• Rates: US investors cling to positive news, but eco data loom…
    Core bonds made an intraday U-turn yesterday as investors grasped to positive news on coronavirus testing, the potential development of a vaccine and a wave of corporate bonds supply. The reality check will probably follow from today on in the form of US eco data. March numbers risk being dreadful.
  • Currencies: USD correction meets first support.
    Last week’s USD correction slowed amid a mixed global context. Investors remain cautious to release the dollars they piled up earlier this month. Today’s eco data probably won’t change the global USD positioning. Have the US labour data later this week a bigger role to play?

The Sunrise Headlines

  • WS climbed as fresh hopes on coronavirus testing and a vaccine boosted optimism. The Nasdaq outperformed (+3.62%). Asian markets broadly edge up, following better-than-expected Chinese data. South Korea outperforms (+2.8%).
  • The French government will reportedly unveil measures to back small and medium-sized exporters through loan guarantees and insurance. It also considers doubling the ceiling on the tax-free bonus for workers to €2000.
  • The G20 trade chiefs pledged to keep markets open and tackle supply chain disruptions caused by the coronacrisis. The top ministers in addition agreed to guard against profiteering and unjustified price increases.
  • Japan’s ruling party, LDP, is mulling a massive stimulus package of more than 10% of GDP including over ¥10tn in handouts to households in the form of cash, vouchers and subsidies. LDP also considers corporate and fixed-assets tax cuts.
  • US president Trump and Russian president Putin agreed to hold talks to stabilize energy prices as Trump blasted the Saudi Arabia-Russia oil war – a battle begun just as the spread of the coronavirus squashed oil demand – crazy.
  • China’s manufacturing sector unexpectedly rebounded to expand in March (53), official PMIs showed, after collapsing in February (28.9) as work came to a halt in most of the country. The services gauge climbed to 52.3 from 29.6.
  • Today’s economic calendar contains eurozone inflation figures with headline gauges expected to slow due to falling energy prices. US consumer confidence will likely tumble amid a widespread coronacrisis. Italy taps the bond market

Currencies: USD Correction Meets First Support

Dollar decline slows, awaiting labour data?

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Global sentiment was relatively calm compared to last week. Investors tried to look forward to possible positive developments in the containment of the coronavirus. Even so, the dollar rebounded modestly from last week’s correction, suggesting that investors remain cautious to give up USD liquidity they put in place earlier this month. The trade-weighted dollar USD rebounded to close north of 99. The yen showed relative resilience. USD/JPY even closed marginally lower at 107.75. The euro underperformed. EUR/USD finished 1.1048 (1.1141 on Friday).

This morning, a surprisingly strong rebound of the official Chinese PMI’s is the eyecatcher for trading on Asian markets. However the reaction is guarded as investors are well aware even the Chinese economy remains on a bumpy road. Next month’s reading might to show new bottlenecks. Equities show no clear direction. Yuan rises only marginally (USD/CNY 7.09 area). The dollar remains well bid. USD/JPY is changing hands in the 108.30 area. EUR/USD is also losing a few more ticks (1.1015 area).

Of late, eco data had only a limited impact on global (FX) trading. Still we keep an eye at the US Chicago PMI and the US consumer confidence. Market moving potential of the labour data later this week might be more significant though. For dollar trading, investors face a few conflicting drivers. Global equities suggest that part of the market wants the see the glass a bid half full. However, is this optimism is enough to give up some of the dollar safe haven dollar buffers that were piled up earlier this month? For that it is probably to early. Another factor is whether a sharp (relative) deterioration in US data will take some shine of the dollar. Of late, we assumed the most aggressive run to the USD might be behind us of and that the USD shouldn’t return to the March highs. The EUR/USD technical picture improved after the swift break above 1.09. We assumed that the dollar entered a (guarded) sell-on upticks pattern. We maintain that view as long as the EUR/USD 1.09 support area holds. EUR/USD 1.1237/50 is a next topside reference.

Sterling traded again rather strong. The EUR/GBP decline yesterday continued after the pair dropped below the 0.90 support. This morning GFK consumer confidence declined less than expected. The day-to-day momentum of sterling is rather constructive, but for now, we remain cautious to join this sterling rebound.

USD (DXY trade-weighted): USD decline meets first support after last week’s correction

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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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