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THE EUROPE FX/RATES DAYBOOK: FX/RATES DAYBOOK EUROPE: Dollar Rises Before Tax Overhaul Plan

(Bloomberg) — The dollar strengthens on a report U.S. President Donald Trump will propose to cut the corporation tax to 20 percent and cap the top individual rate at 35 percent in an announcement later Wednesday. TODAY

  • French Consumer Confidence
  • Italian Industrial Orders
  • Czech Rate Decision

OVERNIGHT TRADING SESSIONS

  • U.S.
    • Bloomberg Dollar Spot Index ended U.S. trading up 0.3% after Yellen reinforced December rate hike odds. Greenback gained vs all 10 G-10 peers except CAD. EUR/USD dropped 0.5%, falling below 1.1800 for first time this month. CAD rose after finance minister said country can do well at these dollar levels
    • USTs maintained early selloff to end day with yields 1.5bp-2bp higher across the curve, even as they pared some Yellen-led losses
    • Odds of Dec. rate hike steady at ~65% Tuesday, based on OIS
  • EUROPEAN BONDS
    • Core bonds edged lower following Treasuries after Trump comments a big announcement on tax reform may be coming Wednesda. Spanish and Portuguese spreads tightened. German Schatz supply was met with average demand
    • Bund futures dropped 22 ticks to 161.71 following biggest gain in almost 2 months Monday
    • BTPs pare decline after futures led Italian bonds lower on smaller-than-expected supply size
    • Germany tapped EU4b 2y Schatz, real bid/cover bounced back to 1.5x after previous auction was uncovered. Price action was solid
  • ASIA TODAY
    • DXY gains 0.2%, climbing above 50-DMA for first time since April
    • USD/JPY rises 0.1%; standout buyer has been real money sector, not in terms of size but that they are buying spot above 112.00 for the first time in a while, a trader says
    • Momentum buy orders seen on breach of 112.72 Sept. 21 high: trader
    • U.S. 10-year note little changed at 2.24%

TOP OVERNIGHT NEWS

  • Trump and Republican leaders will announce long-awaited tax overhaul plan Wednesday, cutting rates for corporations and pass-through businesses and they’ll also propose top individual rate of 35% but leave to Congress decision of whether to create a higher bracket for top earners
  • French President Macron’s proposals for enhancing the EU’s power and institutions earned responses ranging from praise in Brussels to wariness in Berlin and hostility in Prague
  • After a contested decision by the Czech central bank to kick off monetary tightening in Europe, the consensus among economists is that it’s now time for a pause. Policy makers in Prague will hold the benchmark at 0.25% Wednesday
  • As U.K. and European Union officials haggle over the size of Britain’s divorce settlement, documents show the EU’s liabilities grew by almost 4% in 2016, with the cost of pensions for EU officials and lawmakers rising more than 5%

KEY VIEWS

  • Global bond investors are probably still underweight in their allocation to emerging markets, Jean-Charles Sambor, deputy head of emerging markets debt at BNP Paribas Asset Management, said at a media briefing Tuesday
  • Fed Chair Yellen’s comments Tuesday make her appear to be “back on a two-part mission” of starting balance sheet normalization and resuming rate normalization, albeit gradually, Jefferies economists Ward McCarthy and Thomas Simons say in note

ECONOMIC DATA RELEASED

  • China Aug industrial profits rise 24.0% YoY, vs prior +16.5%

ECONOMIC DATA (All times CET):

  • 8am: (SZ) Aug. UBS Consumption Indicator, prior 1.4
  • 8am: (FI) Sept. Business Confidence, prior 7
  • 8am: (NO) July Unemployment Rate AKU, est. 4.2%, prior 4.3%
  • 8am: (FI) Sept. Consumer Confidence Index, prior 23.5
  • 8:45am: (FR) Sept. Consumer Confidence, est. 103, prior 103
  • 9am: (SP) July Total Mortgage Lending YoY, prior 14.3%
  • 9am: (SP) July House Mortgage Approvals YoY, prior 16.5%
  • 9am: (SW) Sept. Manufacturing Confidence s.a., est. 115, prior 117.1
  • 9am: (SW) Sept. Consumer Confidence, est. 102, prior 100.3
  • 9:30am: (SW) Aug. Trade Balance, prior -500m
  • 9:30am: (SW) Aug. Household Lending YoY, prior 7.0%
  • 10am: (EC) Aug. M3 Money Supply YoY, est. 4.6%, prior 4.5%
  • 10am: (IT) Sept. Economic Sentiment, prior 107
  • 10am: (IT) Sept. Manufacturing Confidence, est. 108.2, prior 108.1
  • 10am: (IT) Sept. Consumer Confidence Index, est. 110.6, prior 110.8
  • 10am: (SZ) Sept. Credit Suisse Survey Expectations, prior 25
  • 11am: (IT) July Industrial Orders MoM, prior 4.3%
  • 12pm: (UK) Sept. CBI Retailing Reported Sales, est. 8, prior -10
  • 12pm: (UK) Sept. CBI Total Dist. Reported Sales, prior 2

GOVERNMENT:

  • Sept. 24-Sept. 27: (UK) U.K. Labour Party Meeting in Brighton; Corbyn Delivers Keynote
  • Sept. 26-Sept. 27: (IT) G7 Industry Ministers Meet in Italy
  • 8am: (FR) French Finance Minister Le Maire Presents 2018 Budget, Outlook
  • 4pm: (IT) Finance Minister Padoan Attends Italian-French Summit in Lyon
  • 5pm: (GE) Merkel’s Main Economic Adviser Speaks at Event in Hamburg
  • 7pm: (GE) Merkel Campaigns for CDU Ahead of Lower Saxony Election
  • 7:15pm: (IT) Italian Prime Minister Gentiloni Attends France-Italy Summit

CENTRAL BANKS (All times CET):

  • 8:10am: (EC) ECB’s Rimsevics Gives Opening Remarks at conference
  • 11am: (NO) Norway Central Bank Deputy Governor Nicolaisen Speaks
  • 11:15am: (NO) Norway Central Bank Governor Olsen Speaks in Kristiansand

BOND SALES/PURCHASES (All times CET):

  • For corporate bonds, see New Issue Monitor
  • 11am: Italy to Sell 181-Day Bills
  • 11:03am: Sweden to Sell SK10.0b 173-Day Bills
  • 11:05am: Norway to Sell NK2.0b 1.75% 2027 Bonds
  • 11:30am: U.K. to Sell GBP950.0m 0.125% I/L 2036 Bonds

MARKETS:

  • USD/JPY +0.1% to 112.32 (range 112.22-112.54)
  • EUR/USD -0.1% to 1.1781 (range 1.1777-1.1795)
  • AUD/USD -0.3% to 0.7864 (range 0.7860-0.7889)
  • NZD/USD +0.1% to 0.7202 (range 0.7187-0.7217)
  • GBP/USD -0.2% to 1.3429 (range 1.3428-1.3461)
  • USD/CAD +0.1% to 1.2365 (range 1.2341-1.2370)
  • USD/CHF +0.2% to 0.9707 (range 0.9687-0.9707)

TECHNICAL OUTLOOK by Bloomberg strategist Michael G. Wilson

  • USD/JPY — September high at risk as Ichimoku cloud support holds
  • Resistance: 112.72, Sept. 21 high; 113.69, July 5 high; 114.49, July 11 high
  • Support: 111.54, cloud top; 110.14, cloud base; 109.56, Sept. 15 low
  • EUR/USD — Within downtrend, momentum could extend to July lows
  • Resistance: 1.1866, Sept. 21 low; 1.1937, Sept. 25 high
  • Support: 1.1740/45, Aug. 23/22 lows; 1.1709, Aug. 18 low
  • EUR/JPY — Establishing fresh downtrend
  • Resistance: 133.09, Sept. 15 high; 133.26, Sept. 20 low
  • Support: 131.76, Sept. 14 high; 131.26, Sept. 13 low

–With assistance from Michael G. Wilson. To contact the reporter on this story: Chikafumi Hodo in Tokyo at chodo@bloomberg.net To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net Nicholas Reynolds

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