Asian equities open the trading week with a calm session

• Asian equities open the trading week with a calm session. Most indices show slight declines with the exception of India, Malaysia, Thailand and Indonesia that register modest gains. There is some talk about a sooner than anticipated Fed hike, but this assertion isn’t supported by new elements.

• IMF director Christine Lagarde signalled a cut in the institution’s global growth forecasts, saying investment is still weak and that the risks remain in the US, even as its rebound accelerates, Bloomberg reports.

• Ukraine’s army is booking success in its campaign to defeat insurgents as it now secured control of the Donetsk region towns of Artemivsk and Druzhkivka, following recapturing Slovyansk and Kramatorsk. So, geopolitical tensions are fading away.

• Goldman Sachs brings forward the US Fed rate rise forecast to the third quarter of 2015 rather than the first quarter of 2016. With this move the firm is still a bit more dovish that the market implied rate hike expectations.

• Today, the market is devoid of key eco data or events. Later this week, the eco calendars remain unattractive, but the Fed Minutes, auctions and ECB & Fed speakers spice trading.

Today, the US eco and event calendar remains empty. In EMU, the Sentix investor confidence index is expected to have dropped from 8.5 in June to 7.8 in July. The index reached a top in April and seems to be rolling over since. Today’s reading will be interpreted accordingly, if consensus is confirmed. It is however no strong market mover. ECB Nowotny presents the Austrian financial stability report. He likes talking and thus there might be some remarks that have importance for markets, but all in all these shouldn’t have lasting effect.

Regarding bond trading today, Asian markets don’t give many clues for the European morning session. Asian equities are narrowly mixed to slightly weakish, while US Treasuries are a bit lower and the dollar somewhat stronger. So, the overall picture still seems a bit influenced by Thursday’s US payrolls.
Admittedly, the reaction after the US payrolls was surprisingly calm with US Treasuries nearly regaining all intra‐day losses and the dollar booking only disappointing gains. That might have been due to the upcoming long weekend. So, as US traders return, there might still be some follow through in the sense of weaker US Treasuries/stronger dollar. Of course, as the calendar is nearly empty and unattractive, we shouldn’t see too outspoken moves. It probably remains sideways oriented trading, but with negative bias. The Bund not only recouped the post‐payrolls losses, but rallied on Friday, admittedly in very thin volumes, to 146.88 (after closure levels). The US‐German 10‐year yield spread widened to 137 basis points on Friday, when the US Treasury market was closed though. Therefore, we should await today’s closure to get a better view on the spread development. Anyway, the spread widening was a constant theme in the past weeks. So, given Friday’s Bund rally and today’s decline in US Treasuries, we might see Bunds losing ground today. If that’s not the case, the decoupling goes much faster than we thought. We have a 150 basis point target for the 10‐ year spread, but only to be reached by the end of the year or early next year.

The moves in the major currency cross rates on Friday where limited. The dollar maintained its post‐payrolls gains against the euro and the yen. EUR/USD saw some follow‐through selling, pushing the pair below the 1.36 mark early in the session. The bond yield differentials continued to move in favour of the dollar with the 10‐year spread between US and German bonds . For USD/.JPY, there was no follow‐up buying. The pair held a tight sideways range close to, mostly just above the 102 level.
As was already the case on Thursday, sterling was still much more resilient to the post‐payrolls USD rebound than EUR/USD. Cable held near the cycle highs in the upper half of the 1.71 big figure. EUR/GBP settled in the 0.7925 area.

This morning, Asian investors take a cautious start of the new trading week. Equities show slight losses without any big story. USD/JPY is little changed in the 102.00/20 area. EUR/USD still trades with a slight negative bias. The pair is setting (minor) post‐payrolls’ lows in the 1.35820/85 area. Later today, calendars are nearly empty and unattractive. So, another session of low volume and low volatility trading might be on the cards. The dollar gained some interest rate support after the payrolls, but markets’ assessment on Fed rate policy has not profoundly changed. At the same time, the ECB tries to convince markets on the substance of its June easing measures. EUR/USD is now exactly in the middle of recent 1.3503/1.3700 trading range. There is no trigger to expect a range break today. Even so, the topside in EUR/USD looks still rather tough. The day‐to‐the today‐momentum might still push pair a bit further south in the range.

The technical picture in the sterling cross rates is interesting. Cable held remarkably strong after the payrolls, but the 1.7175/80 area looks like a fairly strong resistance. EUR/GBP is setting new cycle lows, but the pair is moving into oversold territory and is nearing the bottom of the established downtrend channel. Some consolidation on the recent sterling gains is possible. Even so, the standing downtrend in the pair remains firmly in place.