Rates: Traditional risk correlation rather loose of late
Core bonds eked out some gains yesterday despite an impressive risk rally. The traditional risk correlation between stocks and bonds is rather loose of late. Today’s calendar isn’t really enticing suggesting more consolidation ahead. The next key event only arrives next week with a new ECB meeting.

Currencies: Dollar still facing conflicting signals preventing a clear directional trend
Yesterday, the EUR/USD rally was blocked after a poor ZEW confidence. However, the dollar also has no convincing momentum. Today, there are few eco data. Risk sentiment will set the tone for global trading. EUR/USD is perfectly holding within the established range. USD/JPY shows cautious signs of a ST bottoming out process

The Sunrise Headlines

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  • Strong earnings and easing geopolitical tensions lifted US stock markets 1% higher with Nasdaq outperforming (+1.75%). Asian bourses are positively oriented as well this morning with China underperforming.
  • The People’s Bank of China said it will cut the reserve-requirement ratio for some banks to reduce their funding costs and in turn help ease conditions for businesses and individuals. (BB)
  • The EC has drafted 30-40 proposals to amend laws and give special powers to regulators so that the union can deal with a no-deal Brexit scenario in March 2019 or after a transition period. (FT)
  • Atlanta Fed Bostic said “we have been clear our goal is to get to a more neutral stance in terms of interest rates. We are short of that right now.” He expects PCE inflation to be on target in the next month or two
  • Beijing has conceded to US policymakers by lifting ownership rules that limit foreign investment in Chinese carmakers, the first significant sign China is willing to bend to American demands. (FT)
  • German unions and employers ended marathon pay talks with a phased agreement to boost the pay of more 2 million public sector workers by some 7.5% over two-and-a-half years. (Reuters)
  • Today’s eco calendar contains UK and EMU (final) inflation data. The Bank of Canada holds a policy meeting. Fed Dudley and Quarles speak and the Fed releases its Beige Book. Germany taps the bond market

Currencies: Dollar Still Facing Conflicting Signals Preventing A Clear Directional Trend

Dollar still at the mercy of conflicting signals

Yesterday, dollar weakness was replaced by euro softness. EUR/USD traded temporary north of 1.24, but the gain could not be sustained. A poor ZEW investor confidence confirmed recent soft EMU data and weighed on the euro. US eco data were OK but the dollar simply continued the established intraday rebound. Fed Williams was positive on the US economy and on inflation, but hints that the Fed could shift more to price targeting rather than inflation targeting were mixed for the dollar. EUR/USD closed the session at 1.2370. USD/JPY closed at 107.01, despite a good run of US equities.

Overnight, Asian equities join the rebound on WS yesterday. China continues to underperform, despite the PBOC easing monetary conditions. In Japanese investors on the summit between US President Trump and Japan’s PM Abe. For now, no further high profile turbulence on trade issues is expected. US yields are marginally higher after yesterday’s remarkable rise of core bonds (given the equity rally). The impact on currencies is again mixed/diffuse. EUR/USD is holding stable in the 1.2375 area. USD/JPY profits from an easing global tensions and rebounds to the 107.35 area.

Today, there are no US data, but the Beige Book preparing the May 2 Fed meeting will be released. Fed’s Duddley and Quarles will speak. In the EMU the final March CPI will be released. An upward revision might be slightly supportive for the euro, but the report remains a bit of old news. Equities/earnings will probably remain the focus for trading. Trade issues might always resurface, we have the impression that this theme is moving a bit to the background. However, global risk sentiment recently had only a modest impact on major FX cross rates. In this context, we expect more technical trading within the established range. EUR/USD is perfectly holding the 1.2155/1.2550 consolidation pattern. USD/JPY shows tentative signs of a ST bottoming out proces.

Yesterday, UK labour data were close to expectations but kept the door open for modest BoE tightening. Intraday euro softness also pushed the pair further below 0.8650, but sterling falls prey to profit taking later. Today, the UK CPI is expected stable at 2.7%. Brexit ripples might resurface as the House of Lords debates amendments to PM May’s Brexit bill. The scenario of a May BoE rate hike won’t be questioned. In a day-to-day perspective, we look out whether the sterling rally might slow as the break below 0.8650 proves difficult.

USD (tradeweighted): dollar going nowhere

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