Rates: Geopolitical tensions protect downside bonds short term
Risk sentiment will probably set the tone for trading. Rising geopolitical risks suggest short term downside protection for core bonds. Today’s eco calendar won’t move trading, but speeches by ECB Weidmann and Coeuré are wildcards. Will they follow fellow-hawk Nowotny who went off script on Tuesday, arguing in favour of a deposit rate hike soon after ending APP?
Currencies: EUR/USD rebound to slow post-Fed Minutes
Yesterday, the dollar remained in the defensive for most of the day. However, the US currency found a better bid after the publication of the Fed minutes. Is this a harbinger that the EUR/USD rally will slow? Today, the eco data will probably be only of intraday significance for USD trading. Geopolitics will remain a wildcard
The Sunrise Headlines
- US stock markets lost around 0.5% with Dow underperforming (-0.9%). Main Asian equity indices suffer a smaller setback with China underperforming.
- FOMC Minutes revealed that all participants wanted some further firming in rates because of the bullish eco outlook and optimism in inflation returning to 2%. A strong majority pointed to possible downside risks stemming from a trade war. There was also a debate on rising rates from a low level that spurs growth to being a neutral or restraining factor for economic activity.
- BoJ Kuroda stressed his resolve to maintain the central bank’s massive stimulus programme, even as he offered an optimistic view on prospects for meeting his 2% inflation target.
- The Bank of Korea kept its policy rate unchanged at 1.5%. Economic growth will be consistent with the path projected in January, but CPI for the year will be “slightly below” the 1.7% forecast.
- The Hong Kong dollar fell to a fresh 33-yr low, hitting the weakest end of the monetary authority’s targeted trading band amid persistent downside pressure as the interest rate gap between USD and HKD widened further. (Reuters)
- House Speaker Ryan said he would retire at the end of the term, sparking an intraparty battle to succeed him and rattling Republicans who expect a fierce struggle to maintain their majority. (WSJ)
- Today’s eco calendar contains EMU industrial production and US weekly jobless claims. ECB Coeuré, Weidmann and Fed Kashkari speak. The ECB publishes Minutes of its previous meeting. Italy and the US sell bonds.
Currencies: EUR/USD Rebound To Slow Post-Fed Minutes
EUR/USD rebound to slow post Fed Minutes?
The dollar initially traded with a negative bias yesterday, in line with the price pattern early this week. Geopolitical uncertainty (Syria)/risk-off weighed slightly on the dollar, rather than on the euro (or of course the yen). US CPI was as expected and had little impact on USD trading. EUR/USD trended higher in the 1.23 big figure. Later, the Fed Minutes acknowledged uncertainty from the China-US trade dispute, but the overall tone remained slightly hawkish. The dollar regained modest ground after the Minutes. EUR/USD closed the session little changed at 1.2367. USD/JPY finished the day at 106.79 (from 107.20).
Asian equities mostly show modest losses overnight as geopolitical uncertainty lingers Even so, dollar sentiment looks slightly less negative than earlier this week. (USD supported by modestly ‘hawkish’ Fed minutes?). USD/JPY hovers in the high 106 area. EUR/USD is drifting off yesterday’s ST peak, trading in the 1.2360 area.
EMU production data, US import prices and jobless claims are published today. ECB’s Weidmann, Coeure and Fed’s Kashkari speak. EMU data recently disappointed and this might also be the case for the EMU production data. US import price are expected to rise further (3.8% Y/Y from 3.5%). Jobless claims will probably ‘normalize’ back lower after last week’s uptick. In theory, today’s data could be marginally USD supportive. Markets will also keep a close eye at ECB speakers in the wake of Nowotny’s comments earlier this week. Geopolitics remain in play. Uncertainty was dollar negative earlier this week. However, we have to impression that the dollar might be slightly better supported in the wake of yesterday’s Fed minutes. Especially, the rebound in EUR/USD looks like losing momentum. EUR/JPY also struggles to regain a first important resistance. EUR/USD drifted higher in the 1.2155/1.2550 range earlier this week,. Has this correction run its course?
UK data (production, construction output and NIESR GDP estimate) all surprised on the downside yesterday. This weighed temporary on sterling, but EUR/GBP basically holds in the low 0.87 area. Overnight the RICS house prices were slightly softer than expected, with no negative impact on sterling. Sterling showed quite resillent of late. However, for now we don’t see a trigger to push EUR/GBP sustainably below the 0.8668/52 range bottom
EUR/USD rebound to slow?