Rates: Risk sentiment, Powell’s testimony and US eco data to colour trading week
The US S&P 500 tested final resistance before the all-time high on Friday, but a break didn’t occur. Are earnings this week strong enough to clear the hurdle? Apart from risk sentiment, bond traders eye US eco data, Fed Powell’s testimony before US Congress and heavy EMU bond supply this week. US Treasuries could outperform German Bunds.
Currencies: Dollar momentum eases. EUR/USD tries to go higher in established range
On Friday, the dollar momentum turned a bit softer. The move was probably mainly technical in nature. Today, the US retail sales might be ok, but maybe not strong enough to sustain further USD gains. Fed’s Powell
The Sunrise Headlines
- US equity markets closed on Friday with limited gains, ranging from 0.03% (Nasdaq) to 0.38% (Dow Jones). Asian equities are trading in red with China underperforming (-0.7%). Japanese markets are closed for Marine Day.
- Chinese Q2 GDP increased 1.8% QoQ and 6.7% YoY, down from 6.8% last quarter. Chinese retail sales in June rose to 9.0% YoY (vs. 8.5% in May) while its industrial production growth slowed to 6.0% YoY (coming from 6.8% in May).
- U. of Michigan consumer sentiment declined from 98.2 to 97.1, due to rising concerns about the negative effects of the trade policy on growth, according to the survey’s chief economist.
- Oil retreated below $71 (WTI) and $75 (Brent) after Saudi Arabia was said to offer extra crude supplies to some customers whereas the US considers tapping into its strategic oil reserves in an attempt to keep oil prices in check.
- Fitch downgraded Turkey to BB (neg outlook) citing the widening current account deficit, a steep rise of inflation (+15%) and the negative effects of the plunge in the exchange rate on the private’s sector foreign-denominated debt
- Stakes for the Helsinki summit between US President Trump and his Russian counterpart Putin have risen as 12 Russian intelligence officers were indicted on Friday for their alleged role in the email hack during the US elections.
- Today’s eco calendar contains US retail sales (June) and the NY Empire Manufacturing index (July). Blackrock (12:00), Bank of America (12:45) and Netflix (22:05) are releasing Q2 earnings
Currencies: Dollar Momentum Eases. EUR/USD Tries To Go Higher In Established Range
EUR/USD to drift higher in established range?
On Friday, Investors were looking for a new story as the trade war moved to the background. European equities traded modestly positive, but move wasn’t really convincing. Initially, the dollar maintained the benefit of the doubt. EUR/USD dropped to the 1.1615 area. Later, the USD momentum eased, maybe as a first set of US bank earnings were mixed. Consumer confidence was also softer than expected. EUR/USD reversed its initial decline and finished at 1.1685. The USD/JPY rally also stalled. This morning, Asian equities mostly trade with modest losses. Japanese markets are closed. China Q2 GDP printed at 1.8% Q/Q and 6.7% Y/Y, marginally stronger than expected. Still, the data weren’t able to remove uncertainty the trade war. The yuan holds near its recent bottom against the dollar. At the same time, the dollar trades slightly in defensive against the euro (EUR/USD high 1.16 area) and even the Aussie dollar. The positive USD momentum from mid last week eased. Today, US retail sales and the Empire manufacturing are interesting. Retail sales are expected to hold a positive momentum. We don’t have strong reasons to take a different view from the consensus. Question is whether an in-line report will be enough to support further USD gains. Later this week, Fed’s Powell will hold its semiannual testimony before Congress and the (US) earnings season will come in full swing. Uncertainty on the trade war might make Powell’s message less hawkish than would otherwise have been the case. Mid last week, the dollar got the benefit of the doubt, but USD momentum eased end last week. EUR/USD still hovers in the 1.15/1.1850 trading range. As the downside looks blocked for now, maybe there is some room for EUR/USD to go back higher in the range, if US data/news is not really strong.
On Friday, diffuse Brexit headlines continued to set the tone for sterling trading. Initially negative comments from US president Trump on US-UK trade deal in case of a soft Brexit weighed on sterling, but the UK currency regained some ground later in the session. In a broader perspective, sterling held in the 0.88/0.89 consolidation pattern. Today, May will face another Brexit test in Parliament. Her plans probably will survive, but the broader Brexit process remains highly uncertain. Especially with EUR/USD receiving a better bid, we assume that there is not much room for further sterling gains against the euro.
EUR/USD: downside test rejected for now. Pair to drift higher in the range?
