- Rates: Huge US supply operation meets with strong demand
Markets rather easily absorbed yesterday’s huge US supply (combined $85 bn). Overnight news flow is scarce, but Chinese stock markets showed a violent intraday sell-off, which was eventually reversed. April US eco data will show huge declines while oil prices keep plunging. Several corporate bellwethers report earnings and could be crucial for risk sentiment. - Currencies: EUR/USD rebounds but momentum remains unconvincing
Yesterday, the dollar corrected modestly lower as risk sentiment remained constructive. However, trading in the major cross rates was confined to well-known ranges. EUR/USD also didn’t regain any important technical level. Uncertainty probably remains too high for investors to already offload USD-buffers. This might complicate further EUR/USD gains ST.
The Sunrise Headlines
- WS gathered steam as investors turned a hopeful eye toward several US states that are moving to relax lockdown measures. The DJI took the lead (1.51%). Asian markets trade mixed with Australia (-0.5%) a standout decliner.
- Oil prices tumbled on ongoing concerns about oversupply and a lack of storage space. Brent dropped to $18.96/b while WTI plunged to $10.92/b as traders offload the June contract to avert another price plunge into negative territory.
- The Trump administration announced it plans to provide all 50 states with enough coronavirus tests, aiming to screen at least 2% of the population as the country moves to reopen part of the economy.
- The relaunch of the US small business bailout program that was replenished by another $310bn got off to a rocky start yesterday as a flood of loan applications overwhelmed the approval system leading to many delays and outages.
- The Fed broadened the scope and duration of its $500bn Municipal Liquidity Facility, offering to buy short-term debt from counties with as few as 500K residents and cities with at least 250K residents, down from 2mln and 1mln.
- EU Commissioner Thierry Breton expects the bloc’s car industry to slump 60% this quarter and 30% in Q3. Breton said about 10% of the EU recovery program should be directed the mobility sector that includes cars, rails and shipyards.
- Today’s economic calendar contains the US consumer confidence. The Riksbank and the MNB’s policy decisions are eyed while investors brace for another flurry of heavyweight corporate earnings. The US and the UK tap the bond market
Currencies: EUR/USD Rebounds But Momentum Remains Unconvincing
EUR/USD rebounds, but no strong momentum yet
Yesterday, a positive risk sentiment triggered a modest USD correction, but the major cross rates still traded in well-known territory. The trade-weighted dollar (DXY) slipped temporarily below 100, but closed at 100.04. EUR/USD tested the 1.0860 area. Aside from USD softness the euro maybe profited from the mild assessment of S&P of the Italian credit rating and the subsequent intra-EMU spread narrowing. Even so, no key technical levels were broken (close at 1.0829). The yen didn’t weaken despite further BoJ easing. USD/JPY finished the day at 107.25.
This morning, Asian equites are supported by yesterday’s rise on WS, but US futures are losing some momentum. Oil resuming its downtrend is a lingering source of uncertainty. The TW dollar regains a few ticks (100.15). EUR/USD hovers in the 1.0820/25 area. The yen preservers most of yesterday’s gain (107.25). EUR/JPY still struggles not to fall below the 116 area. The Aussie dollar remains well bid (0.6450 area). A gradual easing of the lockdown and (hope on) fiscal stimulus apparently outweigh downside pressure in some commodity markets.
Today US consumer confidence (conf. board) and the Richmond Fed manufacturing index are expected to show unprecedented declines. We also keep a close eye at the (US) earnings season as several bellwethers will report earnings. We especially look out for their assessment on impact of the corona crisis. This might be important for the equity markets and for global sentiment. Over the previous days, markets held a rather positive bias. Will corporate earnings lead to some more caution? If so, the dollar might remain well bid even as we don’t expect a return to the peak levels of March (DXY 103). EUR/USD dropped temporarily below 1.0770, but it didn’t trigger further follow-through losses. We keep the view that the overall level of uncertainty remains too high for investors to already substantially reduce their USD buffers. EUR/USD consolidation in the 1.0730/1.10 range might be on the cards. For today, risk might be skewed to the downside.
Sterling trades with a slightly positive bias due to the global risk-on. EUR/GBP closed at 0.8712. Today, the CBI retail data will be published. Regarding the exit of the corona measures, the UK isn’t a frontrunner. This might cap further sterling gains, especially if global sentiment would turn more cautious. We see the 0.8680/0.87 area as important support
EUR/USD: downside test rejected but no convincing upside momentum yet
