- Rates: US and UK markets are closed, implying slow start to trading week
Hong Kong protests remain this weekend’s main talking point, but barely spoil Asian risk sentiment. US and UK markets are closed today, implying low volume trading. US Treasuries could underperform German Bunds in the run-up to this week’s supply operation. Risk sentiment will otherwise be responsible for intraday gyrations within known technical boundaries.
- Currencies: EUR/USD topside test again rejected
Last week, a better risk sentiment and hope on an EU rescue package pushed EUR/USD back to the 1.10 area. However a softer risk sentiment and opposition of four northern countries on EU grants in rescue package sent EUR/USD back in the established range as markets await an initiative of the EU commission later this week.
The Sunrise Headlines
- Wall Street erased most of the intraday losses, ending flat (DJI) or marginally higher (Nasdaq +0.43%). Asian stocks trade mixed with some markets closed. Hong Kong (-1%) underperforms, extending Friday’s slide.
- The relative calm on the Hong Kong streets due to the virus outbreak all but evaporated. China drafted legislation end of last week to impose a national security law on Hong Kong, reviving mass protests on Sunday.
- At the emergency meeting on Friday, the Bank of Japan launched a new lending programme worth 30tn yen, aimed at supporting small businesses by funneling money to companies via the country’s financial institutions.
- The Netherlands, Austria, Denmark and Sweden proposed an emergency fund on Saturday in which they reject any grants, arguing for “favourable loans” instead. The counterproposal comes days ahead of the EC’s release.
- China’s foreign minister Wang Yi warned the US is pushing ties with the country “to the brink of so-called new Cold War” over interfering with internal matters including Hong Kong and Taiwan.
- European savings surged in March as households braced for Covid 19. Savings quintupled in France, Spain and Italy, possibly hindering a consumption-driven recovery. German deposits fell, a move also seen during the GFC.
- Today’s economic calendar will provide little inspiration. US and UK financial markets are closed. In Germany, the IFO sentiment indicator and a second GDP reading is published.
Currencies: EUR/USD Topside Test Again Rejected
EUR/USD topside test again rejected
The dollar reversed earlier losses end of last week. China preparing a new security law for Hong Kong further escalated tensions between the US and China. The risk-off supported the yen and the dollar. EUR/USD on Thursday tried a new topside test of the 1.10 area, but it was again rejected. Next to the China-related risk-off, intra-EU political division on the structure of the EU rescue package also undermined initial optimism on a German-French proposal that the supported the euro earlier last week. EUR/USD closed the week at 1.0901. USD/JPY held within the tight ST sideways trading pattern to close at 107.64.
This morning, Asian markets show mixed picture. China and Hong Kong underperform as political tensions persist, with China warning the US that their mutual relationship could move to a new cold war. The yuan stays under pressure. The PBOC put the yuan reference rate at the weakest level since 2008. The offshore yuan also weakens further north of USD/CNH 7.15. Japanese markets outperform as the country will lift the state of emergence and as the government prepares an additional stimulus plan. The yen weakness slightly (107.65 area). EUR/USD hovers in the 1.09 area.
Today, trading will probably develop in thin market conditions as US and UK investors enjoy a holiday. German IFO business confidence is expected to rise slightly from last months depressed levels. It will be interesting to see the reaction in cease of a (mildly) positive surprise. At same time, political bickering on the EU rescue package will probably continue. The EU commission is expected to launch its proposal on Wednesday. Four northern countries repeat their view that they only want loans and no grants for countries that need support. Last week’s rejected test of 1.10 again pushed EUR/USD well within the sideways consolidation pattern between 1.0727 and 1.1018. Some further slide within the established range is possible as sentiment remains fragile.
In line with EUR/USD, EUR/GBP also tested resistance near 0.90 on Thursday, but no break occurred and EUR/GBP returned in the 0.89 big figure. Headlines coming from the UK are not really sterling supportive. PM Johnson is under pressure on Dominic Cummings breaking lockdown rules, the EU-UK talks are in an absolute stalemate and the debate on negative rates lingers. We assume EUR/GBP to be rather solid support.
EUR/USD: topside test of 1.10 again rejected