- Rates: Positive trade vibe and eco data improve risk sentiment
The US and China reached a phase one trade deal “in principle” and are supposed to sign off on in it during this month. The S&P 500 set a fresh record high. The trade theme will probably remain the most important market driver in November. We expect the general risk mood to remain positive in the run-up to the signature. That’s a negative for core bonds. - Currencies: Dollar eases on mixed US data and positive risk sentiment
Friday’s US eco data were good enough to support the risk rally. This context favoured the euro and weighed slightly on the dollar. EUR/USD is nearing the 1.1179 resistance. A break would further improve the technical picture. Sterling shows no clear trend as the election campaign kicked off.
The Sunrise Headlines
- WS moved to record highs (up to 1.13%) over the weekend on the back of upbeat US jobs data. Asian markets are following track and are climbing higher amid renewed trade optimism. China outperforms (+1.48%).
- US commerce secretary Wilbur Ross said on Sunday that he’s optimistic that remaining obstacles in the US-Sino phase 1 trade deal could be overcome this month, adding that US and Chinese leaders still plan to meet.
- The US economy added more jobs than expected in October (128k while consensus was at 85k), flouting expectations that a year of slowing (manufacturing) growth would impact consumer spending and business hiring.
- Thailand announced yesterday that Southeast Asian nations are committed to signing the RCEP trade pact by February 2020 on forging what could become the world’s largest trade block, covering a third of the world’s GDP.
- SNB president Jordan reiterated that the central bank may need to take interest rates further into negative territory and continue FX interventions to dampen demand for the franc, according to an interview with NZZ am Sonntag.
- China’s Caixin Manufacturing PMI expanded at its fastest pace in over 2 years and posted a reading of 51.7, up from 51.4 in September. New export orders rose and plants ramped up production in defiance of trade tensions with the US
- In today’s economic calendar all eyes will be on Lagarde’s first official speech as the new head of the ECB where the incoming president gets her first chance to frame her outlook for the economy and monetary policy.
Currencies: Dollar Eases On Mixed US Data And Positive Risk Sentiment
Modest data and sidelined Fed ease USD bid
The focus of USD traders Friday was on the payrolls and, to a lesser extent, on the US manufacturing ISM. Payrolls were above expectations. The ISM was mixed. The combination of both series was ideal to support a continuation of the risk rally. Economic activity is fairly OK, but the Fed can stay on the sidelines. The (trade-weighted) dollar jumped higher on the payrolls but (more than) reversed its gain after the ISM. EUR/USD closed at 1.1166 (from 1.1152). USD/JPY profited slightly from the global risk-on trade to close at 108.19.
This morning, Asian equities show broad-based gains building on Friday’s WS performance. Risk assets profit further from US officials indicating that a first part of a US-Sino trade pact might be signed later this month, probably somewhere in the US. The yuan strengthens below USD/CNY 7.03. Risk-sensitive currencies like the Aussie dollar also profit (AUD/USD 0.6920 area). EUR/USD (1.1165) and USD/JPY (108.25 area) show no clear trend.
Today’s calendar is rather thin with (final) EMU manufacturing PMI’s and final US durable goods orders. The preliminary reading of both series was rather disappointing and even a modest upward revision, if any, won’t change markets’ assessment in a profound way. The anticipation on a US-China trade truce (in one way or another) should be largely discounted. Even so, it facilitates a continuation of the risk-rebound. Of late, this risk rally tended to support the euro more than the dollar. This would a fortiori be the case if trade tensions between the US and Europe would ease (e.g. no tariffs on autos).
After the Fed decision, we anticipated a somewhat asymmetric USD reaction, with the US currency a bit more sensitive to weaker rather than stronger US data. We hold on to that view. The technical picture of EUR/USD remains constructive. First intermediate resistance at 1.1179 is still within reach. A break above 1.1250 would improve the ST picture. The downside looks better protected with first support at 1.1073.
EUR/GBP basically held the sideways consolidation pattern in the lower half of the 0.86 big figure last Friday. Investors are monitoring opinion polls as the campaign for the Dec 12 election has started. The ongoing rift between Nigel Farage and Boris Johnsons might be a slightly negative for sterling. Later this week, the BoE policy decision and the Q3 GDP are interesting, but we expect sterling trading to remain at the mercy of the election headlines
EUR/USD nears first resisance as risk rally eases USD bid
