Currencies: Will payrolls be able to provide any guidance for USD trading

Transcription

1 Rates: Developments on trade scene trump US payrolls Development on the US trade scene could underpin demand for core bonds going into the weekend and overshadow today s payrolls report. US President Trump s verdict on an additional $200bn of Chinese goods looms, talks with Canada are deadlocked, negotiations with the EU restart on Monday and Japan could be targeted next. Currencies: Will payrolls be able to provide any guidance for USD trading Yesterday, EUR/USD didn t show a clear picture as global uncertainty persisted. Today, the focus remains on the US. Payrolls are expected solid, but will the report be strong enough to inspire any sustained USD gains? USD/JPY is becoming more vulnerable to global trade tensions as US president Trump might target Japan next. Calendar Headlines Major US equity indices lost ground on Thursday with NASDAQ (-0.91%) underperforming for a second straight day. Asian markets wary looming new tariffs and open with losses, heading for their worst week since February. The public comment period on the tariffs targeting $200bn of Chinese imports ended this morning. So far, the White House has made no announcements. Businesses made a last-minute push to convince Trump to reverse course. S&P Eurostoxx 50 Nikkei Oil CRB Gold 2 yr US 10 yr US 2yr DE 10 yr DE EUR/USD USD/JPY EUR/GBP US President Trump s hunger for trade wars hasn t been satisfied, hinting that Japan could be targeted next. He said he has a good relationship with Japan, but that it will end as soon as he tells them how much they have to pay. Brazilian s far-right presidential candidate Jair Bolsonaro, who currently leads opinion polls, was stabbed during a street rally. The former Army officer underwent surgery and is in stable condition, according to hospital officials. The leaders of France, Belgium, The Netherlands and Luxembourg warned the UK that cherry picking of EU rules is not an option. French President Macron added that EU members will stay extremely united. Canada is still in full negotiations with the US over a renewal of Nafta. After talks yesterday, a US official said three key issues remain in the way of a deal: future trade disputes, dairy quotas and cultural issues. Talks continue today. Today s US eco calendar contains payrolls, unemployment rate and average hourly wages for August. Several Fed members speak. In the UK, the BoE releases the household expectation for inflation. P. 1

2 Rates Friday, 07 September 2018 Trade scene to overshadow US payrolls? US yield -1d 2 2,63-0,02 5 2,74-0, ,87-0, ,05-0,02 DE yield -1d 2-0,57-0,01 5-0,20-0, ,36-0, ,03-0,02 Global core bond marched higher yesterday. Investors sailed flows into safe havens as uncertainty about US President Trump s trade policy looms. US tech groups issued a last-minute demand to ring-fence some products from being included on a list of $200bn in new tariffs on Chinese imports. Will the US President nevertheless push through and escalate the conflict with China? The WSJ in the meantime reports that Japan will be the next target. NAFTA talks are deadlocked while talks with the EU over the July Juncker/Trump agreement restart on Monday. The trade narrative took the shine off yesterday s US eco data. The August ADP employment report didn t make the consensus bar, but the 163k outcome was more than decent. Weekly jobless claims hit the lowest level since December 1969 and the non-manufacturing ISM was nearly as bright as Monday s manufacturing gauge, unexpectedly rising from 55.7 to Heavyweight NY Fed governor Williams reiterated FOMC Chair Powell s message in Jackson Hole. The US economy is in some goldilocks situation and there are nog signs yet that the Fed should step up its gradual hiking cycle. Brent crude dived lower during yesterday s US dealings, but core bonds already reached their intraday tops by then. US yields dropped 1.7 bps (2-yr) to 2.9 bps (10-yr) by the end of the day. Daily German yield changes ranged between -1.3 bps (2-yr) and -2.5 bps (10-yr). 10-yr yield spreads vs Germany widened slightly with Italy underperforming (+15 bps due to BB benchmark change) and Greece outperforming (-12 bps). Most Asian stock markets lose ground overnight with China marginally outperforming. The US Note future stabilizes near yesterday s highs. We expect a neutral opening for the Bund. The August payrolls report will be released today. Employment components from this month s ISM s and the ADP report suggest a solid report. However, consensus expects a 191k increase which is already rather high given tightness on the US labour market. We expect a near consensus outcome. The US unemployment rate is forecasted to decline further to 3.8%, matching this year s and the 2000 cycle low. Average hourly earnings should come in at 0.2% M/M and 2.7% Y/Y. Overall, we fear that payrolls won t be today s main trading theme. A September Fed rate hike is discounted, but the jury is still out about a December move (our scenario). We rather believe that core bonds today will be underpinned ahead of the weekend, watching developments on the trade scene. FOMC speakers are wildcards. Technically, both the German 10-yr yield and the US 10-yr yield remain firmly anchored within sideways trading ranges, respectively between 0.3% and 0.5% and between 2.8% and 3%. We advise to play these ranges. Af German 10-yr yield: 0.3%-0.5% sideways range US 10-yr yield: Moving higher in 2.8%-3% range trading P. 2

3 Currencies Will payrolls unlock the USD stalemate? R2 1,2155-1d R1 1,1996 EUR/USD 1,1623-0,0007 S1 1,1510 S2 1,1448 R2 0,9033-1d R1 0,8968 EUR/GBP 0,8990-0,0022 S1 0,8628 S2 0,8548 On Thursday, EUR/USD basically kept a sideways trading pattern. US data were mostly strong but failed to inspire any meaningful USD gains. The negative risk sentiment had also little impact on EUR/USD trading. The pair closed at , little changed from Wednesday evening. The global equity correction finally also caused some safe haven bid for the yen. The slide in USD/JPY accelerated on press headlines that Japan could be the next target in president Trump s campaign to address issues on trade. USD/JPY closed the day at (from ). This morning, global risk sentiment remains negative. Most Asian equity indices shows moderate losses. EM tensions haven t disappeared yet, but most of the hard-hit EM currencies show signs of stabilization. EUR/USD hovers near The yen remains strong (USD/JPY near ). Today, the focus probably remains on the US. Regarding the data, the US payrolls take center stage. Job growth is expected solid ( ). Markets will again keep close eye on wage growth (AHE expected at 2.7% Y/Y). The payrolls remain important for USD trading. However, of late, the reaction of the USD (and of interest rate markets) to US eco data was often muted. A big surprise is apparently needed for markets to change expectations on the Fed rate path. New actions from president Trump on international trade (China tariffs/canada) remain a wildcard. Risk-off related to trade war issues had only a limited impact on EUR/USD trading of late. USD/JPY might become more vulnerable. Recently, the dollar lost some momentum and pressure on the euro due to uncertainty on Italy eased. We maintain the view the EUR/USD / resistance will be tough and keep a cautious USD positive bias even as we are well aware that the USD momentum was far from impressive of late. Yesterday, in technical trade, sterling trade with a slightly positive bias. There were no eco data and there was no high profile brexit news. EUR/GBP finished the session just below the 0.90 handle. More technical order driven trade might be on the cards today. There are only second tier eco data on the agenda in the UK today. Some more consolidation near EUR/GBP 0.90 might be on the cards. We don t anticipate a sustained sterling rebound as long as there is no breakthrough on one of the key brexit issues. EUR/USD: dollar going nowhere. Will payrolls give clear guidance? EUR/GBP: sterling enters calmer waters P. 3

4 Calendar Friday, 7 September Consensus Previous US 14:30 Change in Nonfarm Payrolls (Aug) 191k 157k 14:30 Change in Private Payrolls (Aug) 194k 170k 14:30 Change in Manufact. Payrolls (Aug) 23k 37k 14:30 Unemployment Rate (Aug) 3.8% 3.9% 14:30 Average Hourly Earnings MoM/YoY (Aug) 0.2%/2.7% 0.3%/2.7% 14:30 Labor Force Participation Rate (Aug) % Canada 14:30 Unemployment Rate (Aug) 5.9% 5.8% Japan 01:30 Household Spending YoY (Jul) 0.1%A -1.2% 02:00 Labor/Real Cash Earnings YoY (Jul) 1.5%/0.4% 3.6%/2.8% UK 09:30 Halifax House Prices MoM/3Mths-Year (Aug) 0.1%/3.7% 1.4%/3.3% 10:30 BoE/TNS Inflation Next 12 Mths (Aug) % EMU 11:00 Gross Fix Cap QoQ (2Q) 1.0% 0.3%R 11:00 Govt Expend QoQ (2Q) 0.4% 0.1%R 11:00 Household Cons QoQ (2Q) 0.3% 0.5% 11:00 GDP SA QoQ/YoY (2Q F) 0.4%/2.2% 0.4%/2.2% Germany 08:00 Imports/Exports SA MoM (Jul) 0.1%/0.3% 1.3%R/0.1%R 08:00 Industrial Production SA MoM/WDA YoY (Jul) 0.2%/2.6% -0.9%/2.5% France 08:45 Industrial Production MoM/YoY (Jul) 0.2%/1.0% 0.6%/1.7% 08:45 Manufacturing Production MoM/YoY (Jul) 0.2%/1.6% 0.6%/1.6% Events 14:30 Fed's Rosengren Makes Opening Remarks at Boston Fed Conference 15:00 Fed's Mester Moderates Panel at Boston Fed conference 18:45 Fed's Kaplan Speaks at Energy Conference in Dallas P. 4

5 10-year Close -1d 2-year Close -1d Stocks Close -1d US 2,87-0,03 US 2,63-0,02 DOW 25995,87 20,88 DE 0,36-0,03 DE -0,57-0,01 NASDAQ 7922,726-72,45 BE 0,71-0,02 BE -0,48-0,01 NIKKEI 22310,67-177,27 UK 1,42-0,03 UK 0,74 0,00 DAX 11955,25-85,21 JP 0,11 0,00 JP -0,11 0,00 DJ euro ,95-19,67 IRS EUR USD GBP EUR -1d -2d USD -1d -2d 3y -0,01 2,86 1,17 Eonia -0,3570-0,0010 5y 0,29 2,88 1,31 Euribor-1-0,3710-0,0020 Libor-1 2,1205 0, y 0,88 2,94 1,52 Euribor-3-0,3190 0,0000 Libor-3 2,3168 0,0000 Euribor-6-0,2690 0,0000 Libor-6 2,5406 0,0000 Currencies Close -1d Currencies Close -1d Commodities Close -1d EUR/USD 1,1623-0,0007 EUR/JPY 128,73-0,98 CRB 189,78-1,23 USD/JPY 110,75-0,78 EUR/GBP 0,8990-0,0022 Gold 1204,30 3,00 GBP/USD 1,293 0,0025 EUR/CHF 1,1219-0,0084 Brent 76,50-0,77 AUD/USD 0,72 0,0007 EUR/SEK 10,5852 0,0545 USD/CAD 1,3142-0,0036 EUR/NOK 9,789 0,0247 If you no longer wish to receive this mail, please contact us: to unsubscribe Contacts Brussels Research (KBC) Global Sales Force Mathias Van der Jeugt Corporate Desk(Brussels) Peter Wuyts Institutional Desk(Brussels) Mathias Janssens CBC Desk (Brussels) Dieter Lapeire France Dublin Research London Austin Hughes Singapore Shawn Britton Prague Research (CSOB) Prague Jan Cermak Jan Bures Bratislava Research (CSOB) Marek Gabris Bratislava Budapest Research David Nemeth Budapest ALL OUR REPORTS ARE AVAILABLE VIA OUR KBC RESEARCH APP (iphone, ipad, Android) This non exhaustive information is based on short term forecasts for expected developments This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice. P. 5