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Europe Roundup: Euro gains on upbeat CPI figures, oil prices hover near 3-month low, markets now await U.S GDP and PCE data - Friday, July 29th, 2016

Market Roundup

  • GBP/USD 0.12%, USD/JPY -1.85%, EUR/USD 0.33%
     
  • BoJ eases policy minimally, ups ETF annual buys to Y6tn from Y3.3tn does little else
     
  • Euro zone Jul Inflation, Flash y/y 0.2% vs 0.1 previous, 0.1 expected
     
  • Euro zone Jul Infl Ex Food & Enr Flash 0.8% vs 0.8 previous, 0.8 expected
     
  • Euro zone Q2 GDP Flash Prelim y/y 1.6% vs 1.6 previous, 1.5 expected
     
  • Euro zone Q2 GDP Flash Prelim q/q 0.3% vs 0.6 previous, 0.3 expected
     
  • Euro zone Jun Unemployment Rate 10.1% vs 10.1 previous, 10.1 expected
     
  • German Jun Retail Sales m/m Real -0.1% vs 0.9 previous, -0.1 expected
     
  • German Jun Retail Sales y/y Real 2.7% vs 2.6 previous, 1.3 expected
     
  • Switzerland Jul KOF Indicator 102.7 vs 102.4 previous, 101.3 expected
     
  • Great Britain Jun BOE Consumer Credit 1.837bln GB vs 1.503 previous, 1.4 expected
     
  • Great Britain Jun Mortgage Lending 3.348bln GB vs 2.824 previous, 2.6 expected
     
  • Great Britain Jun Mortgage Approvals 64.766k vs 67.042 previous, 65.65 expected
     
  • Great Britain Jun M4 Money Supply 1.1% vs 1.2 previous
     
  • Great Britain Jul GfK Consumer Confidence -12 vs -1 previous, -8 expected

Economic Data Ahead

  • (0830 ET/1230 GMT) The U.S. Commerce Department is expected to report that gross domestic product increased at a 2.6 percent annual rate in the second quarter after a slow 1.1 percent pace in the first quarter.
     
  • (0830 ET/1230 GMT) The United States releases employment cost index for the first quarter. The index stood at 0.6 percent in the prior quarter.
     
  • (0830 ET/1230 GMT) The U.S. Department of Commerce releases its Personal Consumption Expenditures figures for the second quarter. The indicator came in at 0.2 percent in the prior quarter.
     
  • (0830 ET/1230 GMT) Statistics Canada is expected to report that  economic growth declined by 0.4 percent in May, after rising 0.1 percent in the previous month.
     
  • (0830 ET/1230 GMT) Canadian producer prices are likely to have gained 0.5 percent in June following a rise of 1.1 percent in May.
     
  • (1300 ET/1700 GMT) Baker Hughes reports U.S. Oil Rig Count.
     

Key Events Ahead

  • (0930 ET/1330 GMT) San Francisco Federal Reserve Bank President John Williams participates in an event titled Policy Dialogue: "What's Left in the Fed's Tool Kit?" before the 2016 Pacific Pension and Investment Institute Summer Roundtable, in Cambridge, Massachusetts.
     
  • (1145 ET/1545 GMT) FedTrade operation 30-year Ginnie Mae / Freddie Mac, max $1.375bn.
     
  • (1300 ET/1700 GMT) Dallas Federal Reserve Bank President Robert Kaplan participates in a moderated question-and-answer session before the Independent Bankers Association of New Mexico Annual Meeting, in Albuquerque, New Mexico.
     

FX Beat

DXY: The dollar index, against a basket of currencies trades 0.4 percent lower at 96.21, a level last seen since July 15.

EUR/USD: The euro extended gains above the 1.1100 handle on the back of Eurozone's upbeat gross domestic product and consumer price index figures. Eurozone's gross domestic product for the second quarter came in at 0.3 percent q/q and 1.6 percent y/y in line with consensus. While consumer price index in the month of July edged up 0.2 percent from previous 0.1 percent. The euro trades 0.3 percent up at 1.1112, hovering towards a high of 1.1119 hit in the previous session. The short term trend is slightly bullish as long as support 1.1050 holds. Any violation below 1.1050 will take the pair to next level till 1.11375 (trend line joining 1.11861 and 1.11648)/1.11860 (Jul 5 High). On the higher side, any break above 1.1137 will take the pair to next level till 1.11860/1.1245. The pair should break above 1.11860 for further bullishness

USD/JPY: The greenback slumped below the 103 handle, after modest monetary policy easing from the Bank of Japan fell short of investors’ expectations. The Japanese yen rallied almost 3 percent following the Bank of Japan decision and Governor Haruhiko Kuroda's news conference and it was up almost 2 percent against both the euro and dollar. The greenback trades 0.2 percent lower at 103.25 yen, after going as low as 102.71 earlier in the session. The major resistance is around 106.50 and any break above confirms minor trend reversal, a jump till 107/107.50 is possible. On the lower side minor support is around 102.45 and any break below will drag the pair lower 102.00.       

GBP/USD: Sterling edged up, but continues to hover below the 1.3200 handle as investors expect Bank of England to cut interest rate at its policy meeting next week. Data released earlier showed that Britain's June consumer credit rose to 1.837 bln GBP, while mortgage approval declined to 64.766K. M4 money supply for the month of June came in at 1.1 percent, surpassing expectations of 0.4 percent and on annual basis it stood at 3.5 percent versus previous 1.8 percent. Sterling trades 0.1 percent higher at 1.3177, having touched an intra-day high of 1.3217. The BoE's is likely to cut rates by a quarter point from the current record low of 0.5 percent at the 2-day meeting, which concludes on Thursday. On the higher side, minor support is around 1.3100 and break below targets 1.3060/1.3000. Any break above 1.3250 will take the pair till 1.3290. Against the euro, the pound trades 0.3 percent lower at 84.34 pence.

USD/CHF: The Swiss franc rose to a 3-week high, as the dollar weakened across the broad. The greenback trades 0.6 percent lower at 0.9749, pulling further away from a near 2-month high of 0.9950 touched on Wednesday. The daily close below 0.9819 (21 DMA) confirms major trend reversal. On the lower side, major support is around 0.9750 and any indicative break below 0.9750 targets 0.9680/0.9630 in the short term. The major resistance is around 0.9800 and any break above targets 0.9850/0.9905/0.9960.

AUD/USD: The Australian dollar rose, but gains were capped as increasing prospects of further monetary easing by RBA continues to weigh on major. The Aussie trades 0.3 percent higher at 0.7520, after rising as high as 0.7549. The focus now shifts on Reserve Bank of Australia's monetary policy decision next week, where markets price in a 60 percent chance of a rate cut. On the higher side, any break above 0.7550 will take the pair to next level till 0.7600/0.7640. The major support is around 0.7480 and break below will drag it till 0.7420/0.7380.

NZDUSD: The New Zealand dollar sustained gains above the 0.7100 handle, supported by ongoing broad based U.S. dollar weakness. The Kiwi trades 0.7 percent higher at 0.7119, hovering towards an early high of 0.7129. Investors now await U.S. GDP and PCE figures for further momentum on the major. Immediate support is seen at 0.7050 (10-DMA), break below could take it till 0.7015. On the higher side, resistance is located at 0.7150, break above targets 0.7200. 

Equities Recap

European shares gained following positive company updates, while markets digested the BoJ's decision, as it increased the purchases of exchange-traded funds in its easing package.

The pan-European STOXX 600 and the FTSEurofirst 300 indexes both rose 0.3 percent and are on track for their third straight week of gains.

The STOXX Europe 600 Banks index rose 2.3 percent, facilitated by a rally in Barclays and UBS after releasing results.

Britain's FTSE 100 declined 0.2 pct, while mid-cap FTSE 250 index dropped 0.3 pct. Germany's DAX rose 0.4 pct and France's CAC 40 added 0.1 pct.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.64 percent, retreating from its highest level since Aug. 11 struck earlier in the day.

Tokyo's Nikkei gained 0.56 pct at 16,569.27, Australia's S&P/ASX 200 index rose 0.10 pct at 5,562.30 points and South Korea's KOSPI edged down 0.09 pct.

Hong Kong’s Hang Seng index slumped 1.3 pct at 21,891.37 points and was down 0.3 pct on the week.

Shanghai composite index and CSI300 index both lost 0.5 pct at 2,979.34 points and 3,203.93 points, respectively. Shanghai composite index declined 1.1 pct for the week, while fell 0.7 pct.

Commodities Recap

Oil prices hovered near their lowest levels since April, with on Brent course for its biggest monthly loss since December 2015, weighed down by slowing economic growth that threatened to increase a supply overhang of crude and refined products. Brent crude oil was trading at $42.69 by 1102 GMT, its lowest since April. U.S. West Texas Intermediate crude declined 0.8 percent to $40.73 a barrel, slipping below $41 for the first time since April. It was poise for a roughly 16 percent monthly loss, the biggest in a year.

Gold price was little changed and was on track for a monthly gain of 1 percent, as the dollar lost ground after the Bank of Japan's stimulus fell short of market expectations. Spot gold trades flat at $1,334.53 an ounce at 1105 GMT, on course for its second consecutive session of monthly gains, and its first weekly gain in three. U.S. gold too remained unchanged at $1,331.90 an ounce.

Treasuries Recap

The US Treasuries saw mixed performance amidst a relatively light flow of data as markets look ahead to the Fed officials comments and release of second-quarter GDP data. The yield on the benchmark 10-year Treasury note rose 1-1/2 basis points to 1.527 percent, the yield on 5-year note rose 1 basis point to 1.104 percent and the yield on short-term 2-year note fell ½ basis points at 0.715 percent.

The UK gilts traded lower after the Bank of Japan remained on hold at its two-day monetary policy meeting, rolling a sense of disappointment among market participants who were expecting a deeper policy easing. The yield on the benchmark 10-year gilts rose 1-1/2 basis points to 0.728 percent, the yield on super-long 30-year bond jumped 1 basis point to 1.611 percent and the yield on short-term 2-year bonds bounced 1/2 basis point to 0.132 percent.

The German bunds slumped after the Bank of Japan left its policy rate unchanged, which disappointed investors who were anticipating a higher policy easing. The yield on the benchmark 10-year bond rose 1-1/2 basis point to -0.067 percent, the yield on long-term 30-year note climbed 1 basis point to 0.385 percent and the yield on short-term 3-year note jumped 1/2 basis point to -0.633 percent.

The Japanese government bonds plunged after the Bank of Japan in its monetary policy meeting lefts the key interest rate unchanged along with no additional bonds buying programme. However, the central bank pledged to increase purchases of ETF buying at an annual pace of 6 trillion yen. The benchmark 10-year bond yield rose 9 basis points to -0.182 percent, the yield on 5-year note also jumped nearly 9 basis points to -0.259 percent, the yield on super long 30-year note bounced 3 basis points to 0.292 percent and the short-term 2-year JGB yield climbed 9 basis points to -0.254 percent.

The Australia’s 10-year bond yield fell to record low of 1.839 percent as investors remain cautious ahead of the Reserve Bank of Australia’s (RBA) monetary policy meeting, which is scheduled to take place on August 2 at 04:30 GMT. The yield on the benchmark 10-year Treasury note fell 7 basis points to 1.839 percent and the yield on short-term 2-year note dipped 3 basis points to 1.504 percent.

The New Zealand government bonds closed modestly firmer after oil prices fell to fresh April lows as slowing economic growth threatened to worsen ongoing oversupply of crude and refined products. The yield on the benchmark 10-year bond slid 1/2 basis point to 2.210 percent, the yield on 7-year note also dipped 1 basis point to 1.965 percent and the yield on short-term 2-year note ended 1 basis point lower at 1.835 percent.

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