Rates: Consolidation ahead?
Risk sentiment improved overnight as US officials softened trade rhetoric again after last week’s hawkish opening bets. More signs of North Korean willingness to de-nuclearize are supportive as well. We expect consolidation on core bonds markets this week given the relatively thin eco calendar. Tomorrow’s speech by Xi Jinping is a wildcard.
Currencies: Soft US payrolls block tentative USD rebound
Of late, the dollar held a cautious positive momentum even as the trade dispute between the US and China persisted. However, a soft US payrolls report blocked any further USD gains. This week the focus turns to the US price data. However, sustained further USD gains probably remain difficult as long as uncertainty on trade is clouding the Fed rate hike outlook
The Sunrise Headlines
- US stock markets ended the week on a bad note, losing more than 2%, after Chinese officials contradicted US rhetoric that trade negotiations were ongoing. Risk sentiment improved this morning, with Asian indices gaining around 0.5%.
- After threatening to slap China with new tariffs, Trump administration officials softened the rhetoric, noting that the penalties aren’t imminent and there is ample time to work out a deal and step back from a possible trade war. (WSJ)
- North Korea has said it is willing to discuss de-nuclearisation with the US, a Trump administration official said, increasing changes of an unprecedented summit between North Korean leader Kim Jung Un and the US president (FT).
- Fed Chair Powell said that the outlook for inflation and employment support further gradual interest-rate increases, while the lack of a spike in wage gains shows the labor market is “not excessively tight.” He added that it’s too soon to know if the trade issue would take its toll on the US economy.
- Hungarian PM Orban scored a crushing election victory to clinch a fourth term in a boost to Europe’s populist forces that are challenging the EU’s multi-cultural, democratic values. He’s on track to score another 2/3rd majority.
- China’s foreign-currency holdings resumed gains last month as the government kept capital curbs in place and the yuan capped its best quarter in a decade. Reserves rose $8.34 bn to $3.143 tn in March from the previous month.
- Today’s eco calendar only contains second tier eco data. ECB Constancio and Praet are scheduled to speak.
Currencies: Soft US Payrolls Block Tentative USD Rebound
Soft payrolls block tentative USD rebound
The US-China trade dispute and the payrolls were the main drivers for USD trading last Friday. US president Trump opened the door for a new batch of tariffs on Chinese imports. China indicated soon that it could take countermeasures. The trade headines were a slightly negative for the dollar, but the damage remained limted. US payrolls disappointed (except for wage growth) and were an additional USD negative. USD/JPY drifted back south to the 107 area. EUR/USD traded near 1.2230 before the payrolls, but closed the session at 1.2281. Fed’s Powell supported the scenario of gradual further rate hikes in a speech, but had no big impact on USD trading.
The narrative on the trade war turned a bit softer during the weekend as president Trump suggested that a deal with China remains possible. Asian equities mostly show decent gains despite the sell-off in the US on Friday. The impact of the swings in equities on the dollar remains modest as was often the case of late. EUR/USD hovers in the 1.2275 area. USD/JPY tries to regain the 107 mark.
There are no data in the US today and only second tier data in Europe. ECB’s Constancio and Praet speak. US CPI/price data will be closely monitored later this week. Headline inflation (Wednesday) is expected to rise 0.0% M/M and 2.4% Y/Y. (Gradually) rising US inflation could be a ST USD supportive in theory. However, the swings in the trade war debate will probably continue to dominate the headlines. USD investors/traders avoided clear directional position taking on the trade issue. This indecisive trading pattern might persist as long as there is no clear sign that the issue might be solved in a constructive way. Last week, EUR/USD drifted gradually lower in the 1.2476/1.2155 ST consolidation pattern. A sustained break of this range bottom will probably remain difficult as long as Fed rate hike expectations are clouded by global trade uncertainty.
Sterling ignored soft (weather related) PMI’s last week. The risk-on/risk-off balance gave only limited directional guidance for sterling trading. Today, only the Halifax house prices are scheduled for release. A better equity sentiment might be marginally sterling supportive. However, we don’t see a trigger currently for EUR/GBP to break the mid 0.86 support area in a sustainable way.
EUR/USD near bottom of MT sideways range. Poor payrolls prevent real downside test
