- Rates: Core bonds remain resilient
Core bonds remained resilient yesterday despite a risk rebound, higher oil prices and good US eco data. Upbeat brexit news improves risk sentiment further overnight with core bonds losing ground in low-volume trading. We’d be cautious to join the move and still expect a defeat in UK parliament tonight. - Currencies: Sterling jumps as UK PM May secures ‘new’ Brexit deal, but…
Sterling rallied overnight as the UK and the EU reached an agreement on a ‘new, clarified’ text regarding the Irish backstop. However, further sterling gains are less evident as approval in the UK Parliament remains highly uncertain. The dollar is trading with a tentative negative bias as investor worries on growth eased and as risk sentiment improved, at least for now.
The Sunrise Headlines
- US equity markets jumped higher yesterday, with technology shares outperforming (Nasdaq +2.02%). Asian equities are tracking WS gains with Chinese shares outperforming with gains over 2%.
- UK PM May and EC president Juncker agreed to revise the terms of the divorce deal, which is up for a vote in UK Parliament today. May said she won ‘legally binding changes” that meets the demand of MP’s regarding the Irish backstop.
- The White House released a $4.7tn budget for fiscal 2020 that proposes sharp boosts to defence and border-protection funding, in a plan that also projects a long run of continued deficits. Democrats widely oppose against it.
- The US has warned Germany it will constrain intelligence-sharing if the Chinese tech company Huawei takes part in the German 5G mobile network development. The US suspects Huawei of spying for the Chinese government
- EU finance ministers delayed the release of €1bn of funding for Greece. The release was promised if Athens continued to put its economy in order after the debt crisis, but the left-wing government is pushing back against EU-reforms.
- Czech PM Andrej Babis criticized French president Macron’s, saying ‘his opinion on migration is completely unacceptable”. Babis questioned the procedure for EU nations to enter the visa-free Shengen area.
- Today’s US eco calendar contains US consumer inflation data and the NFIB Small Business Optimism for February. The UK prints Industrial production figures. ECB’s Lautenschlaeger speaks, while the US sells 10-yr Notes
Currencies: Sterling Jumps As UK PM May Secures ‘New’ Brexit Deal, But…
Sterling jumps on ‘new’ brexit agreement, but …
Global risk sentiment improved throughout the day yesterday. Recent investor worries on growth eased even as US retails sales printed mixed. Specific topics from the US tech sector reinforced the risk rebound. This positive risk sentiment was a tentative negative for the dollar, but there was no unidirectional intraday trend. Interest rate differentials between the US and Germany widened slightly, but were no decisive factor for global USD/FX trading. EUR/USD closed the session at 1.1245 (from 1.1235 on Friday evening). USD/JPY finished at 111.21 (from 111.17).
Overnight, the risk rally continues in Asia, extending yesterday’s gain in of US equities. The euro jumped on headlines that UK PM May reached a new Brexit agreement which PM said secured regally biding changes. However, the EUR/USD rebound is modest. It is not sure not sure that Brexit uncertainty will be solved anytime soon. Still, the mix of modest euro strength and global risk-on triggers some modest USD loss. The TW USD (DXY) trades in the low 97.0 area. EUR/USD hovers in the mid 1.12 area. USD/JPY is gaining a few ticks (111.25 area).
Later today, there are few important eco data in EMU. In the US, the NFIB small business confidence is interesting given the market focus on growth, but impact on FX trading is probably of intraday significance, at best. Regarding the US CPI, it a big surprise is probably needed for markets to change expectations on Fed policy.
We indicated that the picture for EUR/USD remains rather cautious/diffuse as it is influenced both by domestic EMU related issues (ECB etc.) but also by the market view on global growth. Yesterday, the positive risk sentiment turned out to be mildly EUR/USD supportive. Still, the pair is still rather close to the bottom of the 1.12/16 trading. Given last week’s ECB decision, the euro has no prospect on interest rate support anytime soon. We remain cautious on EUR/USD long exposure. The single currency needs better EMU eco data. Brexit headlines remain a wildcard for euro trading today.
Yesterday during the day, sterling rebounded on hope of a last minute deal. The rally was supported by headlines on a meeting between EU’s Juncker and UK PM May in Strasbourgh. At the end of this meeting, UK PM May said she secured legally binding chances to the Brexit deal that ‘reduces the risk’ of the UK held in the Irish backstop indefinitely. Sterling jumped on the headlines, but gains are fragile as it is uncertain whether this will be enough to get the deal approved in Paliament. All political options remain open. We don’t expect Brexit noise to disappear soon. We don’t position for further sterling gains right now
EUR/USD: holding near the 1.12 range bottom
