- Rates: US ADP and non-manufacturing ISM key for trading
Monday’s stronger than expected US manufacturing ISM and improving Chinese gauges stemmed recession fears at the start of the week. The jury is still out though. Today’s US ADP employment report and services ISM are next key eco indicators. More strength will be needed to convince markets that the end of the cycle isn’t near. - Currencies: EUR/USD holding above the 1.1177/87 support, at least for now
The dollar retained the benefit of the doubt. The US currency came close to key resistance, but the rally finally ran into resistance. Today’s US eco data are expected solid, but we don’t expect them to provide the trigger for further sustained USD gains. Sterling profited as markets see PM Mays cooperation with labour as raising the chance for a soft Brexit.
The Sunrise Headlines
- US equity markets printed mixed yesterday, finishing up from the lows of the day after. Asian equities are all moving higher this morning with gains up to 1% on strong Chinese PMI’s and with US-Sino trade talks recommencing today.
- UK PM May turns to opposition/Labour leader Corbyn to break the Brexit deadlock, raising chances of a softer Brexit. She forfeits the strategy of keeping Brexit a Conservative party project, accepting this will never gather a majority.
- The US and China have resolved most of the issues standing in the way of a trade deal. The fate of the existing US duties and an enforcement mechanism will be discussed with Chinese VP Liu in Washington later today.
- China aims to ease restrictions on stock index futures, according to a top official at the China Securities Regulatory Commission. Up until now, foreign investors have to use proxies to participate in the Chinese futures market.
- IMF Managing Director Christine Lagarde says global growth has lost momentum since the start of the year, though a recession isn’t likely in the near term. The IMF will publish an updated global growth forecast on April 9.
- China’s services activity accelerated to a 14-month high in March. The Caixin Services PMI rose to 54.4 (vs. 51.1 in Feb.). The Composite PMI gauge, covering both manufacturing and services, rose to 52.9 (vs. 50.7 a month earlier).
- Today’s eco calendar contains the ADP employment change and the ISM Non-Manufacturing Index for March in the US. The UK prints the Markit/CIPS UK Composite PMI (Mar). Fed’s Bostic, George, Kashkari and Barker speak today
Currencies: EUR/USD Holding Above The 1.1177/87 Support, At Least For Now
EUR/USD 1.1187/77 support holds, at least for now
The dollar initially retained the benefit of the doubt yesterday. The tradeweighted dollar touched a ST top intraday and EUR/USD dropped briefly below 1.12. The move was mainly follow-through price action on recent trends. US durable orders were close to expectations and US-German interest rate differntials didn’t widen much further. Later, the dollar ceded ground on headlines that UK PM May would try break the deadlock on Brexit by finding an agreement with Labour leader Corbyn. EUR/USD closed the session at 1.1204 (from 1.1213). USD/JPY also show no intraday dynamics at all (close at 111.32).
Overnight, sentiment on risk improved as US and China offficals were said to have resolved most of the pending issues in the trade dispute. The China Caixin PMI’s also printed strong, easing market fears on Chinese growth. Asian equties show modest gains despite a mixed close in the US. The trade-weighted dollar eases further (97.20). EUR/USD regains some ground (1.1225 area). USD/JPY initially profited from the risk-on sentiment and higher US yields but struggles to maintain its upward bias (111.40 area).
Today, the final EMU services/composite PMI’s will be published. In the US the ADP labour market report and the non-manufacturing ISM are scheduled for release. Markets will look out weather the EMU services sector can avoid the sharp downturn in manufacturing. ADP job growth is expected at a decent 175K. The US non-man. ISM is expected to ease slightly to 58 from a strong 59.7. We don’t expect a big undershoot in US data, but the consensus estimate is putting the bar quite high.
The dollar came close to key resistance (DXY, EUR/USD) but a break didn’t occur. Today’s US data might confirm a healthy US economy, but we are not convinced they will provide the positive surprise needed to trigger further sustained USD gains. A constructive risk sentiment and positive headlines on trade might be a tentative euro supportive too. EUR/USD stays within reach of the 1.1187/77 support. We still aussme that a sustained EUR/USD decline will not be that evident/easy as we don’t expect the Fed to leave its wait-and-see bias anytime soon.
After initially sterling weakness, the UK currency yesterday jumped higher on headlines that UK PM will try to hammer out a Brexit agreement in cooperation with the labour opposition. This is seen as raising the chances for a rather soft Brexit. However, May’s strategy brings UK politics in uncharted territory. We don’t preposition for further sustained sterling gains at this stage. Real signs of a solution are probably needed to push EUR/GBP below the 0.8480 support area.
EUR/USD: no break below key 1.1177/87 support (yet)
