Sunrise Market Commentary

  • Rates: US Treasuries sell-off after failed test resistance and announcement Trump
    US Treasuries lost ground yesterday after another failed test of 125-09/16 resistance. Trump’s promise of a “phenomenal” corporate tax announcement the next weeks, accelerated the sell-off. Today’s eco calendar remains rather uneventful, suggesting more sentiment- and technically-driven trading.
  • Currencies: Dollar rebounds on renewed ‘Trump tax-hope’
    Yesterday, the dollar rallied as Trump’s comments on upcoming tax measures reactivated the global reflation trade. Today, the fate of the reflation trade will be important for USD trading. USD investors will also keep a close eye at the outcome of the meeting between US president Trump and Japanese PM Abe

The Sunrise Headlines

  • US stocks climbed to new heights (+0.50%), after Trump said he will release a ‘phenomenal’ corporate tax announcement the next two to three weeks. Overnight, Asian indices gain up to 1% with Japan outperforming (+2%).
  • A federal appeals court ruled against President Trump’s executive order on immigration and refugees, saying such a travel ban shouldn’t go into effect while courts consider whether it goes too far in limiting travellers to the US.
  • In a phone call with Chinese President Xi Jinping, US President Trump affirmed the “One China” policy that has long underpinned Sino-US relations, a declaration that appeared aimed at ending weeks of uncertainty.
  • China reported better-than-expected trade data for January as demand picked up both at home and abroad, an encouraging start to 2017 even as Asia’s exporters brace for a rise in US protectionism.
  • Mexico’s central bank increased its key lending rate as expected by 50 bps to 6.25% in a bid to cool inflation and prevent the peso, which has weakened around 12% since Trump’s election, from piling further pressure on prices.
  • German chancellor Merkel set out tough plans to speed the removal of failed asylum seekers, including a repatriation centre to handle difficult cases and increased cash inducements for those leaving voluntarily.
  • Around €1.7T of French public debt could be redenominated into francs if Le Pen’s far-right FN gets into power, according to party officials, in what would according to ratings agencies amount to the world’s largest sovereign default
  • Today’s eco calendar contains UK industrial production and US Michigan consumer confidence. ECB governors Weidmann and Mersch speak

Currencies: Dollar Rebounds On Renewed ‘Trump Tax-Hope’

Dollar reaccelerates on ‘Trump’s tax promise’

On Thursday, USD trading was initially technically in nature, with few links toother markets. During the US trading session, markets were propelled by atweet from President Trump as he indicated to announce something on taxes inthe weeks to come. The Trump reflation trade resumed. Major US equity indicestouched new record highs, yields jumped higher and so did the dollar. USD/JPYclosed at 113.25 (from 111.93). EUR/USD dropped and finished the day at 1.0655(from 1.0698).

Overnight, Asian equities join the Trump risk-rebound. Japanese equitiesoutperform on the weaker yen. USD/JPY is currently changing hands in the 113.75area. US president Trump accepting the ‘One Chine’ policy and strong Chinesetrade data (January exports and imports rose more than expected) supportregional sentiment. The dollar extends the Trump driven rebound, but gainsremain most. EUR/USD changes hands in the mid 1.0650 area.

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Today’s EMU economic calendar contains French and Italian production data.They are no market movers. In the US, January import prices are expected to risefurther (3.4% Y/Y from 1.8% Y/Y) based on petroleum and food prices. Risks maybe on the downside. Michigan consumer sentiment is expected to have slightlydeclined in February to 98 from 98.5. Sentiment is at its highest since the end of2000. So such a minimal decline shouldn’t have much impact. The data will againonly be of second tier importance for trading, unless they bring a big surprise.Markets will also look out to the meeting between President Trump and JapanesePM Abe. The valuation of the yen and Japanese exports to the US are sensitiveissues. However, over the previous days, Trump sounded less offensive on China.Maybe the headlines from the meeting with Abe also shouldn’t be thathard/negative. If so, it might be (slihglty) positve for risk sentiment and for thedollar (including USD/JPY). The ST USD momentum improved this week, but therise in core yields and of the dollor (both against the yen and the euro) remainsmoderate. The hope on new US tax maesures might put a floor for equities andfor the dollar short-term. That said, we have the impression that any furtherrebound will develop rather gradually.

Global context: The dollar is/was in a corrective downtrend since the start ofJanuary as the Trump reflation trade petered out. Interest rate differentials infavour of the dollar narrowed. Trump’s communication became a source ofuncertainty, also for the dollar. At some point, absolute interest rate supportshould provide a USD floor, especially as the Fed is expected to continue itspolicy normalisation. This week, the dollar showed tentative signs of such abottoming out process. Price action earlier this week showed that euro weaknessmight be a factor too. As we see the 1.0874 as solid resistance, a sell EUR/USD onupticks approach might be considered. The downside test of USD/JPY is alsorejected. USD/JPY 111.16 (38% retracement of the 99.02/118.66 rally) remainskey support. The day-to-day momentum improved, but a return to the recenthighs looks an uphill battle. The post-Trump highs (118.60/66) are still far away.

EUR/USD: Topside test rejected. Dollar succeeds a cautious/gradualcomeback

EUR/GBP

Still no clear driver for sterling trading

Yesterday, sterling trading was basically technical in nature, as the Brexitheadlines moved to the background. Later in US dealings, cable even slightlyunderperformed EUR/USD, as the dollar rebounded after the Trump taxcomments. EUR/GBP closed the session at 0.8526 (from 0.8531). Cable finishedthe day at 1.2497.

Today, the UK calendar is well filled with the Dec UK trade balance andproduction, and the NIESR January GDP estimate. The UK trade deficit is expect tonarrow, but coming from a very high November level. On the other hand,production is expected to show very modest growth after strong Novembergrowth. We side with the consensus. However, sterling might become moresensitive in case the data would be much weaker than expected.Context. On Tuesday, sterling rebounded as the UK Parliament was allowed tovote on the final Brexit agreement. We don’t see this ‘agreement’ as a reason forfurther sterling strength though. Last week’s balanced BoE approach capped thetopside of sterling and helped a cautious bottoming out process for EUR/GBP.The EUR/GBP 0.8450 support looks again better protected, as sterling momentumis waning. A cautious EUR/GBP buy-on-dips approach is preferred

EUR/GBP still struggles to rebound off the 0.8450 support area

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