- Rates: Better to err on the safe side for now
Risk barometers suggest a neutral start to today’s trading session, but we think that geopolitical tensions still warrant to err on the safe side. We have a positive intraday bias for core bonds today. Apart from risk sentiment, US eco data including retail sales might disappoint. - Currencies: (Geo)political tensions still prevent further USD gains
Dollar dollar improved temporary at the end of last week. However, a coalition taking action against Syria apparently isn’t able to reduce the global level of geopolitical uncertainty. This is slightly weighing on the dollar. There is also no guarantee that US eco data will be strong enough to support further USD gains.
The Sunrise Headlines
- US stock markets corrected 0.5% lower on Friday with geopolitical uncertainty looming over the weekend. Financials underperformed as first Q1 earnings couldn’t convince. Asian trading is mixed with China underperforming (-1.5%).
- Russian President Putin warned that further Western attacks on Syria would bring chaos to world affairs, as Washington prepared to increase pressure on Russia with new economic sanctions (Reuters).
- The FT reports that the UK House of Lords is expected to vote for Britain to remain in an EU customs union this week, inflicting a damaging defeat on the government.
- President Trump’s top economic advisor Kudlow said he is optimistic the US can avoid a broader trade fight with China and that the Trump administration is “making progress” on Nafta renegotiation, the WSJ reports, citing an interview.
- China, Japan, Germany, Korea, Switzerland and new addition, India, will be subject to US monitoring despite findings that they did not manipulate FX rates in the US Report on International Economic and Exchange Rate Policies.
- Moody’s raised the Spanish Baa2 rating to Baa1 (stable). Enhanced economic resiliency and improved banking sector fundamentals outweigh the drag from political/institutional factors, according to the rating agency.
- Today’s eco calendar contains US retail sales and Empire Manufacturing. Fed Kaplan, Kashkari and Bostic speak. Bank of America and Netflix report earnings
Currencies: (Geo)Political Tensions Still Prevent Further USD Gains
(Geo)political uncertainty still prevents USD gains
On Friday, the dollar initially held a slightly positive bias against the yen as geopolitical tensions eased slightly. The US/German interest rate differential reached a new cycle peak, but had only a limited impact on EUR/USD. The dollar (and US equities) reversed earlier gains towards the end of the session. Investors took a cautious approach going into the weekend awaiting the consequences of potential action against Syria during the weekend. EUR/USD finished the week at 1.2331. USD/JPY closed at 107.35. Both cross rates were little changed on a daily basis.
A coalition of the US, France and the UK indeed executed selective strikes on targets in Syria this weekend. This morning, there were tentative signs that the action removed some of political uncertainty. However, Asian equities failed to sustain opening gains (if any) with China underperforming. USD/JPY slipped from the 107.60 area to the 107.20 area. EUR/USD trades little changed in the 1.2330 area. The Hong Kong dollar is holding near the weak band against the US currency even as the monetary authority is said to execute further
Today, the US retail sales are interesting, but geopolitics will also remain in play. US retail sales are expected to rebound (0.4% M/M) after three months of a rather poor sales. A really positive surprise is probably needed to support the US dollar. There is no guarantee for that. This morning’s equity performance is also a bit disappointing given that Syria might become less important for markets after this weekend’s action. Markets apparently aren’t convinced that the geopolitical noise is out of the way. Ongoing uncertainty could also keep some USD caution in place. End last week, sentiment on the dollar improved slightly. For now, there is little reason to expect the dollar to start a real up leg. Fed speakers remain a wildcard. EUR/USD perfectly holding in the middle of the 1.2155/1.2550 consolidation pattern.
End last week, sterling showed ‘remarkable’ strength. Technical factors played a role. The data mostly weren’t sterling supportive. Of late, several political analysises suggested that a bigger role for Parliament could support the case for a soft Brexit or even open the way for a new referendum. For now, we see too little political backing in the UK government for that scenario. The test of the EUR/GBP 0.8652 support is ongoing. The day-to-day momentum is sterling positive, but we see too little substance for a sustained acceleration of the sterling rebound. This week, the data UK data will get more attention
USD (trade-weighted): still going nowhere
