Sunrise Market Commentary
- Rates: Powell to confirm Fed’s path to policy normalization
Over the previous days, core bonds staged a cautious technical rebound as investors were looking forward to today’s hearing of Fed’s Powell before Congress. We expect the Fed chairman to hold a positive tone on the US economy, in line with the previous Fed minutes. If so, it probably doesn’t leave that much room for further gains of US Treasuries. - Currencies: Will Powell give the dollar some downside protection
Yesterday, the dollar hovered up and down as investors awaited today’s hearing of Fed’s Powell on Capitol Hill. Will the Fed chairman signal a big enough Fed engagement on policy normalization to provide the USD some downside protection. UK labour leader Corbyn’s preference for the UK to stay in a customs union with the EU doesn’t help sterling for now
The Sunrise Headlines
- US equity markets started the week on a strong footing, extending the rally from the end of last week. Major US indices closed 1.15% (Nasdaq) to 1.58% (Dow) higher. Asian markets join the rebound from the US. China underperforms, trading in negative territory.
- At the last policy meeting of Governor Lee Ju-yeol, the Bank of Korea kept its policy rate unchanged. Lee said that the BoK was not obliged to follow a global withdrawal of stimulus. The Bank of Korea is expected to tighten policy only in a gradual way after its hike to 1.50% in November.
- The EU is said to publish a draft Brexit treaty on Wednesday in which it will set out in legal detail how it expects the U.K. to depart from the EU and the terms of a transition period that will follow, according to sources. The report probably won’t meet the UK’s demand on several key issues.
- According to Bloomberg, Apple is preparing to release a trio of new smartphones later this year: the largest iPhone ever, an upgraded handset the same size as the current iPhone X and a less expensive model with some of the flagship phone’s key features. With the new line-up, Apple wants to appeal to consumers who crave the multitasking attributes of so-called phablets while also catering to those looking for a more affordable version of the iPhone X..
- Today’s eco calendar is heavily packed containing, amongst others, German CPI data, EMU economic confidence and money supply data. In the US, the advance goods trade balance, US inventory data, durable goods orders, Housing data, the Richmond Fed manufacturing index and Consumer confidence (Conference Board) will be published. ECB’s Merch and Weidmann are scheduled to speak. The focus of markets will be on the hearing of Fed Chairman Powell before the House Financial Services Committee
Currencies: Will Powell Give USD Some Downside Protection
Will Powell give USD some downside protection
The dollar started the week on a soft footing, but gradually received a better bid later in the session despite soft comments from Fed’s Bullard. (FX) Markets were looking forward to today’s hearing of Fed Chairman Powell on the Hill and to plenty of eco data scheduled later this week. Investors apparently didn’t want to be too much short dollar going into these events. USD/JPY rebounded back to the high 106/low 107 area. EUR/USD reversed early gains and returned to the 1.23 area.
This morning, Asian equities join the rally from WS, with China underperforming. The dollar is losing a few ticks against the euro (EUR/USD currently 1.2330) and the yen (USD/JPY currently 106.85).
Today, there are plenty of data including German CPI, the US goods trade balance, durable goods orders and consumer confidence. However, the data will likely be overshadowed by the first semi-annual hearing of Fed Chairman Powell before the House financial services Committee. His testimony will probably be balanced. Even so, he will likely confirm that solid US growth requires further normalization of monetary policy. In the end, his message might be (mildly) USD supportive. Soft German inflation data might be a slightly negative for the euro. Of late,; we advocated some further consolidation of EUR/USD in the 1.25/1.2165 consolidation pattern. We maintain that view for now. We look out whether a positive assessment of Powell on the US economy and markets anticipating further US policy normalization might cause EUR/USD to go for a test of the 1.2165/1.2206 range bottom.
Yesterday, sterling initially profited from hawkish comments from BoE’s Ramsden this weekend and from UK Labour Party leader Corbyn supporting the case for the UK to enter a customs union with the EU after Brexit. However, for now his approach doesn’t break the UK political stalemate on Brexit. Sterling returned earlier gains. EUR/GBP rebounded north of 0.88. Today, there are no UK eco data. However, headlines suggest more headwinds from the EU to the Brexit agenda of the UK government. Over the previous days, sterling received a slightly better bid, but the move had no strong momentum. For now, the 0.8690 range bottom still looks a very solid support/GBP resistance
EUR/USD: dollar going nowhere. Will Powell provide the clue for a next directional move?
