- Rates: Risk sentiment improves; waiting for payrolls
Improved risk sentiment, a sell-off in the UK Gilt market, higher oil prices and the US non-manufacturing ISM pulled core bonds lower again. US weekly jobless claims fill the void between ADP & ISM yesterday and payrolls tomorrow. They won’t guide trading. Risk sentiment, positive this morning, will probably direct intraday gyrations. - Currencies: EUR/USD testing 1.11. Pre-election short-squeeze propels sterling
The dollar showed a mixed picture yesterday. Global sentiment improved, but US data were unconvincing. EUR/USD tested the 1.11 resistance, but no sustained break occurred. EUR/USD momentum is improving. Tomorrow’s payrolls might decide whether a break is possible. Sterling is squeezed higher as investors reduce sterling short hedges ahead of the election
The Sunrise Headlines
- US equities edged higher (up to +0.63%) amid flickering trade hopes, waving away mixed to weaker US eco data. Asian markets are following the risk-on trade and mostly colour green. Australia outperforms (+1.16%).
- UK prime minister Boris Johnson set out a draft of policies the Conservatives would roll out when in government. Johnson vowed to deliver Brexit and a tax-cutting budget within 100 days of winning the election on 12 December.
- Australian retail sales were flat (0% M/M) in October, far below the 0.3% expected gain. Consumers’ wallets remain closed despite boosts in disposable income from tax rebates and several interest rate cuts by the RBA to a record low of 0.75%.
- The Japanese government announced an economic stimulus package to bolster growth. The package amounts to around 26tn yen with fiscal spending around half that figure aiming to push up growth by 1.4%, Bloomberg reported.
- The RBNZ increased the time frame for banks to comply with upcoming tougher capital requirements from 5 to 7 years. The RBNZ also offered more flexibility by allowing some capital to be met by redeemable preference shares.
- French president Macron’s push to reform pensions is facing the ultimate test today. Unions are going on an indefinite strike to oppose Macron’s pension rebuild plans that would push back retirement for many workers.
- In today’s economic calendar we line up for US jobs/trade data. In Europe, retail sales data and final Q3 growth numbers are due. OPEC meets today, preparing to discuss deeper output cuts. Spain, France and the UK tap the bond market.
Currencies: EUR/USD Testing 1.11. Pre-Election Short-Squeeze Propels Sterling
EUR/USD better bid, testing 1.11 resistance area.
Developing news on the US-China trade talks still dominated global (FX) trading yesterday. On Tuesday, president Trump took a tougher stance causing risk-off repositioning. Lower US yields weighed on the dollar. Yesterday, headlines on trade turned less negative. It didn’t help the dollar much as the US currency met soft US data. ADP job growth missed the consensus by a big margin. The US non-manufacturing ISM was mixed, at best. USD/JPY profited from the risk rebound and closed at 108.86. EUR/USD spiked temporarily above 1.11 on the US data but closed the session eventually little changed at 1.1078. This morning, Asian equity indices show gains of up to 1.0%. Korea underperforms. Japan announced a fiscal package of JPY 13 trillion, with additional measures including loans and guarantees to support private activity. The direct impact on yields and the yen was limited. USD/JPY trades near 108.80. The Aussie dollar eased on disappointing exports and retail sales (AUD /USD 0.6840). The kiwi dollar outperforms on receding rate cut expectations. EUR/USD stabilizes near 1.1080.
Today, eco calendar is thin. EMU retail sales are bit outdated. US jobless claims and trade balance data usually are only of intraday significance. So, global FX trading will again be overall sentiment. USD traders will look forward to tomorrow’s key US payrolls report. Even so, the dollar recently become more sensitive to lower yields and softer US eco data.
Early this week, EUR/USD rebounded on divergent US-EMU eco news, including a soft US manufacturing ISM, bouncing off the 1.0980/1.10 support. Yesterday the 1.11 resistance area was tested, but no sustained break occurred. The EUR/USD momentum improved. A break above 1.11 would call off the ST downward alert and open the way for a retest of the 1.1179 top. The pre-election sterling short squeeze accelerated yesterday. Investors continue to reduce sterling hedges as the conservative party is seen as securing a majority in parliament at next week’s election. EUR/GBP (0.8455) dropped below the 0.8475 support. Cable jumped north of 1.31. Quite some good news is already discounted for sterling, but the day-to-day momentum/technical picture is sterling supportive.
EUR/USD tests in 1.11 resistance area on soft US data. Payrolls to decide on a break
