Sunrise Market Commentary
- Rates: End of government shutdown hardly impacts trading
US Congress approved a stopgap funding bill until February 8, ending the government shutdown. The market impact on US Treasuries was modest, but the close of the 5- and 10-yr yields above key resistance could have important consequences if confirmed. European investors count down to Thursday’s ECB meeting. - Currencies: Dollar doesn’t profit from new spending bill
Yesterday, the dollar held tight ranges. The US currency hardly profited from the approval of a new spending bill. FX markets look forward to Thursday’s ECB policy meeting. For now there is little investor appetite to be ‘short euro’ ahead of this meeting. The Yen eases slightly this morning as BOJ Kuroda signals ongoing ample monetary stimulation.
The Sunrise Headlines
- US stock markets ended around 0.5% higher yesterday with Nasdaq outperforming (+1%). Asian risk sentiment is positive overnight with Japan and Korea outperforming.
- Congress approved a measure to fund the government for about 3 weeks and halt a 3-day shutdown, after Senate Democrats accepted Republicans’ assurance that they would bring an immigration bill to the floor in the coming weeks.
- Donald Trump has approved broad tariffs on imports of solar cells and washing machines, the first in a series of anticipated moves aimed at cracking down on China and fulfilling his protectionist promises to US rust belt voters.
- The BoJ maintained its massive monetary stimulus program and kept its price and economic forecasts unchanged. In a small sign of progress, it said inflation expectations had stopped falling.
- EMU FM’s welcomed Greek progress in delivering reforms but will only disburse the next aid tranche once all agreed actions are complete (February?). Ministers said they would start technical work on more debt relief for Greece that could be granted after the end of the bailout in August.
- The UK is one of the only major markets where house prices are unlikely to grow in 2018, according to new forecasts from Fitch. The only housing markets with a worse outlook for 2018 were Greece (-2%), and Norway (-5%).
- Today’s eco calendar contains EMU consumer confidence, German ZEW and Richmond Fed manufacturing index. Germany and the US tap the market. The Q4 earning releases continue (J&J, P&G, Verizon,…).
Currencies: Dollar Doesn’t Profit From New Spending Bill
USD still going nowhere, despite end of shutdown
Trading on global FX markets remained very orderly yesterday even as the US Senate didn’t reach an agreement on a funding bill during the weekend. The dollar hovered sideways. News on the approval of a ST spending bill supported the dollar temporary. USD/JPY and EUR/USD held within established ranges. EUR/USD finished the day little changed at 1.2262. USD/JPY gained a few ticks to close the day at 110.92.
The BOJ as expected left its policy unchanged overnight. They were slightly more optimistic on inflation (expectations), but there is no indication of an imminent policy change. USD/JPY dropped temporary from the high 110 area to the 110.60 area, but rebounded during Kuroda’s press conference. The (tradeweighted) dollar is holding within reach of the recent lows. The dollar doesn’t profit from the end of the government shut-down. EUR/USD even has a slight upward bias, hovering in the 1.2250/75 area.
German ZEW investor confidence and EC consumer confidence are expected slightly higher. The Richmond Fed manufacturing index is expected marginally softer (19 from 20), but at a high level. Any reaction on the FX market will only be of intraday significance, at best. The rise in US yields indicated that markets anticipate more policy normalization. It still doesn’t help the USD as markets are pondering when and at what pace the ECB will join the Fed. ECB’s Draghi will maintain a soft tone at Thursday’s press conference. Even so, there is little appetite to be positioned ‘euro short’ going in to the ECB meeting. Global Picture: the dollar was in the defensive of late as markets prepare for a change in policy from central banks outside the US. This propelled EUR/USD despite a huge interest rate differential in favour of the dollar. The USD decline slowed last week, but any ‘rebound’ remained unconvincing. A return below previous resistance at 1.2092 is needed to call off the ST alert for the dollar. EUR/USD 1.2598 (62% retracement) is next important resistance on the charts.
Sterling was in good shape of late. EUR/GBP tested the 0.8810/00 intermediate support and finally dropped below this level. Cable nears the 1.40 mark. UK public finance data and the CBI order data will be published today. EUR/GBP is drifting lower in the 0.8928/0.8692 consolidation range. The day-to-day momentum is sterling positive but we keep the view that the EUR/GBP 0.87 area is a tough resistance. Gains of cable beyond 1.40 might also become less easy .
EUR/USD: stays away from recent top despite US political uncertainty
