Rates: Technical topping off pattern in US Note future?
The US note future shows tentative signs of topping off following days of narrow sideways trading. There’s no obvious trigger, though the Fed’s beige book pointed to increased price/cost pressures. Today’s eco calendar contains only second tier items. Heavy EMU bond supply is a negative.
Currencies: EUR/USD perfectly holds sideways range. Sterling decline to slow?
Yesterday, the post-Powell USD rebound slowed even as US yields maintain a slight upward bias. Today, more USD consolidation might be on the cards as the eco calendar is thin. Sterling remained under pressure on Brexit and due to a soft CPI. However, pressure might ease as EUR/GBP nears first resistance and as Brexit headlines might dwindle temporarily
The Sunrise Headlines
- American bourses ended flat (Nasdaq -0.01%) to slightly higher (Dow Jones +0.32%, S&P +0.22%). Asian stock markets are trading mixed, with China underperforming (-0.11%).
- Australian unemployment stabilized at 5.4% in June. The economy created 50.900 new jobs, mostly full time (41.200). Labour participation increased from 65.5% to 65.7%. AUD/USD trades slightly stronger, north of 0.74.
- Alcoa cut its earnings outlook for 2018 as Trump’s tariffs on imported aluminium and steel from Canada (its biggest supplier), the EU and Mexico went into effect in June, already leading to an extra $15 million in costs this quarter.
- The Trump administration launched a probe into uranium imports, investigating whether they pose threats to the national security. If deemed so, the US could slap tariffs, adding to mounting trade tensions.
- The PBOC plans to introduce incentives that will boost liquidity of banks, in an attempt to encourage lending and investment. Meanwhile China’s banking and insurance regulator urges banks to cut financing costs for small companies.
- Boris Johnson lashed out to PM May’s Brexit-strategy in his resignation speech, saying it would leave Britain in a “miserable, permanent limbo”. Fears for a leadership challenge by Johnson or a call on May to resign proved ungrounded.
- Today, the US releases weekly jobless claims and the Philly Fed Business Outlook. In the UK, June retail sales are published. The Bank of NY (12:30) and Microsoft (22:09) provide Q2 results. Spain, France and the US tap the market
Currencies: EUR/USD Perfectly Holds Sideways Range. Sterling Decline To Slow?
EUR/USD settles in sideways range
Yesterday, recent USD comeback petered out. The positive tone of Fed’s Powell before Congress temporary supported the dollar, but the move already ran into resistance yesterday. Poor US housing data (higher costs?) maybe helped to block further USD gains. In the Fed Beige Book some districts hinted that tariffs are causing higher costs. However the report had little direct impact on the dollar. EUR/USD finished the day slightly lower at 1.1639, but off the intraday low. USD/JPY failed to sustain north of 113 (close 112.86). Overnight, Asian markets give mixed signals. Chinese equties again underperform. The PBOC weakened the fixing of the yuan further. USD/CNY trades at 6.74 (CNH touched 6.78). CNY weakness is reinforced by rumours on further PBOC easing. At the same time, Chinese officials indicate they will optimize macroprudential measures to manage capital flows resulting from trade war uncertainy. The impact from China on other regional markets stays modest. The Aussie dollar (AUD/USD 0.7420) profited (temporarily?) from strong Australian labour data. EUR/USD stabilizes in the mid 1.16 area. USD/JPY hovers near 112.75. Today, the eco calendar is thin with only the US jobless claims and the Philly Fed Business outlook scheduled for release. The reports won’t change markets’ view. US yields are tentatively rising after Powells comments before Congress, but it is far from evident for these small moves to have an impact on the dollar. Last week, EUR/USD temporary gained a few ticks on USD weakness, but returned back to the middle of the 1.1510/ 1.1850 range after Powell. For now we see no trigger to break the stalemate. Higher US yields might give the USD downside protection. Uncerainty on China and a slowdown in the US equity rally capped the USD/JPY rally, but for now there is no trend reversal yet.
Yesterday, sterling remained in the defensive. The Brexit turmoil and a soft UK June CPI weighed on the dollar. EUR/GBP stayed north of 0.89, but further gains were modest. The Brexit stalemate persists, but it might move a bit to the background as UK politics is gradually shifting into holiday modus. Today, UK June retails sales will be published. A small rise is expected after a strong figure in May. A really poor report is probably needed to create further doubts on an August rate hike. Pressure on sterling might slightly ease as Brexit headlines are fading temporarily. EUR/GBP 0.8968 is a first important resistance
EUR/USD returns to middle of the 1.1510/1.1850 trading range
