- Rates: Core bonds remain stoic given stock market volatility
US equities rallied more than 2%, but core bonds remained as stoic as during last week’s sell-off. Eco data explains US Treasuries’ slight underperformance vs German Bunds. The US 10-yr and German 10-yr yields retested previous resistance levels. We expect them to stay above, adding significance to the breaks and suggesting more upward potential MT. - Currencies: Forceful equity rally fails to give clear guidance for USD trading
Equities rebounded sharply. The moves had little directional impact on the dollar. EUR/USD basically hovered sideways. The yen lost modest ground. USD trading might still mostly be driven by technical considerations even as several pending economic and political issues could return to the forefront.
The Sunrise Headlines
- US equity markets rocketed higher yesterday with all indices gaining major (+2%) ground. Asian markets continue the improvement in risk sentiment and open with gains as well. Japan outperforms the region.
- EU’s top negotiator Michel Barnier has said he is open to extend the Brexit transition period with one year if Therese May would be willing to accept his two-tier backstop to avoid a hard border in Northern Ireland.
- New SF Fed President Mary Daly said she favours continued gradual interest-rate increases as full employment is near and inflation is close to targets. She positions her as a centre-oriented policy maker, as Fed chairman Powell.
- US labour market remains in excellent shape. Job openings rose to 7.14 million (highest since first readings in ’01), the hiring rate rose 3.9% (highest since 2007) while the quitting rate remained unchanged at 2.4%.
- Saudi Arabia’s leadership denied knowing what happened to Washington Post journalist Jamal Khashoggi in the Saudi consulate in Istanbul. US President Trump is giving Saudi Arabia the benefit of the doubt.
- Belgium is set to miss the EU’s structural-deficit target as it will only lower its structural deficit with 0.4%, instead of the 0.6% imposed by EU rules. The government asks for flexibility as it is introducing important reforms.
- Today’s eco calendar contains the Minutes of the September Fed FOMC meeting. UK inflation data are scheduled for release. ECB’s chief economist Praet will speak in Madrid, Bundesbank President Weidmann speaks in Berlin. EU leaders join for a summit in Brussels
Currencies: Forceful Equity Rally Fails To Give Clear Guidance For USD Trading
Equity rally fails to give direction for USD trading
Yesterday, the focus of global trading was on equities. Pending sources of political and economic uncertainty (US-China trade dispute, discord with Saudi Arabia on the disappearance of writer Khashoggi, uncertainty on the impact of higher rates on growth, Italian budget) were not solved. Even so, global equities staged a solid (technical) rebound after last week’s steep losses. Eco data were mixed with US production close to expectations, US JOLTS job openings strong, but ZEW sentiment declining further. However, the equity rally nor data had a big impact on core bonds or on the major USD cross rates. EUR/USD hovered sideways around the 1.16 big figure. The pair closed the day at 1.1574. USD/JPY succeeded a gradual intraday uptrend as the yen weakened with the risk-on sentiment. Even so, there was no really tight link between the global USD performance and the global equity rebound. Other themes also failed to give guidance. This morning, Asian equities markets join the risk-rebound from the US. China still underperforms. The dollar gains a few ticks this morning, but there is no clear trend. The yuan (USD/CNY 6.9225 area) stabilizes near recent lows. Today, the eco calendar is again thin with the Final EMU CPI and US housing data. CB speeched and the Fed meeting minutes are a wildcard. Plenty of pending isssues are still at work in the background (cf supra), but global equity sentiment remains the most obvious driver for trading on other markets, including FX trading. Next question is whether yesterday’s equity gains can be sustained. Of late, we advocated a neutral approach on EUR/USD as we saw no clear trigger for the pair to break out of the 1.1432/1.1815 ST range. In a day-today perspective, the topside of EUR/USD looks a bit tough in the 1.16/1.1620 area, suggesting some downside risks. Even so, sentiment can easily change if one of the above mentioned topics returns to the forefront.
Yesterday sterling regained modest ground after Monday’s setback on the back of a failure of high profile Brexit negotiations this weekend. Markets apparently still take into account the scenario of a last minute Brexit deal, in one way or another. Sterling also profited from strong UK wage growth. Today’s UK CPI data are interesting, but all eyes will be on the EU summit in Brussels. A Brexit deal is unlikely, but comments from stakeholders might set the tone for intraday sterling trading. We assume more technical, wait-and-see trading in the 0.87/0.88 range
EUR/USD: equity rally fails to give clear guidance for USD trading
