Sunrise Market Commentary
- Rates: Fake news causes volatility
‘Fake news’ caused quite some volatility in the US Note future yesterday. All intraday losses were eventually whipped out following a strong 10-yr Note auction and as Chinese officials denied rumours about halting/stopping buying US T’s. Today’s focus turns to US producer prices and German wage negotiations. Positive outcomes have most market-moving potential. - Currencies: Dollar rebounds as Chinese rumours on US Treasuries are dismissed
The dollar came temporary under pressure yesterday on headlines that China was considering holding less US Treasuries. The dollar regains ground this morning as the headlines were dismissed by Chinese officials. Today’s focus for USD trading is on US PPI data. Strong price data might propel US yields and the dollar.
The Sunrise Headlines
- US stock markets partially recovered from a difficult start yesterday, ending with (tiny) losses for the first time this year. Asian bourses lose slightly ground as well overnight with Japan underperforming (-0.5%).
- The China State Administration of Foreign Exchange says a media report on China’s purchase of US treasuries might have quoted a ‘wrong source’, or it might be ‘fake news’, according to a statement on the administration’s website.
- Australian November retail sales rose by 1.2% M/M (Black Friday), significantly beating 0.4% M/M consensus and printing at the strongest level since 2013. The Aussie dollar profited, pushing AUD/USD to the highest level since October.
- Polish interest rates will ‘probably’ stay at current level by end of this year, central bank Governor Glapinski said. He doesn’t expect any discussion on rate increase within MPC rate-setting panel and such situation may extend for 2019.
- China’s Premier Li Keqiang said the world’s second-biggest economy is expected to have grown around 6.9% last year, the official Xinhua news agency reported, accelerating from a 26-year low in 2016 (6.7%).
- Both the White House and Canadian officials shot down a report that Canada is increasingly convinced that President Donald Trump will shortly announce the US is pulling out of Nafta. The loonie and Mexican peso trimmed losses.
- Today’s eco calendar contains US producer prices, weekly jobless claims, EMU industrial production and Minutes of the previous ECB meeting. Italy and the US tap the market. NY Fed Dudley speaks on the US economic outlook
Currencies: Dollar Rebounds As Chinese Rumours On US Treasuries Are Dismissed
Modest USD damage from Chinese headlines
Markets were spooked by headlines that China considered holding less US Treasuries. Treasuries, equities and the USD were sold even as interest rate differentials widened in favour of USD. Investors feared that China could reduce the USD share in its reserves. The story initially weighed also on US markets but Treasuries, equities and the dollar rebounded off the intraday lows. EUR/USD spiked temporary above 1.20, but closed the day at 1.1948. USD/JPY remained in the defensive and finished the day with a substantial losses at 114.44.
Overnight, Asian markets remain in a modest risk-off modus, but trading still develops orderly. Chinese officials indicated that yesterday’s headlines ‘might have cited wrong sources or may be fake news’, easing tensions further. Especially USD/JPY (currently 111.80) regains part of yesterday’s decline. EUR/USD hovers in the mid 1.19 area. The Aussie dollar (AUD/USD 0.7875) profits from strong domestic retail sales. The Canadian dollar (USD/CAD 1.2550) stays in the defensive even if comments from Canadian officials that president Trump might leave NAFTA were afterwards also denied/labelled ‘fake news’.
EMU production data and the Minutes of the ECB December meeting will be published today. Markets will look for ‘alternative views’ on the soft policy approach of president Draghi. US PPI data might get more attention than usual as markets are growing more sensitive to indications of higher inflation. Headline PPI is expected at 0.2% M/M and 3.0% Y/Y (from 3.1%). An upward surprise might be slightly USD supportive, but tomorrow’s CPI is more important. Yesterday, the USD was temporary hit by the China headlines but USD/EUR stayed resilient. The USD/JPY sell-off slows this morning. EUR/USD reversed most of yesterday’s up-tick. So, the day-today momentum looks not too bad for the dollar. The topside in EUR/USD remains probably rather well protected and a sustained break beyond 1.2092 is not evident unless US price data really undershoot expectations
Yesterday, sterling trading was mainly driven by the moves in EUR and USD. EUR/GBP rose in line with EUR/USD. Some sterling softness was also at work, probably as markets were disappointed by the government reshuffle. There are no important UK data today. UK Fin Min Hammond and Brexit minister Davis tried to seek common ground with Germany on a Brexit deal. There are no indications of a big step forward. We keep a neutral bias on EUR/GBP short-term. We keep a EUR/GBP buy-on-dips in case of return action to 0.87.
EUR/USD stays off range top despite Chinese comments
