- Rates: US supply and fragile improvement risk sentiment could weigh on core bonds
The US Treasury starts its mid-month refinancing operation today with a $40bn 3-yr Note auction. This week’s auction sizes are increased by a combined $5bn. Together with a fragile improvement in risk sentiment at the start of the holiday-shortened trading week, we could get some selling pressure on core bonds with US Treasuries underperforming Bunds. - Currencies: EUR/USD decline slows, but picture remains fragile
On Friday, preference for the dollar persisted. The US economy losing 700 000 jobs as measured by the payrolls report didn’t hurt the dollar. This morning, risk sentiment apparently improves. However, this probably won’t change markets’ assessment on the dollar in a profound way. On the euro side of the story, we look out for a EU response to the crisis.
The Sunrise Headlines
- US stocks slipped as investors became wary of the economic disruption from the coronacrisis. The Dow Jones (-1.69%) outperformed. Asian markets climb with Australia a standout performer (+4.32%). Chinese and Indian markets are closed.
- Oil prices (Brent $33.47p/b; WTI $27.35 p/b) gave up some of last week’s rally after OPEC+ delayed a planned meeting to discuss output curbs and signs emerged the US won’t join any deal, raising doubts over the price-war truce.
- US banks are ringing the alarm bell, warning of a chaotic ands delayed launch of the small-business rescue program ($349bn) that is part of the US’ massive $2tn stimulus package due to failed technology and a lack of clear guidelines.
- Hungary is reportedly drawing up a massive stimulus bill (18-22% of the country’s GDP; roughly $30 bn) to bolster the economy as recession risks are looming due to the fallout from the coronavirus outbreak.
- Fitch affirmed Belgium’s credit rating at AA- but lowered the economic outlook from stable to negative. Fitch cited a substantial deterioration of Belgium’s public finances as the government is throwing cash at the coronacrisis.
- Japan plans to tackle the coronacrisis with a two-stage stimulus plan, Bloomberg reported. Phase one targets stemming job losses and bankruptcies while the second phase aims to prop up a V-shaped economic recovery.
- Today’s economic calendar is little inspiring with only second-tier data on the agenda (UK final consumer confidence figures, factory orders and construction PMI in Germany). The US and Turkey tap the bond market.
Currencies: EUR/USD Decline Slows, But Picture Remains Fragile
EUR/USD slide slows but USD preference persists
Investor preference of the USD simply persisted on Friday going into the weekend. EMU PMI’s confirmed the devastating impact of the lockdown on activity. On the other side of the Atlantic, the US payrolls signalled a similar ravage as the US economy lost 700 000 jobs in March. Still, that didn’t change investors’ USD preference. The trade-weighted dollar trended further north of 100 (close 100.58). USD/JPY closed at 108.55 (from 107.91). EUR/USD declined further to close at 1.0801. However, there was no underperformance of the euro against the yen anymore (EUR/JPY hovered sideways around the 117 pivot).
This morning, sentiment on Asian markets is rather risk-on (mainland China is closed). Headlines from Japan are mixed. Sources are reporting that the government might declare a state of emergency. At the same time, markets are looking forward for a new fiscal stimulus package. The risk rebound and a modest rise in US yields, at least for now, are causing a modest decline of the yen. USD/JPY is testing the 109 area. EUR/USD is regaining a few ticks (1.0825/30 area).
Today, the eco calendar is thin. Sentiment on corona will continue to dominate trading. The rise in US futures suggests some investors are pondering whether there is light at the end of the tunnel. It is too early for conclusions and for investors to give up their USD preference. At best, a more positive mood might pause the bid for the dollar. From the euro side of the story we keep an eye at intra-EMU spreads going into a meeting of the EU finance ministers tomorrow as they have to deliver on an EU-wide answer. Will an EU compromise on the funding convince markets or be a (mildly) euro supportive? For now the jury is still out.
Last week, EUR/USD falling below the 1.09 area deteriorated the technical picture. The pair tested the 1.0775 support. The March correction low comes in at 1.0636. We also keep an eye at the trade-weighted dollar. The US currency might remain well bid, but we see no compelling reason for a break beyond the top near 103.
On Friday, the (remarkable) outperformance of sterling against the euro halted. EUR/GBP rebound to close the day at 0.8794. This morning, UK GFK consumer confidence tumbled most on record to -34 from -9. Press headlines this morning also give a lot of attention to UK PM Johnson being brought to hospital. Sterling had a very strong run against the euro of late. We see no reason for further gains. Some consolidation in the 0.8750/0.90 area might be on the cards.
EUR/USD: decline slows, but picture remains fragile
