Currencies: Trump Again Accused EU And China Of Currency Manipulation

• Rates: Bond markets to trade subdued ahead of payrolls
  Bonds oscillated near strong opening levels yesterday. Markets refused directional positioning ahead of the US holiday (today) and payrolls (tomorrow) despite disappointing data in the US. We expect low-volume trading today with very little guidance from the eco calendar.
• Currencies: Trump again accused EU and China of currency manipulation
  EUR/USD stabilized in the 1.13 area. Eco data brought no strong enough guidance to trigger a directional move. A tweet from president Trump on EU and China currency manipulation had only limited and temporary impact. Today trading will be order driven and develop in thin condition as US markets are closed. EUR/GBP is still holding within reach of the 0.90 barrier

The Sunrise Headlines

• Triple jackpot on WS yesterday with the S&P (+0.77%), DJI (+0.67%) and Nasdaq (+0.75%) all closing at record highs during a holiday shortened session. Asia is trading mixed. Japan (+0.6%) outperforms.
• President Trump again said China and the EU are manipulating their currencies to compete with the US. He added that the US should take measures to counter this what he earlier called competitive disadvantage.
• The Hong Kong dollar strengthened to the highest level in two years over the past days as the highest interbank lending rate since 2008 makes the currency more attractive to hold vs. the US dollar.
• US and Chinese Representatives have been holding phone talks to revive trade negotiations since Trump and Xi met last Saturday. They said those talks will continue next week but didn’t elaborate on the timing for physical meetings.
• Poland’s central bank kept rates stable at 1.50% yesterday. Governor Glapinski said rates will stay stable until the end of 2021. A next move could be either up or down. The central bank expects CPI to rise next year before declining in 2021.
• Australia’s upper house Senate is set to approve a $110 bn tax cut plan after the lower house of parliament backed it on Tuesday. The Australian central bank said earlier fiscal stimulus was required to boost spending to revive its economy.
• Today’s event calendar won’t inspire markets. The US is closed (4th of July), (outdated) retail sales are due in the EMU. ECB’s chief economist Lane is scheduled to speak. Spain and France tap the bond market

Currencies: Trump Again Accused EU And China Of Currency Manipulation

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Bonds to show little direction ahead of payrolls

Global core bonds started on a stronger footing yesterday after Trump picked two Fed nominees who are expected to support the case for lower rates while the ECB’s president to be Lagarde is likely to at least continue with Draghi’s very accommodative monetary policy. EMU figures (services PMI) was largely better than expected but the US data batch (ADP, non-manufacturing ISM) didn’t meet consensus. The impact on markets was surprisingly limited however. Investors chose not to position in a particular direction ahead of the 4th of July holiday and await the June payrolls on Friday. Bonds oscillated near opening levels instead. The US yield curve bull flattened with daily yield changes ranging from -0.2 bps (2-yr) to -2.4 bps (10-yr). German bond rates changed +0.5 bps (2-yr) to -1.8 bps (10-yr). The 10y yield tested the -0.40% depo rate. Greek spreads (-11 bps) narrowed significantly. The Italian spread (-24 bps!) fell below 200 bps for the first time since May 2018 as BTP’s received additional support after the European Commission decided to withhold the excessive debt procedure.

Wall Street staged a record breaking performance yesterday. All three major indices (DJI, S&P500, Nasdaq) closed at all-time highs. But Asian stocks couldn’t take heart from US optimism. Equities are trading mixed this morning. Markets are looking for guidance during a rather dull session with limited volumes. The US bond market is closed. The German Bund opens at yesterday’s closing levels.

Today’s economic calendar contains little to inspire trading. US financial markets are closed in observance for the 4th of July holiday. EMU retail sales are outdated (May) and we doubt they’ll have any impact whatsoever. ECB’s chief economist Lane’s speech might be worth following. Trading is likely to be trapped within narrow ranges and under low volumes however. We expect (European) bonds to hold near recent highs throughout the day.

Long term view: The onus of the ECB is back on potential easing measures including revamping asset purchases or cutting rates. The German 10-yr yield is hovering near all-time lows and is close to the ECB depo rate. There’s no trigger available at this stage to escape these lows, let alone negative territory. The Fed opened the door for cutting rates with a July rate cut discounted. The US 10-yr yield dipped below the 2.01% support and is hovering near 2016 levels. A weekly close below (after Friday’s payrolls) would strengthen the case for a sustained break and pave the way south.

Italian/German spread slips below 200 bps for the first time since May 2018.

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