- Rates: No strong trading themes
Core bonds held rather strong despite yesterday’s significant improvement in risk sentiment. US Treasuries still underperformed German Bunds ahead this week’s first auction, which eventually went well. We expect technical-driven trading today, but the topside should be capped if risk sentiment doesn’t deteriorate again. - Currencies: USD hardly profits from improved risk sentiment
Trade tensions eased yesterday. Last week’s negative risk sentiment was a negative rather than a positive for the dollar. However, for now, there is no symmetrical positive USD reaction as risk sentiment improves. USD/JPY gains modestly. At the same time; EUR/USD is drifting higher in the 1.2155/1.2555 consolidation pattern
The Sunrise Headlines
- US stocks posted a very strong daily gain (+3%), rebounding after last week’s trade war-related weakness. Asian stock markets gain up to 1% with Japan outperforming (+2.25%).
- Top Trump administration officials are asking China to cut tariffs on imported cars, allow foreign majority ownership of financial services firms and buy more US-made semiconductors in negotiations to avoid plans to slap tariffs on a host of Chinese goods and a potential trade war.
- Chinese industrial profits picked up pace in the first two months of the year from December but still lagged 2017 growth, backing expectations that the economy is set to cool as Beijing clamps down on debt risks.
- Washington-based Fed governor Quarles said that the economy is performing well and unemployment is low. Cleveland Fed Mester said that the US central bank will be striking the right balance if it continues a gradual pace of rate hikes.
- EU and Turkish leaders held a tense summit, as friction overt the Turkish president’s human-rights record and concern over new military intervention in Syria eroded remaining hopes of the country’s accession to the EU.
- A reshuffled Slovak government led by Peter Pellegrini won a parliamentary confidence vote, a month after the murder of an investigative journalist sparked mass protests and forced long-serving leader Robert Fico to resign
- Today’s eco calendar contains EMU M3 money data, EC economic confidence, US housing prices and consumer confidence. The US continues its refinancing operation while Fed Bostic and ECB Nowotny speak
Currencies: USD Hardly Profits From Improved Risk Sentiment
Dollar hardly profits from easing trade tensions
Global risk sentiment improved yesterday on signs that the US tried to solve issues with its trading partners (including China) via negotiations. (US) Equities rebounded after Friday’s sell-off. Trade tensions were a negative rather than a positive for the dollar last week, but the price pattern wasn’t really symmetrical as tensions eased. USD/JPY rebounded north of 105 and closed the day at 105.41. However; the dollar lost further ground against most other majors. EUR/USD trended higher throughout the day and close at 1.2444.
Asian equities join the risk rebound from WS overnight. There is little concrete news. Markets are just growing more confident as the ‘provocation/retaliation phase’ in the trade dispute apparently moved to negotiations on specific topics. FX/USD trading is in line with yesterday. USD/JPY profits modestly from the improved risk sentiment. USD/JPY filled offers in the 105.75 area. At the same time, the euro is holding strong against the dollar (EUR/USD 1.2450 currently).
The eco calendar is moderately interesting today with EMU money supply data and the EC confidence data. In the US, house price data, the Richmond Fed manufacturing index and consumer confidence will be published. EC confidence data are expected to ease in line with recent other survey evidence. A modest setback won’t change expectations on ECB policy. US consumer confidence is expected to hold near the cycle high. We keep an eye at the price measures of the report. CB speakers (Nowotny/Bostic) remain a wildcard. Yesterday’s price action showed that a positive risk sentiment and cautiously higher yields are not enough to trigger a meaningful USD rally. The dollar needs outright positive news, especially on prices. That news isn’t available at this stage. The dollar remains vulnerable in this context. We keep a close eye on the ST dynamics in EUR/JPY to assess the fate of EUR/USD. For now a test of the topside of the 1.2155/1.2555 range looks more likely than a downside test. We see no need for a (topside) break.
Sterling trading mostly followed the overall trades in the euro and the dollar yesterday. There was little UK specific news. There are no UK eco data today. We expect more order-driven, technical price action in the lower part of the EUR/GBP 0.8652-68/0.8950 trading range
DXY (USD trade-weighted): USD struggles to prevent further losses even as trade tensions ease
