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Europe Roundup: Sterling at 1-week low amid prevailing no-deal Brexit fears, euro gains on better-than-expected German industrial data, European shares plunge - Tuesday, October 8th, 2019

Market Roundup

  • Any threat to withdraw UK-Irish security cooperation is unacceptable - minister
  • EU position remains that it wants a Brexit deal - Commission
  • DUP leader accuses EU and Dublin of trying to trap Northern Ireland

Economic Data Ahead

  • (0815 ET/1215 GMT) Canadian Mortgage and Housing Corp will report housing starts for the month of September. The indicator is expected to rise at a seasonally adjusted annualized rate of 214,500, compared to a rise of 226,600 in the previous month.
  • (0830 ET/1230 GMT) The U.S. producer price index is likely to have increased 0.1 percent in September, while PPI excluding food and energy probably edged up 0.2 percent after rising 0.3 percent in August.
  • (0830 ET/1230 GMT) Statistics Canada is likely to report that building permits dropped 1.0 percent in August, after rising 3.0 percent in July.
  • (1000 ET/1400 GMT) The Investor's Business Daily (IBD)/ TechnoMetrica Institute of Policy and Politics (TIPP) will release U.S. Economic Optimism index for the month of October. The indicator rose to 50.8 in September.
  • (1630 ET/2030 GMT) API reports its weekly crude oil stock.

Key Events Ahead

  • (1335 ET/1735 GMT) Federal Reserve Bank of Chicago President Charles Evans speaks
  • (1430 ET/1830 GMT) Federal Reserve Chairman Jerome H. Powell's speech

FX Beat

DXY: The dollar index eased as investors awaited comments from U.S. Federal Reserve Chairman Jerome Powell later in the day after some weak U.S. data last week raised concerns the U.S. economy may be heading towards a protracted slowdown. The greenback against a basket of currencies traded 0.1 percent down at 98.91, having touched a low of 98.64 on Thursday, its highest since September 25.

EUR/USD: The euro surged, reversing most of its previous losses after data showed German industrial output rose 0.3 percent in August, against expectations of a 0.1 percent drop, reviving hopes that an expected contraction in the German economy in the third quarter would not be steep. The major was also supported by another report showing Spain’s industrial output was up 1.7 percent year-on-year in August, more than expected. The European currency traded 0.2 percent higher at 1.0986, having touched a high of 1.0999 on Thursday, its highest since September 25. Immediate resistance is located at 1.1019 (61.8% retracement of 1.1109 and 1.0879), a break above targets 1.1059 (78.6% retracement). On the downside, support is seen at 1.0952 (10-DMA), a break below could drag it below 1.0904.

USD/JPY: The dollar declined amid increasing uncertainty regarding the outcome of U.S.-China trade talks after Washington blacklisted more Chinese firms and President Donald Trump said a quick trade deal was unlikely. The major was trading 0.4 percent down at 106.86, having hit a low of 106.48 on Thursday, its lowest since September 24. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. Fed Evan and Chair Powell's speech. Immediate resistance is located at 107.67 (21-DMA), a break above targets 107.95 (September 26 High). On the downside, support is seen at 106.96 (September 24 Low), a break below could take it near at 106.32 (September 5 Low).

GBP/USD: Sterling plunged to a 1-week low as concerns lingered that differences between Britain and the European Union remained with less than a month left to strike a Brexit withdrawal deal before the October 31 deadline. The major traded 0.6 percent down at 1.2219, having hit a low of 1.2208 earlier, it’s lowest since October 1. Investors’ attention will remain on the development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2356, a break above could take it near 1.2400. On the downside, support is seen at  1.2194 (August 23 Low), a break below targets 1.2154 (August 28 Low). Against the euro, the pound was trading 0.7 percent up at 89.88 pence, having hit a low of 89.99 earlier, it’s lowest since Sept. 9.

USD/CHF: The Swiss franc rallied to a 1-week peak, as investors cautiously await trade talks between U.S.- China ahead of a scheduled increase in U.S. tariffs on $250 billion worth of Chinese goods to 30 percent from 25 percent on October 15. The major trades 0.3 percent down at 0.9919, having touched a low of 0.9905 earlier, it’s lowest since September 30. On the higher side, near-term resistance is around 0.9987 and any break above will take the pair to next level till 1.0027. The near-term support is around 0.9897, and any close below that level will drag it till0.9865.

Equities Recap

European shares eased as concerns over China-U.S. trade talks and disappointing European earnings dented investors’ sentiment.

The pan-European STOXX 600 index tumbled 0.9 percent at 379.14 points, while the FTSEurofirst 300 plunged 0.9 percent to 1,492.34 points.

Britain's FTSE 100 trades 0.2 percent up at 7,181.51 points, while mid-cap FTSE 250 declined 0.9 to 19,254.49 points.

Germany's DAX fell 1.2 percent at 11,956.03 points; France's CAC 40 trades 1.1 percent lower at 5,460.47 points.

Commodities Recap

Crude oil prices declined as Washington’s blacklisting of more Chinese companies dampened hopes for a trade deal between the two countries, although the unrest in Iraq and Ecuador limited downside. International benchmark Brent crude was trading 1.2 percent low at $57.67 per barrel by 1140 GMT, having hit a low of $57.13 on Thursday, its lowest since August 7. U.S. West Texas Intermediate was trading 1.3 percent lower at $52.06 a barrel, after falling as low as $52.27 on Thursday, its lowest since August

Gold prices rebounded from a near 1-week low, as investors turned cautious ahead of the upcoming trade talks between China and the United States. Spot gold was trading 0.8 percent up at $1,505.33 per ounce by 1143 GMT, having touched a high of $1,519.53 on Thursday, its highest since September 25. U.S. gold futures fell 0.6 percent to $1,494.60 per ounce.

Treasuries Recap

The U.S. Treasuries surged during the afternoon session ahead of a speech by Federal Open Market Committee (FOMC) Chair Jerome Powell, scheduled to be delivered at 17:50GMT, besides, a speech from another member, Neel Kashkari, also due later today. In addition, the country’s producer price index (PPI) for the month of September, due for release lately today, will be of further importance to the debt markets. The yield on the benchmark 10-year Treasury yield slumped nearly 3 basis points to 1.526 percent, the super-long 30-year bond yield suffered nearly 2-1/2 basis points to 2.021 percent and the yield on the short-term 2-year plunged 3 basis points to 1.431 percent.

The United Kingdom’s gilts jumped during European trading hours ahead of the country’s monthly GDP and manufacturing production for the month of August, scheduled to be released on October 10 by 08:30GMT respectively. The yield on the benchmark 10-year gilts, plunged nearly 4 basis points to 0.413 percent, the 30-year yield slumped 2 basis points to 0.929 percent and the yield on the short-term 2-year also lost nearly 4 basis points to 0.315 percent.

The German bunds traded tad lower during European session ahead of the country’s trade balance data for the month of August, scheduled to be released on October 10 by 06:00GMT and the consumer price inflation (CPI) for the month of September, due for release on the following day by 06:00GMT for further direction in the debt market. The German 10-year bond yield, which move inversely to its price, slipped 1 basis point to -0.584 percent, the yield on 30-year note hovered around -0.092 percent and the yield on short-term 2-year too remained 1 basis point down at -0.763 percent.

The Australian government bonds remained flat on the second trading day of the week, as investors remained side-lined in a muted session ahead of the Reserve Bank of Australia’s (RBA) Financial Stability Review, scheduled to be released by end of this week. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, traded steady at 0.896 percent, the yield on the long-term 30-year bond also remained flat at 1.497 percent and the yield on short-term 2-year too hovered around 0.644 percent.

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