Rates: Risk aversion and 30-yr US Bond auction
Hawkish trade rhetoric and disappointing Chinese lending data pull main Asian stock markets up to 2% lower this morning. Technical pictures of main European and US bourses suggests that the correction lower has further to go. Core bonds remain underpinned. Yesterday’s flopped US 10-yr Note auction suggests difficulties for tonight’s 30-yr sale as well.
Currencies: Dollar still shows no clear directional bias as trade uncertainty intensifies
Major dollar cross rates remain an area of relative calm even as tensions between the US and China are building. US eco data today are second tier. Is the dollar losing some of its safe haven appeal with the US-China trade dispute is at risk of running out of control?
The Sunrise Headlines
- US equity markets closed with modest losses yesterday after giving up intraday gains with DJI outperforming (+0.01%). Asian shares are retreating this morning as the US-Sino trade dispute escalates again. South Korean shares underperform.
- China will ‘have to adopt necessary countermeasures’ to higher imposed duties by the US, said China’s Ministry of Commerce. US President Trump blamed China for ‘breaking up the deal’ when speaking at a campaign rally.
- The US will impose sanctions on Iran’s metal sectors and vowed further actions unless Tehran ‘fundamentally alters its conduct’. The announcement followed after Iran threated to revive its nuclear activity.
- Lawmakers from the UK Conservative party kept the rules on leadership challenges unchanged, granting PM May a temporary stay of execution. She’ll meet with the so-called 1922 Committee next week to discuss her future.
- Edgar Zambrano, VP of Venezuelan opposition leader Juan Guaido’s National Assembly, has been arrested by the national intelligence agency, led by president Maduro. The US warned of consequences if he’s not released.
- China’s April credit data disappoints. Monthly expansion in aggregate social financing was 1.36 trillion yuan in April, down from 2.86 trillion in March. New loans dipped to 1.02 trillion yuan, down from 1.69 trillion a month before.
- Today’s US economic calendar contains weekly jobless claims and producer inflation results (Apr). The Norges bank meets, while EU leaders are gathering to discuss future leadership positions. Fed’s Powell and Bostic speak.
Currencies: Dollar Still Shows No Clear Directional Bias As Trade Uncertainty Intensifies
USD ‘paralysed’ as uncertainty on trade persists
EUR/USD hovered near 1.12 yesterday. German March production data printed stronger than expected but EUR/USD gains were blocked ahead of the 1.1215/20 short-term resistance area. EUR/USD lost some ground later as US yields trended back higher. However, the move still wasn’t significant from a technical point of view. Global (FX) markets still awaited the next developments in the US-China trade dispute. EUR/USD closed little changed at 1.1192. The yen made some further small gains. USD/JPY closed at 110.10.
This morning, sentiment in Asia remains risk-off as there looks to be no evident fix for the Sino-US trade dispute. Poor China April lending data were a (secondary) source of uncertainty. The yuan (USD/CNY 6.81 area) weakened further, testing the Jan 22 low. Other regional/EM currencies are also under pressure with the won at the lowest level since end Jan 2017. Yen gains remain modest given the risk-off with USD/JPY still near 110. EUR/USD is still going nowhere in the high 1.11 area.
There are no eco data in EMU. In the US, PPI, jobless claims and the March trade balance will be published. We assume the data to be of second tier importance for FX trading, at best. Soft PPI data might weigh on the dollar, but the reference of the consensus is rather modest. Global (FX) trading will again focus on the US-China trade talks. A failure to reach a deal (or at least to continue the truce) might cause additional global volatility. Of late, the dollar hardly profited from this risk-off. FX (and other) markets maybe ponder the chances for further Fed rate cuts if the global context deteriorates. US president Trump also doesn’t want a stronger dollar. This maybe caps further USD gains, too. We maintain the view that the EUR/USD 1.1110 support area won’t be that easy to break. Anyway, it will be interesting the see the USD reaction in case trade tensions were to intensify.
EUR/GBP rebounded higher in the 0.85/0.87 ST consolidation band yesterday. Sterling eased as investors saw chances on a Brexit deal between the conservatives and labour declining. EUR/GBP returned to the 0.86 area. Overnight, RICS house price data suggest an ongoing loss of momentum in the UK property market. Headlines overnight suggested that UK PM May bought some more time for her conservative party to reach a deal with labour. However, chances on a deal are still difficult to assess. A test of the EUR/GBP 0.8473/0.85 range bottom is rejected. More trading in the EUR/GBP 0.85/0.87 range might be on the cards
EUR/USD: USD going nowhere as uncertainty on trade persists
