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“EU Treat US Even Worse Than China”

Morning Briefing 16th August 2019

The week ends with the release of figures of the Eurozone’s trade balance at 1000BST. In the US the publication of data on housing starts and building permits at 1330BST as well as the release of the Michigan Sentiment index at 1500BST is worth noting.

The EZ’s trade surplus is forecast to narrow to EUR 18.5bn in June following an expansion in May. The trade surplus rose in May to EUR 20.2bn after two consecutive months contraction. Exports (+1.4%) rebounded m/m in May, while imports (-1.0%) recorded a second successive fall. Meanwhile, annual exports edged up 1.8pp to 7.1%, the highest level since October 2018. On the other hand, imports slowed to 4.3% in the month of May, revealing a four-months low.

The pace of US housing starts fell by 0.9% to a 1.253 million seasonally adjusted annual rate in June. Housing starts declined for the second successive month in June after April’s rebound. According to the MNI median, US housing starts are forecast to increase marginally to 1.257 million seasonally adjusted. Meanwhile, building permits eased by 6.1% in the month to a 1.220 million rate after a 0.7% increase to 1.299 million in May.

The preliminary Michigan sentiment index is projected to decline by 1.5 points to 96.9 on the month of August. Before the index edged up to 98.4 in July it reached a eight months high in May (100.0) and declined to 98.2 in June. The report notes that consumer confidence remained unchanged in July while economic sentiment holds stable since 2017, despite ongoing trade uncertainties.

The events calendar remains quiet on Friday with no major speeches scheduled.

Global Economic Trading Calendar

Markets

BOND SUMMARY: Core FI lost some ground as risk sentiment recovered, with benchmark equity indices in China & Japan moving into the green. Trump said he will speak with Xi on the phone soon; his remark that the “EU treats us even worse” sent T-Notes to session highs. On top of that, Trump stuck to his usual repertoire re: politics, trade & Fed. In regional risk events, North Korea said it will never speak with South Korea’s officials again and twice test-launched missiles off its Eastern coast. T-Notes last trade -0-02+ at 130-28. Cash Tsy yields 0.4-1.9bp higher across the curve, Eurodollars sit 0.5-1.5 tick lower.- JGB futures -1 tick at 154.90, off the session high at 155.01. The level was printed as the BoJ cut the size of its 5-10 Year JGB purchases to prevent further decline in 10-year yield, which had earlier touched its lowest levels since 2016. The impact of the BoJ’s move was limited; cash JGB yields sit slightly lower, save for the super-long end, while the 10-year yield still comfortably south of the lower end (-0.2%) of the BoJ’s target trading range.- Aussie bond futures range-bound; YM -0.5 tick, XM +1.0 tick. Aussie yield curve has twist flattened somewhat. Bills last seen unch. to -1 tick thru reds.- Bunds +0.31, Bobls +0.02, Schatz -0.010.

FOREX: U.S. Pres Trump provided the attendees of his campaign rally with a round of usual complaints about trade practices of China and the “even worse” EU. That said, in spite of little outright positivity on the wires, broader risk appetite improved somewhat. AUD appreciated vs. all of its G10 peers as a result, while also sapping strength from its Antipodean cousin via reported cross flows.- NZD was easily the worst G10 performer for the bulk of the session, before recovering sentiment shifted some weight to safe haven FX, pushing CHF to the bottom of the pile. The kiwi slipped early on as the latest NZ BusinessNZ manufacturing PMI survey indicated that the sector entered contraction for the first time since 2012. Despite paring some losses, NZD remains fragile.- RBNZ Gov Orr pushed back against criticism of last week’s larger than exp. OCR cut, saying that the Bank’s policymaking is “deliberately forward looking.”- USD/KRW opened slightly higher after S. Korean holiday break amid security concerns triggered by Pyongyang’s missile launches & hard-line rhetoric. – EZ trade balance features on today’s docket alongside U.S. U. of Mich. Sentiment & housing starts. Norges Bank Dep Gov Matsen is set to speak.

Technical Analysis

BUND TECHS: (U9) IMPULSIVE BULL PHASE

The U9 Bund uptrend extended again yesterday with the current impulsive phase still very much intact. The price sequence of higher highs and higher lows, that defines an uptrend remains intact and further price gains continue to be anticipated. Price action remains above trendline support that today intersects at 177.47. The trendline is drawn off the Jul 12 low and remains an important support. The focus is on 180.00/13.

EUROSTOXX50: BEAR TREND RESUMPTION

EUROSTOXX50 sold off sharply yesterday clearing 3248.54, the Jun 3 low. This confirms a resumption of the downtrend and a break of yesterday’s low would signal potential for a move down to the 61.8% retracement of the Dec 2018-Jul 2019 rally at 3162.68. A word of caution for bears however. Yesterday’s bounce off the low resulted in a candle pattern known as a hammer and points to a potential base. We’ll monitor this, however it is too early to call for a reversal.

Eurex Futures Market Close

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