Sunrise Market Commentary
- Rates: Consolidation ahead of the weekend?
Core bonds corrected somewhat higher yesterday. A thin eco calendar, the end of the US’s supply operation and the weekend ahead suggest more consolidation today. The very long end of the US yield curve underperforms. The US 30-yr yield is testing 3.22% resistance, the neckline of a huge triple bottom. - Currencies: USD rebound slows amid lack of data
The USD rebound slowed yesterday in line with US yields. The eco calendar is thin today, but several Fed members speak. The dollar nears first intermediate resistance. It needs some high profile news to trigger a test, but this news probably won’t be available today. EUR/GBP is holding a sideways range as the UK government tries to bridge division on Brexit
The Sunrise Headlines
- US markets ended close to unchanged with the Dow Jones outperforming (+0.66%). Risk sentiment turned positive overnight with China (flat) underperforming.
- China’s insurance regulatory agency took control of hard-charging, acquisitive Anbang Insurance Group, saying it is needed to avoid a collapse of the firm following suspected illegal activity and the downfall of its chairman.
- The Trump administration’s policies will raise US wages without causing broader inflation, Treasury Secretary Mnuchin said in an interview, brushing aside signs that investors are growing nervous about rising prices.
- Theresa May’s senior ministry agreed their demands for a trade deal but the EC pre-empted their decision by deriding what had already leaked out as "not compatible" with European Council guidelines.
- Technical work has begun to determine if Greece requires debt relief after its expected exit from a bailout programme later this year, ESM Regling said.
- Japan’s core consumer inflation was steady in January (0.9% Y/Y) in a sign a strengthening economy has yet to prompt companies to raise prices, a challenge policy makers have yet to overcome despite years of massive stimulus.
- Today’s eco calendar contains final EMU inflation data. ECB Coeuré, Fed Mester and Fed Dudley are scheduled to speak. The Riksbank releases Minutes of the previous meeting.
Currencies: USD Rebound Slows Amid Lack Of Data
USD rebound slows amid lack of data
The recent rise of US yields and of the dollar petered out yesterday. Ifo Business Climate eased more than expected, but still indicated strong growth at the start of 2018. German yields declined after the release, but so did US ones. The reaction of the euro was negligible. US jobless claims printed near the cycle low, but didn’t help the dollar. US equities also failed to provide a clear guide for USD trading. Some dollar caution returned to the market. EUR/USD rebounded above 1.23 and finished at 1.2330. USD/JPY dropped back below 107 (close at 106.75).
Asian indices are showing gains of up to 1.0% overnight with mainland China underperforming. Japan January CPI (1.4%% Y/Y )printed slightly higher than expected, but the measure ex fresh food and energy stayed very low (0.4% Y/Y). The yen lost a few ticks after the release, but this was probably due to an overall bid for the USD. US Treasury secretary Mnuchin tried to ease markets’ inflation fears. In an interview, he said that the Trump policy will be able to raise wages without inflation. USD/JPY nears the 107 level. EUR/USD returns to the 1.23 area.
There are few important data today. The details of Q4 German growth are interesting, but a bit outdated and so is the final EMU CPI. Many Fed members will speak as markets are looking forward to the hearing of Fed Chairman Powel before Congress next week. Yesterday, we advocated some ST consolidation on the ST USD rebound. We hold on to that view. LT US yields are near (10y)/testing (30y) key resistance. It needs probably high profile news for a break. In this context, the recent USD rebound might slow. First resistance for the trade-weighted dollar comes in at 90.57. First support in EUR/USD is coming on the radar (1.2206/1.2165). However, it might be too early for a test. US equities area a wildcard for USD trading. Of late there was a tentative inverse correlation between US equities and the dollar.
Sterling declined temporary yesterday after the downward revision to UK Q4 GDP (0.4% Q/Q from 0.5%). However, the move didn’t go far. EUR/GBP basically hovered in the mid 0.88 area as recent BoE hints on a rate hike and political noise on Brexit kept each other in balance. The meeting of UK PM May with her top Ministers resulted in a confirmation of the ‘three basket approach’ which the EU sees as cherry picking. So, for now the stalemate in the negotiations will probably persist. We expect more range trading of EUR/GBP in the 0.88 big figure.
USD trade-weighted (DXY) USD rebound stalls ahead of first resistance
