Rates: Focus back on eco data?
Relief on the BTP market improved risk sentiment yesterday, pulling Bunds lower together with a bounce in the oil price and stronger EMU eco data. Will we get more of the same today with EMU inflation expected to show a significant rebound? US investors might remain more sidelined ahead of a key Fed speech tonight and ISM/payrolls tomorrow.
Currencies: EUR rebounds. USD rally also stalls ahead of key resistance
Yesterday, EUR/USD was captured by a ‘post-Italy’ short squeeze. At the same time, the rally of (trade-weighted) dollar stalled ahead of the 95 resistance. This pattern of a euro rebound and some USD consolidation might continue today. USD investors might await more clues from tomorrow’s payrolls
The Sunrise Headlines
- US markets ended 0.9% (Nasdaq) to 1.25% higher as risk sentiment turned for the better. Asian stock markets record gains as well overnight with China outperforming following stronger than expected PMI’s.
- China’s vast manufacturing sector grew at the fastest pace in eight months in May, according to the official PMI (51.9), easing concerns about an economic slowdown. The non-manufacturing PMI rose from 54.8 to 54.9. (Reuters
- President Trump plans to announce as soon as today the imposition of sweeping tariffs on steel and aluminum imports from Canada, Mexico, and the EU, three people familiar with the plan said. (The Washington Post)
- US regulators have begun a major easing of the Volcker rule ban on risk-taking, proposing to give institutions much greater freedom to trade by cutting back a centrepiece of post-crisis reforms. (FT).
- Italy’s President Mattarella is willing to appoint a new PM if populists are ready to resume cabinet talks, a person familiar said. 5SM Di Maio may consider an alternative FM. Much lies on the decision of League leader Salvini. (BB)
- The Bank of Canada held interest rates steady but dropped cautious language about future rate moves in a signal that higher borrowing costs could come as soon as its next meeting in July, sending the Canadian dollar higher.
- Today’s eco calendar contains US PCE deflators, Chicago PMI and weekly jobless claims. EMU inflation data and the unemployment rate will also be released. Fed Bullard, Bostic and Brainard are scheduled to speak
Currencies: EUR Rebounds. USD Rally Also Stalls Ahead Of Key Resistance
EUR/USD rebounds off 1.1510/50 support area.
Yesterday, there was room for correction on the Italian risk-off trade, including in the euro. EUR/USD rebounded from the 1.1530 area to the 1.1675 area. European data were also very much OK with the German inflation rising to 2.2% Y/Y. However, the moves in the major FX (euro) cross rates were still mainly Italy-driven. EUR/USD closed the session at 1.1667 (rom 1.1540). USD/JPY was supported by higher core/US yields. The pair returned to the 109 area, but closed the day at 108. 91. None of both cross rates gave a clear sign of a trend reversal yet.
This morning, Asian markets join the risk-rebound from WS yesterday. Regional markets apparently aren’t that sensitive to the developments in Italy. EUR/USD maintains yesterday’s gain. The pair trades in the 1.1660 area. USD/JPY continues to struggle and hardly profits from the positive risk sentiment and higher USD yields.
Today, in EMU the flash May CPI takes centre stage. A rise to 1.6% is expected (from 1.2%). Core CPI is seen at 1.0% (from 0.7). Yesterday’s country data suggest upside risks. In the US, the April spending and income data, the jobless claims and the Chicago PMI will be published. The PCE deflators will also get most market attention. The rise in the core deflator expected to be modest (is an april figure, not yet May). In Italy, chances on a populist government are growing. There are tentative signs that markets are less negative on this scenario compared to a potentially aggressive election campaign. Yesterday, EUR/USD rebounded off the 1.1510/50 support as investors took profit on Tuesday’s sell-off. A short-term floor might be in place. Higher EMU inflation data might be a reason for the euro short-squeeze to go a bit further in a daily perspective. However, we are not convinced on a protracted euro rebound. 1.1830 is first intermediate resistance ahead of the 1.1996/1.20 area which we consider not easy to break. That said, the dollar is also meeting resistance ( 95 for the DXY). In this respect, the USD (USD/JPY) also needs some good news (e.g. from the payrolls).
Yesterday, EUR/GBP followed the rebound of EUR/USD to close the day at 0.8778. This morning, gfk consumer confidence and Nationwide house prices were soft. Later today, the money supply and lending data will be published. Global sentiment might continue to drive sterling. Of late sterling gains on Italy were modest, suggesting underlying sterling weakness. This might persist ST. EUR/GBP might return to 0.88 area
EUR/USD: rebounds of 1.1510/50 area.
