggests that mixed-to-slightly better EMU data aren’t enough to change fortunes in favour of the euro. In this respect, we don’t preposition for a rebound yet. With no US eco data on the agenda, more technical/order driven trade might be on the cards.
Last week, the EUR/USD rebound was blocked near 1.11, leaving the pair in an unconvincing trading pattern. This week, EUR/USD came close to the 1.0989 support, but no break occurred. A drop below 1.0989 would deterioratethe ST picture. The 1.0879 correction low is next support on the charts. A return above 1.11 would call off the ST downward alert. Ongoing low volatility is in theory slightly USD supportive (carry).
Sterling initially extended gains yesterday after a poll indicated that the Conservative Party might reach a significant majority in the Lower House at the December 12 election. However, the sterling rally run into resistance. 0.85 proved a solid floor for the EUR/GBP cross rate. Today, the monetary data will probably have little impact on sterling trading. We assume that high profile news is needed to push EUR/GBP below the 0.8500/0.8472 support area
EUR/USD: holding tight range near 1.10 pivot. 1.0989 support still within reach.
