Rates: US Treasury will start selling 20-yr bonds
The US Treasury announced it will start issuing 20-yr bonds in the first half of the year. Full details will be announced early February, but the US yield curve steepens somewhat this morning. Today’s eco calendar probably won’t influence trading. Core bonds’ decent performance yesterday amid surging stocks and strong US data suggests they are regaining momentum.
Currencies: Sterling stays resilient despite BoE rate cut speculation
The post-payrolls slide of the dollar was blocked by yesterday’s solid US eco data and an, albeit, modest rise in US yields. EUR/USD is still cemented within the established trading range. The persistent, low-volatility risk-on propels USD/JPY north of 110. Sterling rebounded even as markets still ponder the chances of a BoE rate cut at the end of this month
The Sunrise Headlines
- All major US indices set another record high yesterday after solid US data. The Nasdaq (+1.06%) outperformed. Asian markets show less enthusiasm. China struggles (-0.2%) despite marginally better than expected eco figures.
- Chinese growth printed at 1.5% QoQ (or 6% YoY) vs. 1.4% expected in 2019Q4, suggesting stabilization after a protracted decline. Other December data (IP, retail sales, investment) were robust and also slightly above consensus.
- US Treasury will begin issuing 20-y bonds in the first half of 2020. The revival of the in ‘86 abandoned 20-y bonds should provide more flexibility to fund rising deficits. The review of ultra-long maturities (50-y, 100-y) is ongoing.
- EU Trade Commissioner Hogan said there was no mention of potential tariffs on cars during the “very good” talks with Lighthizer in Washington. He did warn for EU retaliation if the US were to target French goods following the digital tax.
- South-Korea left rates stable at 1.25% with two dissenters voting for a rate cut. Central bank governor Lee turned more optimistic, projecting higher growth for 2020 as domestic sluggishness has eased a bit. The won trades unchanged.
- The US Senate passed the USMCA on a 89-10 vote yesterday, sending the bill to President Trump to sign it into law. Canada has yet to approve the trade agreement before turning it into full practice.
- Today’s eco calendar heralds a calm end of the week. The US releases the U. of Michigan consumer confidence and industrial production figures. EMU data is of secondary importance (final CPI). Fed voting member Harker speeches
Currencies: Sterling Stays Resilient Despite BoE Rate Cut Speculation
Sterling resilient despite rate cut speculation
The post-payrolls USD correction bottomed yesterday. EUR/USD set a ST correction top at the onset of the US trading. However, solid US data blocked a further EUR/USD rebound. US retail sales, the Philly Fed business outlook and the jobless claims were all better than expected. The reaction to the data was guarded, but a cautious reversal of the recent slide in (US) yields also helped to put a floor for the dollar. EUR/USD dropped from the 1.1170 area to close at 1.1137. Higher yields and a persistent risk-on with US equites extending their record race pushed USD/JPY again north of the 110 barrier (close 110.16). This morning, fourth quarter China growth was reported at 6.0% Y/Y, as expected. However, December retail sales, production and investment printed slightly stronger than expected, suggesting stronger growth further out. Asian equities show modest gains. China underperforms. The yuan extends gains (USD/CNY 6.87). USD/JPY is drifting further north (110.25 area). EUR/USD is holding near yesterday’s close.
Later today, the eco calendar is moderately interesting, with the final EMU CPI. In the US housing data (starts and permits), production data and the University of Michigan consumer confidence will be published. Consumer confidence probably has most potential to move the dollar. However, the consensus expects a stabilisation, admittedly at a high level. The persistent, low volatility risk-rally currently also doesn’t give much guidance for USD trading. In theory, it could be a USD negative. However, as the dollar still enjoins a higher yield compared to the likes of the euro, there is no big incentive for investors to leave USD long ‘carry trades’ in a low volatility environment. From a technical point of view, EUR/USD last week dropped temporarily below 1.11, but 1.1066 support survived on soft payrolls. EUR/USD 1.1066 remains our first downside reference. A rebound above 1.1180 would call off the ST downside alert. Still, a ST break beyond 1.1250 looks far from easy.
Earlier this week, EUR/GBP tested the post-election top, as several BoE policy makers indicated a growing chance for a rate cut, maybe already end this month. However, sterling found its composure and even regained ground. Did the market ran to far? Today, UK retail sales are expected to rebound after a poor November report. The jury is still out, but in a daily perspective, it looks that sterling might be a more sensitive to a positive than to a negative surprise.
EUR/USD: USD correction blocked on solid US eco data