- Rates: US eco data key this week
US Treasuries outperformed on Friday with Bloomberg reporting that the US wants to limit US investors’ portfolio flows into China. Asian stock markets lose ground this morning, but bonds tread water. We start the week with a bond friendly bias given fragile risk sentiment, looming key US eco data and political event risk. - Currencies: dollar holding near key resistance, but no sustained break yet.
The dollar tested key technical levels (EUR/USD & DXY) on Friday. However, US political uncertainty, reports on the US limiting investments in Chinese assets and softer eco data finally prevented further USD gains. This week, US eco data will be key. Sterling is losing further momentum as the BoE might be shifting to a rate cut to counterbalance Brexit uncertainty.
The Sunrise Headlines
- Wall Street closed the week in red with the Nasdaq (-1.13%) underperforming on the latest escalation in trade tensions. Asian markets follow suit. Japan (up to -1.1%) underperforms.
- Bloomberg reported on Friday that the US administration is considering ways to block Chinese companies from listing on US exchanges. A Treasury official over the weekend denied any such plans “at this time”.
- Chinese manufacturing PMI (September) beat consensus as the official gauge printed at 49.8 (49.6 expected). Non-manufacturing declined slightly (53.7). The Caixin measure showed manufacturing rising to 51.4 vs. 50.2 anticipated.
- Austrian chancellor Kurz won snap elections yesterday with a projected 37.1% of the votes. The Greens tripled their share to 14%. Elections were due after Kurz’ alliance with the Freedom Party (16.1%, down from 26%) collapsed in May.
- The Flemish region reached an agreement this morning for a so called Swedish coalition 2.0 (N-VA, CD&V, Open VLD). One of the biggest changes planned is a fiscal reform in the housing area.
- Italian economy minister Gualtieri hinted that the 2020 budget deficit would amount to 2.2% of GDP. The deficit is then projected to fall to 1.8% in 2021 and 1.4% in 2022. Growth is seen around 0.6% in 2020 and 1% in the following years.
- Today’s economic calendar eyes rather meagre, containing the Chicago PMI in the US, German inflation figures for September and EMU August unemployment rate. The WTO is expected to publish its decision on Airbus aid
Currencies: Dollar Holding Near Key Resistance, But No Sustained Break Yet
Dollar holding strong but no additional gains
There was again not one single topic to dominate global (FX) trading on Friday. Investors had to cope with political uncertainty in the US and the UK, mixed headlines on the US-China trade talks and eco data in the US and Europe. EUR/USD filled bids in the low 1.09 area early in the session. EMU confidence remained weak but with no additional euro loss. Some USD softness kicked in later. US spending/income data were weaker than expected. Headlines that the US was discussing measures to limit US investment in Chinese assets weighted on the dollar, too. EUR/USD finished at 1.0940. USD/JPY failed to sustain north of 108 (close 107.92).
Overnight, Asian equities mostly show modest losses even as US officials indicated they don’t intend to impose limits on investment in Chinese assets ‘for now’. Chinese PMI’s remain weak but show tentative signs of bottoming. The cautious risk-off slightly supports the yen. The yuan (USD/CNY 7.1250) shows no clear trend as markets prepare for Chinese holidays. EUR/USD is holding in the 1.0940 area.
Today, (geo)political headlines (Trump investigation, US-China relations) probably still have a role to play for global FX. Regarding the data, German September HICP is expected unchanged at a low 1.0% Y/Y. The Chicago PMI is expected near the 50 level. Later this week, the focus might further turn to the (US) activity data including the ISM’s and labour market data. Will US domestic activity continue to resist impact deterioration in the production sector?
The dollar is holding near its MT top (DXY and EUR/USD). The EUR/USD 1.0925 area was extensively tested last week, but a sustained break didn’t occur yet. For now, we don’t row against the USD positive bias. Even so, any further USD gains will probably develop gradually. EUR/USD 1.0864 (76% retr.) and 1.0778 (gap April 2017) are next supports. A break above 1.1056/1.11 would ease downside momentum.
Sterling faced additional headwinds on Friday. The political stalemate in the UK persists; there were no clear signs on any progress in the Brexit negotiations and, last but not least, BoE’s Saunders indicated that the BoE might have to cut rates to counterbalance the impact of Brexit related uncertainty on the economy. This week, UK PMI’s are interesting to assess the impact of uncertainty on the economy, but political headlines will continue to dominate sterling trading. We don’t anticipate on a sustained sterling rebound anytime soon.
EUR/USD: test of 1.0926 continues, but to follow-through USD gains yet
