Headlines - Microsoft...Thursday, 13 September 2018 P. 3 EUR/USD: no market theme dominant enough to break EUR/USD stalemate EUR/GBP: diffuse Brexit headlines are leaving sterling

Thursday, 13 September 2018

P. 1

Rates: ECB straightjacketed, Turkish CB could influence risk sentiment

The ECB meets today, but normally won’t deliver fireworks. Rumours suggest small downward revision to the growth scenario, but that’s probably insufficient to really boost Bunds. Italian BTP’s might return in the fire line as FM Tria threatened to quit over the 2019 budget. The Turkish central bank meeting could influence global risk sentiment via EM FX.

Currencies: Dollar and sterling still lack a clear story

Yesterday, EUR/USD rebounded temporarily on easing trade tensions. However, multiple sources of (global and EMU) uncertainty continue to provide downside protection to the dollar. Today’s ECB and BoE meetings probably won’t change the picture for USD and GBP trading. USD traders will continue to look for guidance from global risk sentiment.

Calendar

• US equity markets could just hold their head above water on Wednesday with

the exception of NASDAQ (-0.23%). Asian markets opened mixed today, with Japan outperforming the bunch and China noting losses.

• US Treasury secretary Steven Mnuchin is pushing to meet Liu He, a top Chinese economic official, in an attempt to defuse further escalation of the trade war before President Trump imposes tariffs on another $200bn of Chinese imports.

• Federal Reserve Governor Brainard has indicated that the Fed could maintain gradual interest rate hikes for the next year or two, possibly to more than 3%. She said the labour market is very strong and growth is likely to remain solid.

• Canada’s Freeland will not return to Washington today to continue negotiations over a renewal of Nafta, as more preparations are needed. Mexico repeated it is prepared to pursue a trade deal with the US without Canada.

• UK Brexit Minister Dominic Raab said yesterday that a deal between the UK and EU is within reach. He also confirmed that if a ‘no deal’ scenario would take place, the UK would not pay the terms of the financial settlement.

• Australia’s labour market remains very strong in August, with 44k new jobs. The rise in full time jobs (+34k) is the biggest contributor. Unemployment rate remains at record low (5.3%) and participation rate rises to 65.7%.

• Today’s US eco calendar is interesting, with CPI’s and unemployment numbers in the US. Central banks in the UK (BoE), in Europe (ECB) and in Turkey are holding their September meeting. Fed’s Bostic speeches tonight.

Headlines

S&PEurostoxx 50NikkeiOilCRB

Gold2 yr US10 yr US

2yr DE10 yr DEEUR/USDUSD/JPYEUR/GBP

Thursday, 13 September 2018

P. 2

More outperformance of German Bund vs US Note future

Global core bond sentiment improved yesterday. German Bunds outperformed US Treasuries. The rise occurred gradually. Rumours about a potential downward revision to today’s new ECB growth forecasts might have been at play. The ECB might even shift its risk assessment from broadly balanced to downward according to the same people familiar with the matter. The eco calendar contained disappointing, but outdated, July industrial production data and lower-than-expected August US PPI. The US Treasury’s 10-yr note auction went well. Washington –based Fed governor Brainard argued in favour of hiking beyond the current estimate of the neutral rate (3%) and expects the current tightening cycle to last into 2020. Her comments helped to explain the underperformance of the front end of the US yield curve. Daily changes ranged between +0.4 bps (2-yr) and -1.5 bps (30-yr). The German yield curve bull flattened with yields 0.8 bps (2-yr) to 2.1 bps (30-yr) lower. 10-yr yield spread changes vs Germany ranged between -1 bp (Portugal) and +3 bps (Italy).

Asian stock markets started strong this morning, boosted by talks that the US has invited Chinese officials to restart trade talks. Risk sentiment is faltering again though as we enter the final Asian trading hour(s). The US Note future trades a tad weaker. Italian newspaper La Stampa reports that Italian FM Tria threatened to resign in the wake of the struggle over next year’s budget. 5SM leader Di Maio yesterday said that he wants €10bn instead of €5bn to be allocated to a higher basic income, putting Tria’s pledge to align with EU budget rules again in danger. We expect BTP’s to suffer somewhat at the start of dealings which could give some support to the Bund as well.

The ECB meets today. With the ECB’s policy straightjacketed at least until next year’s Summer, we don’t expect any lasting impact even if the Bund could receive some short term support in case of significant downward revisions to the growth scenario. We hold a close eye on today’s Turkish central bank meeting as well. Last week, they pledged to finally hike interest rates, but will the rate hike be sufficiently large to further ease tensions in TRY? The market reaction on TRY could influence other EM FX and general risk sentiment. The US eco calendar contains CPI inflation (0.3% M/M & 2.8% Y/Y expected), weekly jobless claims, speeches from several Fed governors and a 30-yr Bond auction. Markets might especially be sensitive to inflation running further away from the Fed’s 2% target. We expect the Bund’s outperformance vs US Treasuries to last.

Technically, both the German 10-yr yield and the US 10-yr yield moved in the upper part of their sideways trading ranges, respectively between 0.3% and 0.5% and between 2.8% and 3%. We advise to play these ranges.

Rates

US yield -1d2 2,75 0,005 2,86 -0,0110 2,96 -0,0130 3,11 -0,01

DE yield -1d2 -0,55 -0,015 -0,16 -0,0210 0,41 -0,0230 1,09 -0,02

German 10-yr yield: 0.3%-0.5% sideways range

US 10-yr yield: Closing in on a test of 3%

Af

Thursday, 13 September 2018

P. 3

EUR/USD: no market theme dominant enough to break EUR/USD

stalemate

EUR/GBP: diffuse Brexit headlines are leaving sterling in a limbo

US CPI data and CB’s to guide global FX trading

Yesterday, there was no dominant story for global trading. European equities outperformed Asia and the US but gains remained modest. EMU July production was weak. US PPI was also softer than expected. EUR/USD initially lost a few ticks. Later, markets outside the US were supported by headlines that the US and China might resume trade talks. The dollar weakened. EUR/USD closed at 1.1626. USD/JPY traded in line with overall USD softness and closed at 111.26. In a broader perspective, EUR/USD and USD/JPY are holding recent tight ranges. Overnight, the hope of a restart of the US-China trade talks caused a rebound of Asian equities on recent steep decline. The move was supported by strong Japanese machinery orders. EM currencies also succeed a broad-based rebound. EUR/USD (1.1630 area) maintains yesterday’s gain. USD/JPY (111.40) is trading marginally higher on the risk rebound. AUD/USD rebounded to the high 0.71 area, on overall dollar weakness and on very strong August job growth in Australia. Today, the US CPI data will be published (headline expected 2.8Y/Y from 2.9%; core stable at 2.4%). An upward surprise probably wouldn’t go unnoticed on (FX) markets. However, the focus might be on the ECB policy meeting. The decision of the Turkish central bank might have consequences for broader FX. ECB staff economic forecast might bring a mixed story (tentative lower growth but higher inflation). We don’t expect the ECB to change policy guidance in a profound way. Budget talks in Italy and headlines on global trade remain wildcards for global (FX) trading. Of late, the USD, including EUR/USD, mostly held tight ranges. Overnight, global trends (EM, trade talks) turned slightly in the disadvantage of the USD, but we are not convinced that this more positive global sentiment (and thus a softer USD) will persist. EUR/USD is locked in a tight 1.1520/ 1.1750 consolidation pattern. We don’t anticipate a break of this range yet. MT we assume that fundamentals continue give the USD downside protection.

Yesterday, EUR/GBP hovered close to, mostly slightly north of 0.89 as investors faced conflicting headlines on Brexit (positive tone from the EU, ongoing opposition for May from headline Brexiteers). We expect this pattern to continue today. The BOE will announce its policy decision. However, no change is expected after last month’s rate hike. We maintain the view that ‘real’ brexit progress is needed to justify a sustained comeback of sterling.

Currencies

R2 1,2155 -1dR1 1,1996EUR/USD 1,1626 0,0020S1 1,1510S2 1,1448

R2 0,9033 -1dR1 0,8968EUR/GBP 0,8914 0,0009S1 0,8628S2 0,8548

Thursday, 13 September 2018

P. 4

Thursday, 13 September Consensus Previous US 14:30 CPI MoM/YoY (Aug) 0.3%/2.8% 0.2%/2.9% 14:30 CPI Ex Food and Energy MoM/YoY (Aug) 0.2%/2.4% 0.2%/2.4% 14:30 Initial Jobless Claims 210k 203k 14:30 Continuing Claims 1710k 1707k 14:30 Real Avg Hourly/Weekly Earnings YoY (Aug) -- -0.1%R/0.1% Japan 01:50 PPI MoM/YoY (Aug) 0.0%A/3.0%A 0.4%R/3.0%R UK 13:00 Bank of England Bank Rate 0.75% 0.75% EMU 13:45 ECB Main Refinancing Rate 0.000% 0.000% 13:45 ECB Marginal Lending Facility 0.250% 0.250% 13:45 ECB Deposit Facility Rate -0.400% -0.400% Germany 08:00 CPI EU Harmonized MoM/YoY (Aug F) 0.1%/2.0% 0.0%/1.9% France 08:45 CPI EU Harmonized MoM/YoY (Aug F) 0.6%/2.6% 0.6%/2.6% Sweden 09:30 GDP QoQ/WDA YoY (2Q F) 0.9%/3.3% 1.0%/3.3% Events 11:00 Italy to Sell Bonds 13:00 BOE's Agents Summary of Business Conditions 14:30 ECB President Draghi Holds Press Conference in Frankfurt 15:30 ECB Publishes Macroeconomic Projections 16:00 Fed's Quarles Testifies to Senate Banking Committee (postponed) 19:00 US to Sell USD15 Bln 30-Year Bonds 19:00 Fed's Bostic Gives Speech on Economy and Monetary Policy

Calendar

Thursday, 13 September 2018

P. 5

10-year Close -1d 2-year Close -1d Stocks Close -1dUS 2,96 -0,01 US 2,75 0,00 DOW 25998,92 27,86DE 0,41 -0,02 DE -0,55 -0,01 NASDAQ 7954,229 -18,24BE 0,74 -0,02 BE -0,45 0,00 NIKKEI 22821,32 216,71UK 1,48 -0,02 UK 0,79 0,00 DAX 12032,3 62,03

JP 0,11 0,00 JP -0,11 0,00 DJ euro-50 3326,6 14,94

IRS EUR USD GBP EUR -1d -2d USD -1d -2d3y 0,00 2,98 1,23 Eonia -0,3710 -0,00705y 0,31 2,99 1,37 Euribor-1 -0,3710 0,0010 Libor-1 2,1479 0,000010y 0,92 3,03 1,58 Euribor-3 -0,3190 0,0000 Libor-3 2,3343 0,0000

Euribor-6 -0,2690 0,0000 Libor-6 2,5578 0,0000

Currencies Close -1d Currencies Close -1d Commodities Close -1d

EUR/USD 1,1626 0,0020 EUR/JPY 129,36 -0,19 CRB 193,36 1,69USD/JPY 111,26 -0,37 EUR/GBP 0,8914 0,0009 Gold 1210,90 8,70GBP/USD 1,3045 0,0012 EUR/CHF 1,1289 0,0004 Brent 79,74 0,68AUD/USD 0,7169 0,0050 EUR/SEK 10,4405 -0,0539USD/CAD 1,2998 -0,0069 EUR/NOK 9,6047 -0,0515

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