Rates: Holiday-shortened US trading week
Trading will remain sentiment-driven in technical in nature this week. The start of the US Treasury’s supply operation could cause some underperformance of US Treasuries. The US trading week is shortened by Thanksgiving (Thursday) and Black Friday.
Currencies: Ifo more supportive for euro than PMI’s?
The euro declined last Friday as the EMU PMI’s disappointed even as there were signs of improvement in the manufacturing sector. Will the German IFO business climate provide more convincing signals that the economy has bottomed and finally give the euro some downside protection? Friday’s price action shows there is little room for disappointment.
The Sunrise Headlines
- US equities reversed a bad start and eked out marginal gains on Friday. The Dow Jones (+0.39%) outperformed. Asian markets are mostly in green following China’s pledge to double down on IP theft. Hong Kong outperforms.
- Hong Kong local elections turned out in a major victory for the pro-democracy candidates, winning almost 90% of the 452 seats in what was largely seen as a referendum on the almost six months of ongoing protests.
- Penalties on violations of intellectual property rights will rise and lowering the thresholds for punishments for those stealing IP will be looked into, China said yesterday. IP protection is one of the major sticking points in US trade talks.
- Former NY mayor Michael Bloomberg, 77, is running for president. He announced his candidacy for the Democratic presidential nomination on Sunday, adding to an already crowded field of 17 other candidates.
- In his ‘sensible’ manifesto unveiled yesterday, UK prime minister Johnson promises to hire an extra 50 000 nurses for the National Health Service, cut taxes for the working people and get Brexit done by January 31.
- The Swiss National Bank’s chief economist Lenz said the central bank still has room for ‘downward manoeuvre’ as the threshold for clients withdrawing cash has not yet been met.
- Today’s economic calendar contains Germany’s IFO indicator. A slew of ECB speeches (Lane, Villeroy) is due. The US taps the bond market
Currencies: Ifo More Supportive For Euro Than PMI’s?
Ifo more supportive for euro than PMI’s?
Markets were pushed back and forth by diffuse, often conflicting headlines on the US China trade talks last week. The euro tried a cautious technical rebound. On Friday, the preliminary EMU PMI’s could decide whether there was room for further euro gains. Manufacturing PMI improved more than expected, but this was counterbalanced by a further slowdown in the bigger services sector. We see it as a mixed signal, but euro bulls were disappointed. EUR/USD drifted back south the 1.10 big figure even as sentiment on risk improved again later. The pair closed at 1.1021. USD/JPY hovered sideways to close at 108.66.
This morning, sentiment on risk turns further constructive as the US and Chinese presidents on Friday indicated they wanted to reach a deal. China announcing plans to address violations of intellectual property was seen as a sign of goodwill. Asian indices mostly gain 0.5%-1.0%. Hong Kong outperforms after a big win of the pro-democracy parties in a vote for district councils. USD/JPY (108.85) rebounds. EUR/USD gains marginally (1.1025). USD/CNY is little changed in the 7.0350 area.
US data (Chicago Fed and Dallas Fed index) are second tier today. The IFO German business climate is more interesting. On Friday, markets were disappointed on the overall EMU PMI print. We look for signs that the German economic comeback is gaining traction. Friday’s price action suggests that a solid Ifo is probably needed to support euro rebound and that there is little no/room for disappointment. A positive risk sentiment might be a marginal euro positive, too.
Last week, a minor EUR/USD rebound was blocked head of the 1.11 big figure, leaving the pair in a neutral, slightly unconvincing trading pattern. A return below 1.0989 would deteriorate the ST picture. A rebound above 1.11 would be constructive in a day-to-day perspective.
The focus for sterling trading shifted to the data last Friday. Sterling corrected lower as the UK PMI’s printed below 50. EUR/GBP rebounded temporary to the 0.86 area. This weekend, the focus returned to the election campaign. The Conservative Party published its election manifest. It includes a quick ratification of the Brexit deal, no prolongation of transition period and no raise in taxes. With the Conservatives still in the lead, EUR/GBP eases slightly off the 0.86 area. We expect sterling to stay relatively strong near current levels.
EUR/USD: euro disappointment after PMI’s. Can Ifo do better?
