- Rates: How long will the risk rally stand?
Core bonds gained in lockstep with stock markets yesterday, but traded volumes were extremely low. We wonder how long the risk rally can stand with corona-related news predominantly negative. US eco data, the Fed’s Beige Book and more Q1 earnings will give more indications about how big the economic hit will be. US Treasuries could outperform. - Currencies: EUR/USD to take a breather today
Yesterday’s risk mood was constructive as investors shrugged of mixed earnings and dire growth projections by the IMF. EUR/USD rose towards the high 1.09 area but we’re keen to see whether the couple will withstand poor (US) eco data and more shocker earnings results today. Brexit negotiators resume talks today after one month due to the pandemic
The Sunrise Headlines
- US equities jumped as fragile optimism that the corona pandemic is plateauing, overshadowed shaky bank earnings. The Nasdaq outperformed (3.95%). Asian markets take a breather. South Korea is closed.
- The PBOC slashed the interest rate on 100bn yuan offered in its medium-term lending facility by 20 bps to 2.95%, the lowest level on record in a bid to combat the economic fallout from the coronacrisis.
- US airlines reached an agreement with the Treasury department on the terms of the $25bn rescue package to cover payroll costs during the corona pandemic in an effort to prevent layoffs in an industry hit hard by the virus.
- US president Trump announced he is suspending funding to the WHO while his administration reviews the group’s handling of the coronavirus, accusing it of bungling the response and failing to communicate the disease’s threat.
- The state of California revealed plans to ease lockdown measures while president Trump reasserted his grip, sharing he’s finalizing a plan to reopen the economy with some parts of the country likely to be ready to go before May 1.
- US economic adviser Larry Kudlow warned the $349bn small business loan program could be exhausted by tomorrow as the number of applications jump and plans to replenish the program by another $250bn stumbled in Congress.
- Today’s economic calendar resumes the cavalcade of souring economic data in the US with retail sales, industrial production and the Empire manufacturing due. The BoC is expected to stand pat after a flurry of action the past month
Currencies: EUR/USD To Take A Breather Today
EUR/USD to take a breather today?
Risk sentiment was positive yesterday. Markets shrugged off mixed corporate earnings and dire growth projections by the IMF. According to the Washington Post, US health officials are drafting plans for a phased return to normal whereby so-called low-risk areas could reopen first. Trump is expected to make announcements related to the matter in the coming days. European stocks ended in the green though were off intraday highs after a long Easter weekend. WS closed up to 4% higher. EUR/USD overcame a morning struggle, eventually advancing to 1.098, up from 1.0914. The trade-weighted dollar (DXY) extended its decline below 99 to close at 98.88. USD/JPY’s (107.22) test of 107 failed.
This morning’s rather uneventful Asian session shows no clear direction. The PBOC eased policy further by cutting the rate on a 100b yuan cash operation but with limited price action. The Chinese yuan (USD/CNY 7.054) loses slightly. The Aussie dollar slips towards 0.64 against the USD after a consumer confidence indicator fell to the lowest level on record. EUR/USD (1.097) retains most of yesterday’s gains while DXY is headed for a test of 99.
The US takes centre stage today with March retail sales and industrial production though data affected markets only little lately. If anything, poor readings tended to benefit the dollar. Yesterday’s earnings misses by key financials didn’t leave a stamp on trading either as investors gave more weight to the tentative positive developments in the coronavirus saga. Nevertheless, following yesterday’s rise in EUR/USD – or decline of the dollar – we err more on the side of caution. EUR/USD’s extension beyond 1.09 is technically important. EUR/USD 1.10 is a next reference but for that bar to be cleared we think some of the fog (o.a. European recovery fund) has to disappear.
EUR/GBP ended a choppy session lower for a test of 0.87 as the Brexit negotiators planned first talks in over a month today. Sterling investors see an increasing chance of the end-of-year deadline to be extended due to the pandemic. At the same time, the euro has its own issues. We would therefore be cautious to swim against the current sterling tide for now. EUR/GBP might enter a new sideways trading 0.86/88 pattern.
EUR/USD extends gains beyond 1.09 but might be in for a breather today
