- Rates: TLTRO take-up in excess of €1tn?!
The results of the first TLTRO operation at generous conditions will be published today. Markets expect a record take-up, well in excess of €1tn. Risk sentiment is fragile this morning, with most Asian stock markets and US equity futures down. Core bonds profit. - Currencies: Dollar maintains recent gains, but no clear directional trend
The dollar still slightly outperformed yesterday despite an overall constructive risk sentiment, extending the rally after strong US retail sales on Tuesday. EUR/USD stays in correction modus, but the 1.1160 key support stays out of reach. A soft assessment of the BOE at today’s policy meeting might be a sterling negative and help EUR/GBP to return to the 0.90 level
The Sunrise Headlines
- US equities fainted intraday, giving up (most of) the gains. The DJI (-0.65%) underperformed. Asian-Pacific stock markets trade in the red though erased most of the early losses. Australia underperforms (+1%).
- Australian employment declined with 227.7k in May after a more than 600k drop in April. The unemployment rate rose from 6.4% to 7.1% while the participation rate unexpectedly eroded further to 62.9%.
- The US suspends talks with the EU over plans for a new tax framework that would affect digital companies. UST Mnuchin said talks are at an impasse and warned for retaliation if EU countries go solo slim with their own digital taxes.
- Fed chair Powell warned against withdrawing fiscal support too early during his House testimonial. He noted there are still millions of people out of work, suggesting more help is needed but stopping just short of recommendations.
- Former US National Security Advisor Bolton took aim at president Trump in his book, writing that he asked Chinese leader Xi Jingping to help him win the re-elections in November by buying more US farm products.
- New Zealand GDP declined 1.6% q/q (-0.2% y/y), the most since ’91 with the strongest virus restrictions only in place in the final 6 days of Q1. Primary (-1%) and goods-producing industries (-2.7%) as well as services (-1.1%) all declined.
- Today’s economic calendar contains US jobless and continuing claims. The Bank of England, Swiss National Bank and Norges Bank all hold policy meetings. The ECB publishes its economic bulletin. Spain and France tap the bond market.
Currencies: Dollar Maintains Recent Gains, But No Clear Directional Trend
Dollar maintains recent gains, but no clear trend
USD trading was mostly order driven yesterday. Investors still pondered the balance between ample monetary and fiscal stimulus and the risk of a second wave of corona infections. The USD slightly outperformed even as sentiment remained constructive, building on Tuesday’s rebound after strong US retail sales. The TW dollar regained the 97 big figure, but the upside momentum eased later. EUR/USD traded heavy for most of the day but closed at 1.1244, off the intraday low. USD/JPY initially held a tight sideways range in the lower half of the 107 big figure, but slipped to the 107 area as US equity momentum faded going into the close.
This morning, sentiment on Asian markets remains cautious as investors monitor how China handles the new virus outbreak in Beijing. The PBOC indicated that it expects credit flow this year at least rising 30 trillion yuan, supporting the recovery. The yuan strengthened this morning (USD/CNH currently near 7.065). Job losses in Australia in May (decline in employment of 228 000) were much bigger than expected. AUD/USD dropped about half a big figure upon the release, but most of the decline was soon reversed with AUD/USD again trading in the 0.6875 area, underscoring recent resilience of the Australian currency.
There are again few data in Europe today. The Norges Bank and the Swiss National Bank hold policy meetings. Investors will also look out for political quotes on the EU rescue fund at the start of the 2-day summit. An agreement is not expected yet, but the tone of the comments might have some impact on the euro. In the US, weekly jobless claims and the Philly Fed business outlook will be published. On Tuesday, the dollar gained on better than expected US retail sales. However, we expect any USD reaction to the data today to be more guarded. The USD probably will again trade more in line with global risk sentiment. Last week, the three week-long EUR/USD rally fell prey to profit taking. The EUR/USD momentum eased, but first important support in the 1.1160 area stays out of reach. We expect that area to hold and gradually look for a bottoming out process after the recent EUR/USD ‘correction’.
EUR/GBP drifted further below the 0.90 handle yesterday, at least partially driven by overall euro softness. Today, the Bank of England is expected to ease policy further by raising the APP bond purchases by at least £100 bn. The tone of the BoE assessment probably will remain soft. If so, it EUR/GBP might return back to the 0.90 area
EUR/USD: consolidation pattern. 1.1160 support stays out of reach
