- Rates: Chinese stock markets show green shoots
Chinese markets gain up to 2.5% this morning in a welcome relief sign. Sufficient bad corona-related news is probably discounted. Core bonds slide lower. Today’s eco calendar is empty, but US President Trump’s State of the Union address serves as a wildcard. US non-manufacturing ISM, ADP employment and payrolls are highlights later this week. - Currencies: EUR/USD rebound slows but technical picture stays unchanged
The dollar profited (slightly) from a better risk sentiment and a bottoming in core yields (especially US). EUR/USD eases off Friday’s ‘peak’. Today’s eco calendar is thin. President Trumps State of the Union might cause some intraday volatility. Sterling fell prey to profit taking as EU-UK trade tensions returned to the forefront.
The Sunrise Headlines
- US stock markets rebounded up to 1.34% (Nasdaq) as a bounce back in the US manufacturing sector and Chinese stimulus boosted optimism. Asian markets regain footing with China clawing back from yesterday’s plunge (+2.39%).
- Russian president Putin and Saudi King Salman agreed to join forces to ensure stability on the global oil market. OPEC+ is meeting in Vienna today to evaluate the impact of the coronavirus as Brent and WTI have slipped into a bear market.
- China is hoping the US will grant Beijing flexibility on pledges agreed in their phase one trade deal that should take effect this month as the country is facing a health crisis that threatens to slow (domestic) growth, Bloomberg reported.
- ECB’s Jens Weidmann pleaded the central bank needs an “understandable, forward-looking and realistic” inflation target. Weidmann further noted authorities can compromise if tools for gauging prices are enhanced.
- The RBA stood pat, holding its cash rate at 0.75%, and expects the economy to expand by 2.75% this year amid labour and property markets’ strength but notes the bushfires and coronavirus could temporarily hit the economy.
- Results from the Iowa caucuses, casting the first votes of the 2020 US presidential election, are delayed as party officials dealt with a “quality problem” citing “inconsistencies” in caucus results from some precincts.
- Today’s economic calendar is little inspiring (Spanish unemployment, UK construction PMI and EMU PPI) leaving trading up to global sentiment. Key event will be president Trump’s State of Union
Currencies: EUR/USD Rebound Slows But Technical Picture Stays Unchanged
EUR/USD finally receives some breathing space..
Yesterday, headlines on the coronavirus still dominated market news, but the direct grip on trading was less tight than last week. Equites and core yields bottomed and so did USD/JPY. A strong US manufacturing ISM briefly accelerated the USD rebound, but lingering noise on corona (spreading in the US, lower oil price, disputes between the US and China) soon blocked further gains. USD/EUR followed a similar pattern. The dollar rebounded after Friday’s short squeeze. EUR/USD spiked to the 1.1040 area after the ISM, but USD gains could not be sustained. The pair closed at 1.1063 (from 1.1093 on Friday).
Overnight, Asian markets are looking for a bottom/new ST equilibrium as investors still ponder the impact of the coronavirus. The yuan rebounds back below USD/CNY(H) 7.00r. The RBA kept its policy rate unchanged at 0.75%. Governor Lowe acknowledged the impact of corona and the bushfires on the economy, but the RBA maintained its growth forecasts for 2020 (2.75%) and 2021 (3.0%). AUD/USD rebounds to the 0.6720 area. USD/JPY extends a cautious comeback (108.85). EUR/USD is holding a very tight range in the 1.1060 area. The eco calendar in EMU and the US is thin. President Trump’s State of the Union is a wildcard (taxes, (trade) relations with Europe,….). Of late, a better risk sentiment and a bottoming in core yields often supported the dollar more than the euro. A further bottoming of USD/JPY is likely in this scenario. A risk rebound might also support the reversal of Friday’s USD decline against the euro. That said, the performance of EUR/USD after the US ISM yesterday wasn’t that bad.
Last week, the EUR/USD 1.0989/81 support survived, and EUR/USD was squeezed back higher. EUR/USD received some breathing space. A rebound beyond 1.1100/20 would further ease downward pressures. A break beyond the MT range top (1.1250 area) still looks a very long call.
Yesterday, speeches of EU’s Barnier and UK PM Boris Johnson on the upcoming EU-UK trade talks, illustrated fundamentally different views on their future relationship and on how an agreement can be reached. This discord provided a good reason for sterling profit-taking after the post-BoE rebound. EUR/GBP returned north of 0.85. From here, we keep a closer eye on UK eco data. A further improvement might be sterling supportive, despite ongoing noise on the trade talks
EUR/USD 1.0989/81 support survives. Euro rebounds
