- Rates: First 10y Greek bond sale in almost a decade
Yesterday’s market correlations were very loose amid an empty eco/event calendar. The US non-manufacturing ISM spices trading today. We expect a strong, but in line with consensus outcome. This should nevertheless be sufficient to cause some underperformance of US Treasuries. Greece launches a new 10y bond via syndication for the first time since March 2010. - Currencies: EUR/USD correction off 1.14 resistance continues
EUR/USD drifted back lower in the 1.13 big figure yesterday as last week’s EMU reflation trade evaporated, at least temporarily. Euro traders are taking a cautious approach head of this week’s ECB meeting. Today, EMU and US data might cause some intraday volatility in the euro and the dollar. Sterling shifted to consolidation modus on ’Brexit pause’
The Sunrise Headlines
- US equity markets edged lower yesterday with losses varying between -0.23% and -0.79% (DJI). Asian equities are largely trading in red this morning with Japanese indices underperforming. China outperforms.
- The US removed Turkey/India from a list that grants low-income economies duty-free access for some exports, as India fails to assure the US reasonable market access while Turkey is now “sufficiently economically developed”.
- China lowered its GDP growth target for 2019 to a range of 6 to 6.5%, the lowest growth pace of economic growth in almost three decades. Premier Li announced tax cuts worth of $298bn for this year to offer some rebuttal.
- UK attorney General Cox and Brexit Secretary Barclay travel to Brussels today to seek concessions from the EU. UK PM May has only a week left to win over MP’s before the House of Commons decides on her divorce deal.
- China’s services PMI fell to 51.1 in February, down from 53.6 a month before and the lowest reading in 4 months. Weaker new orders at home and abroad underline the mounting concerns on a slump in global trade.
- The Reserve Bank of Australia kept its policy rate at 1.5%, unchanged since August 2016. Governor Lowe’s main focus remains the uncertainty of household consumption as wage growth remains soft and house prices are falling.
- Today’s US eco calendar contains the ISM Non-Manufacturing (Feb) in the US. Both the UK and EMU (final) Markit/CIPS PMI’s are released for February. BoE’s Carney testifies to UK Parliament, while Fed’s Barker and Rosengren speak.
Currencies: EUR/USD Correction Off 1.14 Resistance Continues
EUR/USD ease off 1.14 resistance.
Short term market trends of last week evaporated or even reversed yesterday. The cautious (EMU) reflation trade including higher equities, a rise in EMU yields and a gradual rise of the euro ran into resistance. US and European equities failed to profit from optimism on trade that dominated Asian trading. The faltering risk-rally put the dollar again in the drivers’ seat and weighed on the euro. EUR/USD declined off the 1.14+ resistance and closed at 1.1340 (from 1.1365). USD/JPY lost modest ground as risk sentiment deteriorated and closed at 111.74. Overnight, the focus in Asian is on the National People’s Congress in China. The Chinese growth forecast for this year was lowered to a range of 6.0% to 6.5%, but the government announced fiscal stimulus including a 3% VAT cut. The yuan gains marginal ground (USD/CNY 6.70 area). Global markets are still looking for concrete news from the US-China trade talks. Most Asian equity indices show modest losses with China outperforming. USD/JPY (111.95 area) rebounded on overall USD strength. EUR/USD struggles to prevent further losses. The RBA left its policy rate unchanged and kept a rather positive view on the economy. AUD/USD hovers in the upper half of the 0.70 big figure. The eco calendar contains EMU retail sales and the final PMI’s today. In the US, new home sales and the non-manufacturing ISM are scheduled for release. It is unlikely that (final) EMU PMI’s will restart last week’s ‘EMU-reflation’ trade. Decent data might help to put a floor for the euro. Still ECB meeting will be the key feature for EUR/USD trading this week. The US ISM is expected to rebound from 56.2 to 57.4. Even a slight miss shouldn’t hurt the dollar too much short-term. Of late, EUR/USD rebounded gradually as EMU data showed signs of bottoming. The ECB also kept the door open for policy normalisation. This narrative supported EUR/USD. Last week, the EUR/USD rebound stalled on (some) constructive US data. We started this week with a balanced bias on EUR/USD. The 1.14 area looks quite a solid resistance and more EUR/USD gains in the 1.12/15 range probably need more good EMU news or poor US data. For now, we see no trigger for such a break. So, some consolidation on recent EUR/USD gains might be on the cards.
Sterling mainly remained in consolidation modus yesterday. The UK May’s Brexit roadmap was set out last week. There are still several high profile meetings planned in Brussels today/this week, but we doubt they will change the overall picture on Brexit. Today, the UK services PMI is expected to ease close to contraction territory. If so, it might be a mildly negative for sterling
EUR/USD: correction off 1.14 resistance as markets await ECB decision
