FX News Today
European Fixed Income Outlook: 10-year Bund future opened at 159.71, versus a close of 159.63 on Wednesday. The 10-year cash yield is down -0.5 bp at 0.402%, while Treasury and JGB yields are still up 0.2 bp, but down from earlier highs. A rebound in Asian stock markets on hopes of fresh US-Sino trade talks put pressure on core bonds, but Chinese markets quickly erased much of their early gains, and in Europe fresh Italy jitters amid reports that Finance Minister Tria threatens to resign over budget talks, is adding support o Bunds in opening trade. US futures are heading south after a closing narrowly mixed on Wednesday. There is some speculation that Trump may be changing shift with increased efforts behind the scenes to reach deals in orders to win support, but investors remain cautious. EM markets also remain in focus as Turkey’s central bank meets amid ongoing political pressure not to hike rates too much if at all. Oil prices pulled back from highs over USD 70 per barrel and are trading at USD 69.86. Released at the start of the session German HICP inflation was confirmed at 1.9% y/y as expected, but the focus is on ECB and BOE meetings today. Both are expected to keep rates unchanged, but Draghi is also likely to confirm the planned phasing out of QE, while downward revisions to growth projections and unchanged cautious guidance on rates will offer an opportunity to wrap the changes in a dovish leaning presser.
FX Update: Yen weakness has been the dominant theme, albeit moderate, during the pre-London open session in Asia, while the Dollar has consolidated losses seen yesterday. USDJPY lifted as the Japanese currency saw some more of its safe haven premium unwind following news yesterday of the US invitation to senior Chinese officials to restart trade talks. This comes, in true Trumpian fashion, with the US having loaded the gun with tariff hikes on a further $200 bln worth of Chinese imports and threatening to hike tariffs on the remaining £267 bln of imports. USDJPY has lifted to back the mid 111.0s, while EURJPY, AUDJPY and other Yen crosses have concurrently firmer up. Most stock markets in Asia have rallied. EURUSD, after printing a one-week high yesterday at 1.1650 (after news of the US invitation broke), has drifted to around the 1.1620 mark. The biggest mover out of the main Dollar pairings and associated cross rates has been AUDJPY and CHFJPY, with both showing 0.3% gains.