- Rates: US Treasuries outperform in risk-off context
US stock markets are finally showing vulnerability to the second wave of US virus infections. The S&P 500 approaches key support at 2954. US Treasuries rallied, outperforming German Bunds. Today’s empty eco calendar suggests that similar trading dynamics will be at play.
- Currencies: Dollar doesn’t profit from risk-off
The rise in corona infections in the US weighed on global market sentiment on Friday. However, this time the dollar didn’t profit. The US currency also lost substantial interest rate support versus the likes of the euro. This morning sentiment remains fragile. We see the downside of EUR/USD rather well protected. EUR/GBP is testing the 0.91 big figure.
The Sunrise Headlines
- Wall Street finished deep in the red on Friday amid concerns over the coronavirus spike. The DJI (-2.84%) underperformed. Asian markets also trade heavy with losses mounting up to 2% in Japan and Australia.
- Global infections with Covid-19 set a new daily record, bringing the cumulative total over 10 mln. In the US, Arkansas was the latest state to pause its reopening of the economy as cases in the broad south continue to rise.
- The greens won several major cities including Marseille during yesterday’s second round of local French elections. Macron’s LREM party lost mayoral elections to the ruling socalist Hidalgo.
- UK Prime Minister Johnson rejected a return to austerity and vowed to spend large sums of money on hospitals, schools and roads to kickstart the economy in the post-coronavirus era. The plans will probably be announced on Tuesday.
- Chinese industrial profits continue to recover from the coronavirus blow in March and April. Profits rose 6% y/y in May. For the first 5 months however, profits are still down 19.3% compared to the same period a year earlier.
- Polish presidential elections produced an inconclusive outcome with incumbent president Duda taking some 40% of the votes while his contestant took 30%. A run-off contest will be held at July 12.
- Today’s economic calendar contains US housing data and the EC’s economic confidence for the EMU. Germany publishes June inflation figures. A slew of ECB, BoE and Fed speeches are due.
Currencies: Dollar Doesn’t Profit From Risk-Off
Dollar doesn’t profit from risk-off
Global trading was dominated by the rise in corona infections, in particular in the US on Friday. The worsening situation in the US caused an underperformance of US equities with US indices losing 2.5%/3%. Of late, the dollar often still outperformed even as developments/data from US were source of global uncertainty. This wasn’t the case on Friday. US yields declined sharply and the dollar reversed early gains. EUR/USD closed little changed at 1.1219. This was also the case for USD/JPY (close 107.22), but the intraday pattern was different.
This morning, Asian equity are also trading in risk-off modus. China slightly outperforms. This weekend, China May industrial profits rebound to 6% Y/Y, suggesting a further rebound in the economy. Moves in the major FX cross rates mostly are modest, but the USD still doesn’t profit from the risk-off. The TW dollar (DXY) is trading near 97.25. EUR/USD is gaining modest ground (1.1250). USD/JPY is little changed (107.15 area). The Aussie dollar remains well bid (0.6880 area) even as there is a rise in infections in some region of the country, too.
Today, the eco calendar is moderately interesting. German inflation data and the EU confidence data will be published. Of late, EMU data were not that bad. Solid EC confidence data might be (slightly) euro supportive. Headlines on the spreading of the corona virus and its impact on the reopening in the (US) economy will dominate global trading. It’s becoming less evident for the dollar to profit from corona-related uncertainty as the reopening of the US economy might be slowed. The USD is also losing further interest rate support. Last week, EUR/USD corrected modestly lower, but the 1.1160 support area was left intact. We expect this support to hold and look for the EUR/USD cross rate to start some bottoming out process. EUR/USD 1.1349 is first topside resistance.
EUR/GBP initially traded rather stable in the mid 0.90 area, but further deterioration in global sentiment finally caused the pair to close the week near the 0.91 area. During the weekend, PM Johnson announced a plan to rebuild schools in coming year, aiming to support the post-corona economic rebound. For now, this promise doesn’t help sterling much. Sentiment on sterling remains fragile and EUR/GBP shows tentative signs of a further upside break. We stay cautious on sterling
EUR/USD: dollar doesn’t profit from risk-off