Sunrise Market Commentary
- Rates: Bear steepening in opening session of the year
Global core bonds started the New Year on a weak footing with bear steepening of both the US and German yield curves. Trading will be mainly guided by the US eco calendar today with US manufacturing ISM and FOMC Minutes. We hold our short positions in both the US Note future and the Bund even if FOMC Minutes give increased attention to low inflation. - Currencies: EUR/USD nears 2017 top
Recently, the dollar suffered. Ongoing strong global growth suggested that other CB’s, including the ECB, might come closer to policy normalization. Interest rate differentials narrowed in favour of the euro. Today’s US events (ISM/ Fed Minutes) probably won’t change the global context. The EUR/USD might slow ahead of Friday’s payrolls
The Sunrise Headlines
- US stock markets eked out gains on the first trading day of the new year. The Nasdaq significantly outperformed, closing above 7000 for the first time ever. Asian risk sentiment is positive as well overnight with Japan closed.
- The ECB may end its stimulus programme this year if the EMU economy continues to grow strongly, ECB Nowotny said. He also warned of European stock market bubble risks.
- Britain has held informal talks about joining the Trans-Pacific Partnership. The proposal would make the UK the first member that does not border the Pacific Ocean or the South China Sea.
- Brent crude rose above $67/barrel for the first time since 2015 yesterday, supported by tensions in Iran. Separate data showed a record net long position has been accumulated by hedge funds and other money managers in the five biggest futures and options contracts covering crude, gasoline and heating oil.
- Donald Trump has embarked on a foreign policy offensive on his return to the White House, piling pressure on Iran, Pakistan, North Korea and the Palestinians as he switches his focus beyond tax reform and other domestic priorities.
- South Korea can "in principle" consider measures to boost investment overseas if won rises sharply, a government official, who declined to be named on internal policy, said by phone.
- Today’s eco calendar contains German unemployment data, the UK construction PMI, the US manufacturing ISM and FOMC Minutes
Currencies: EUR/USD Nears 2017 Top
EUR/USD nears 2017 top
Overnight, the dollar shows no clear trend even as risk sentiment stays positive. USD/JPY holds in the lower half of the 112 big figure. EUR/USD hovers in the mid 1.20 area. Today, German labour data are expected to improve further with the unemployment rate declining to 5.5%. The US manufacturing ISM is expected unchanged at a high 58.2. (FX) traders will keep an eye at the price indicators of the report. This evening, the minutes of last month’s FOMC meeting will be published. Markets will also look for the Fed’s assessment on ongoing low inflation. At least, it didn’t cause a major change to the 2018 Fed dot plot.
Recently, the dollar suffered as the global recovery could force other major CB’s (including ECB) to join policy normalisation. Today’s data probably won’t change market sentiment. That said, good US data might slow the recent USD decline ahead of Friday’s payrolls. It also won’t be that easy for EUR/USD to set new cycle high without really high profile news. At the same time, higher core yields and/or a risk-on sentiment as such were not enough to support the dollar of late.
Global picture USD: The outcome of the Dec Fed & ECB meetings didn’t provide directional guidance for EUR/USD. A narrowing in the (LT) interest rate differentials finally propelled EUR/USD to the topside of the 1.1554/1.2090 range end 2017. A sustained break would improve the ST picture. For now we don’t preposition for such a break. Quite some good news on the euro/bad news on the dollar should be discounted at current levels. Price data remain in focus.
EUR/GBP tried to regain the 0.89 mark yesterday on a softer than expected manufacturing PMI, but the attempt failed. Today, only the UK construction PMI is on the agenda (expected little changed at 53). More technical trading might be on the cards. A slowdown of the EUR/USD rally might cap the topside of EUR/GBP short-term.
Global picture EUR/GBP: The EUR/GBP decline stalled even as the EU agreed to start the next stage of Brexit negotiations. The pair settled in a 0.8760/0.8960 consolidation range. Recent UK data were mixed. We don’t expect the BoE to raise interest rates anytime soon. The EUR/GBP 0.8700/60 support looks solid. Ongoing euro strength or soft UK data might keep EUR/GBP 0.90 on the radar further down the road. We keep a EUR/GBP buyon- dips approach in case of return action to the 0.87 area.
EUR/USD near 1.2092 range top
