Sunrise Market Commentary
- Rates: US 10-yr yield breaks above 2.5%, heading to 2016/2017 highs
The technical break of the US 10-yr yield suggests a move to 2.63%/2.64% and thus more downside for the US Note future. Higher oil prices, rising inflation expectations and more signs of global monetary policy normalization are at play. US inflation readings (tomorrow and Friday) and German wage negotiations have the potential to accelerate the move. - Currencies: USD/JPY, EUR/JPY and EUR/USD drifting south
Yesterday, yen strength was the name of the game and it looks that this trend might continue today. The dollar is a good second best. The eco calendar is thin today. A less buoyant risk sentiment might reinforce the rebound of the yen. Sterling hardly profits from the UK government reshuffle
The Sunrise Headlines
- US stock markets ended marginally higher yesterday (+0.1%) with the Dow Jones outperforming (+0.4%). Most Asian stock markets lose some ground overnight with China underperforming.
- China’s producer prices rose at their slowest pace in 13 months in December, as the government’s war against winter smog dented factory demand for raw materials in a sign the world’s second largest economy has started to slow.
- US job openings fell for a second straight month in November, with declines in the manufacturing and real estate sectors. The monthly JOLTS also found that layoffs dropped to a six-month low, showing continued labour market strength.
- Italy’s 5-Star leader Luigi Di Maio says that he doesn’t think the country needs to leave the euro anymore because the French-German alliance isn’t as strong as in the past, Corriere della Sera reports
- Global growth appears to have peaked, with demographics, a lack of investment, a slowing in productivity gains and tightening monetary policy placing limits on economic expansion, the World Bank said.
- The EU is systematically warning UK companies of a regulatory chill after Brexit as it seeks to accelerate the private sector’s preparations for a no-deal UK exit, according to recent legal notices reviewed by the FT.
- Today’s eco calendar contains UK industrial production and US import/export prices. Germany and the US tap the market. Chicago Fed Evans discusses the economic outlook
Currencies: USD/JPY, EUR/JPY And EUR/USD Drifting South
USD/JPY, EUR/JPY and EUR/USD all drifting south
The swings in the yen took centre stage on FX markets yesterday. The yen rose against most majors. The BOJ bought fewer long-dated bonds, raising speculation that it might consider a first step to a less easy monetary policy. The yen held strong and USD/JPY closed the day at 112.65. The dollar was a good second best. The trade-weighted dollar (DXY) rebounded of recent lows, supported by higher US yields. EMU eco data remained very strong, but didn’t help the euro. The correction in EUR/USD and EUR/JPY longs that started on Friday, continued. EUR/USD closed the day at 1.1937. EUR/JPY dropped to 134.47, compared with an intraday top of 136.64 on Friday.
The equity rally lost momentum overnight, but the correction is limited given recent gains. Yesterday’s rise of the yen continues. USD/JPY trades near 112.30. EUR/USD trades in the 1.1930 area, holding with reach of yesterday’s ST correction low. The eco calendar is again only modestly interesting. US import prices will be published. Markets are growing more sensitive to price data. A small reaction is possible in case of a big surprise, but the PPI’s and CPI later this week are more important. This morning, it looks that the FX trends of the previous days continue. A less buoyant risk sentiment might support further yen gains. The decline of USD/JPY and EUR/JPY also weighed on EUR/USD earlier this week. The EUR/USD decline might slow if the rise in US yields slows. Even so, we see no trigger for a sharp EUR/USD rebound right now. The price action since Friday suggest that the topside in EUR/USD is rather well protected. In a broader perspective, slightly disappointing payrolls didn’t cause USD damage. EUR/USD 1.2092 resistance survived. This week’s US price data are a next reference for USD trading. Recently, the greenback suffered as the global recovery might force other major CB’s to join policy normalisation. We keep the hypothesis that enough good news on the euro/’bad news’ on the USD is discounted and that a sustained break beyond 1.2092 is not evident.
Yesterday, sterling held a tight sideways range against the euro and declined against a stronger dollar. The UK government reshuffle had no big impact. UK production and trade balance data will be published today. Production is expected rather solid. However, we don’t expect a the data to be really supportive for sterling. The EUR/GBP correction might slow (underlying GBP weakness), but a rebound will be difficult if EUR/USD remains under pressure. EUR/GBP 0.8700/60 support looks solid. We keep a EUR/GBP buy-on-dips in case of return action to 0.87.
USD/JPY: repositioning out of yen-shorts continues
