- Rates: Q1 earnings, Chinese growth and EMU PMI’s
Chinese lending data kickstarted a significant profit taking move on core bond markets last Friday, temporary shelving economic doom thoughts. Q1 earnings season, Chinese growth data and EMU PMI’s will prove whether or not this is warranted. Medium term technical pictures of the German/US 10-yr yield are about to turn more neutral.
- Currencies: Cautious sentiment turnaround to further support the euro?
The euro showed remarkable resilience over the last few days. EUR/USD shifted further away from key support close at the 1.12 area, to regain the 1.13 barrier currently as global growth sentiment cautiously turned for the better. This week’s event calendar might prove a litmus test for that sentiment turnaround.
The Sunrise Headlines
- US equity markets edged higher on Friday as Q1 earnings season kicked off well. The DJI (+1.03%) outperformed. Asian equities are largely trading with gains this morning with Japanese and Chinese indices outperforming.
- PM May’s government continues talks with the Labour party, though there are little signs of progress. They seek to combine the benefits of a customs union, whilst holding the flexibility to pursue an independent trade policy.
- US President Trump criticized the Fed again, saying that both the stock market and GDP would be higher if it hadn’t been for the central bank’s tightening cycle. ECB chief Draghi said he is worried about central bank’s independence.
- US Treasury Secretary Steven Mnuchin said that the talks with China are edging closer to an accord. He said that the US is open for an enforcement mechanism and added that the mechanism could work ‘in both directions’.
- The Swiss National Bank could further reduce its already ultra-low interest rates if necessary, according to SNP chief Thomas Jordan. He added that the country’s tiering system, to soften negative rates for banks, is still appropriate.
- Finland’s Social Democrats are close to win the Finnish general elections, though very narrowly. The leftist party is said to have 17.7% of the votes, more than the Finns Party (17.5%), an anti-immigration and Eurosceptic movement.
- Today’s US eco calendar only contains the Empire Manufacturing gauge for April. The EMU calendar is empty. ECB’s Villeroy and Fed’s Evans speak. Q1 earnings season continues with Goldman Sachs and Citigroup
Currencies: Cautious Sentiment Turnaround To Further Support The Euro?
Sentiment turnaround to further support the euro?
The euro has been trading surprisingly resilient over the last few days. The common currency withstood a dovish ECB on Wednesday and was propelled by strong Chinese data on Friday. Global growth concerns eased further on the first and decent Q1 2019 (bank) earnings. EUR/USD did retreat from its intraday high at 1.323 on news that the EU had listed US imports worth €20 bn that it could hit with tariffs after president Trump’s tariff threat earlier. The U. of Michigan consumer confidence (96.9) in the US missed estimates (98.2) slightly, but with little impact on trading. The couple closed just short of the 1.13 barrier, up from 1.1253. USD/JPY regained the 112-level for the first time since December.
Risk sentiment during Asian trading hours is constructive. Virtually all equity markets follow WS’s upbeat Friday session. Sentiment might also have been boosted by Mnuchin’s positive comments related to the US-Sino trade talks. EUR/USD is cautiously creeping higher in the low 1.13’s. USD/JPY fell below, but is still trading close to, 112.
Today’s event calendar is meagre. The NY Empire Manufacturing received a hit in March and is expected to recover from 3.7 to 8 in April. We side with consensus, but doubt whether today’s data will have a major impact on trading, even in the case of a (limited) surprise. Q1 earnings are likely to set the tone for sentiment and trading the following days. China’s Q1 GDP and EMU PMI’s are this week’s apex.
The euro drifted further away from the 1.1177/87 support last week and came close to a recovery of the 1.13 barrier despite a soft ECB. Global economic sentiment has turned for the better recently. Last week’s price actions shows the euro is still net benefiter of such circumstances. We watch for Q1 earnings/guidance and EMU PMI’s to confirm that turnaround. We maintain the view that a EUR/USD break lower ST isn’t evident given the Fed’s wait-and-see bias. It would require strong negative EMU news or surprisingly strong US data. In case of a break above 1.13, next high-profile EUR/USD resistance comes in at 1.1448.
Lack of data and relevant Brexit news resulted in a choppy, narrow trading day for EUR/GBP on Friday. EUR/GBP closed higher at 0.8641. Brexit has been postponed, but with a clear lack of solution(s) to resolve the current impasse. Domestic (political) uncertainty is expected to keep sterling at a (technical and headline driven) leash. We see little reasons to turn more positive on the Queen’s money and assume the EUR/GBP 0.85 support area to be solid.
EUR/USD escapes the downward trend channel and regains the 1.13- level as growth sentiment turned for the better.