- Rates: Risk sentiment and Powell speech are key
US Treasuries outperformed after a well digested 10-yr bond sale and as US equities fainted into the close. Risk sentiment will be the driving market force today as well together with a speech by Fed Chair Powell. Comments on negative policy rates, the shape of the recovery and the Fed’s toolkit and readiness to act further if necessary, will be closely watched. - Currencies: USD losing some momentum?
The dollar made a small step backward yesterday despite a fragile sentiment. Technical considerations and the debate on negative US policy rates might have played a role. Euro negative headlines moved a bit to the background. EUR/USD tries a cautious step higher. EUR/GBP is nearing first resistance. BoE’s Broadbent didn’t exclude a negative UK policy rate.
The Sunrise Headlines
- Wall Street tumbled more than 2% amid warnings a premature US open would trigger new virus outbreaks and fears for an escalation in the US/Sino blame game. Asia trades mixed with India (+2%) outperforming
- US Senator Graham introduced the Covid-19 Accountability Act which would give president Trump the authority to sanction China if it doesn’t cooperate and fails to account for the events that lead up to the outbreak of the virus.
- Indian PM Modi announced a relief package of more than $260bn, roughly equal to 10% of GDP, as the country entered its sixth week of a nationwide lockdown which economists expect to push unemployment towards 25%.
- New Zealand’s central bank nearly doubled its QE programme to NZ$60bn while keeping the policy rate stable at 0.25%. It did say negative rates will become an option for the future and asked banks to be prepared by end 2020.
- US Democrats released plans for a new $3tn stimulus plan that includes a.o. $875bn in aid for state and local governments. Top Republicans were quick to reject the Democrats proposal however, raising doubts it will pass the Senate.
- The UK deficit could balloon to £337bn this year due to the coronavirus which could further swell to £517bn in a worst-case scenario, an internal government document revealed yesterday.
- Today’s eco calendar contains Q1 growth figures in the UK and EMU industrial production in March. ECB’s ECB and Fed (Powell) speeches are due. Italy, Germany and the US tap the bond market
Currencies: Uncertainty On Easing Of UK Lockdown Measures Weighs On Sterling
Dollar losing some momentum?
The dollar mostly traded with a downside bias yesterday. Technical factors probably were in play. The TW dollar (DXY) failed to overcome first resistance near 100.40, triggering a correction. US inflation printed much lower than expected. It didn’t cause the USD decline, but the move accelerated afterwards. US president Trump supporting the idea of negative interest rates maybe was a slight USD negative too, even as most Fed members stay very guarded on this topic. Later in the US, risk sentiment deteriorated, but the dollar rebound remained unconvincing. EUR/USD closed at (1.0848 from 1.0807). USD/JPY closed at 107.14.
This morning, Asian markets mostly opened in negative territory after a poor WS close, but are regaining ground. The RBNZ at its policy meeting doubled the amount of QE (NZ$ 60 mld). The policy rate was left unchanged at 0.25%, but Bank openly signaled that negative interest rates remain an option in the future. The kiwi dollar dropped from NZD/USD 0.6080 area to currently trade around 0.6020. USD/JPY is holding stable in the 107.20 area. EUR/USD hovers in the mid 1.08 area.
Today, eco data will be of second tier importance for trading. Markets keep a close eye at a speech of Fed Chair Powell. What is his view to the economy and on the policy response? And are negative rates a real option for Fed policy? We expect Powell to hold the line that other options are preferred. If so, this should be supportive for ST US yields and maybe slightly USD supportive. That said, the USD performance was a bit disappointing yesterday, given overall market conditions. We also have the impression that negative headlines on Europe are moving a bit to the background, at least temporarily. Last week, EUR/USD dropped below 1.08 after the German court ruling, but the 1.0727 correction low was left intact. Institutional issues remain a factor of euro uncertainty, but maybe there is some room for EUR/USD to rebound a bit further in the 1.0727/1.1018 trading range
Sterling was an outright underperformer yesterday. Uncertainty on the easing of the lockdown, BoE Broadbent keeping the door open for negative rates and lingering Brexit uncertainty all weighed on sterling. EUR/GBP closed well north of 0.88. 0.8863 is first important resistance. Sentiment on sterling is turning more negative. Some further EUR/GBP gains are possible. Today, Q1 UK GDP and March production data will be published
EUR/USD tries to move higher in the established range
