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Europe Roundup: Sterling at 3-month peak on Brexit deal hopes, dollar rallies against yen as investors eye U.S.-China trade talk outcome, European shares surge - Friday, October 11th, 2019

Market Roundup

  • Sterling at 3-month peak amid rising optimism on a possible Brexit deal
     
  • UK car insurance premiums drop 1% in third-quarter - survey
     
  • German Consumer price index flat in September
     
  • Gold consolidates as investors await concrete signals on trade
     
  • Oil rises after reports of Iranian tanker attack
     

Economic Data Ahead

  • (0830 ET/1230 GMT) The U.S. Labor Department publishes import and export prices index for the month of September. The import prices are likely to have stayed flat after easing 0.5 percent in August, while exports are also expected to remain flat after decreasing 0.6 percent in the prior month.
     
  • (0830 ET/1230 GMT) Statistics Canada releases the employment report for September. The economy probably added 10,000 jobs, compared to a rise of 81,100 jobs in August, while the participation rate is expected to remain steady at 65.8 percent.
     
  • (0830 ET/1230 GMT) Canada's unemployment rate is expected to stay unchanged at 5.7 percent for the month of September.
     
  • (1000 ET/1400 GMT) The University of Michigan is likely to report that U.S. preliminary consumer sentiment index declined to 92.0 in October, after posting a final reading of 93.2 September.
     
  • (1300 ET/1700 GMT) Baker Hughes reports U.S. Oil Rig Count. 
     
  • (1400 ET/1800 GMT) The U.S. reports its monthly budget statement for the month of September. The government posted a deficit of $200 billion in the previous month.
     

Key Events Ahead

  • (1315 ET/1715 GMT) Boston Federal Reserve President Eric Rosengren's speech
     
  • (1500 ET/1900 GMT) Dallas Federal Reserve President Robert Kaplan gives a speech

FX Beat

DXY: The dollar index slumped to 2-week lows as investors await cues from the U.S. Federal Reserve after data released yesterday showed U.S. consumer prices were unchanged in September while underlying inflation retreated, supporting expectations the central bank will cut interest rates in October. The greenback against a basket of currencies traded 0.2 percent down at 98.47, having touched a low of 98.43 earlier, its lowest since September 25.

EUR/USD: The euro rallied after data showed German consumer prices came in flat on a monthly basis in September and rose 1.2 percent over the last twelve months, while the broader HICP advanced 0.9 percent on an annualized basis but contracted 0.1 percent inter-month. The European currency traded 0.2 percent up at 1.1024, having touched a high of 1.1033 the day before, its highest since September 20. Immediate resistance is located at 1.1059 (78.6% retracement of 1.1109 and 1.0879), a break above targets 1.1084. On the downside, support is seen at 1.0987 (21-DMA), a break below could drag it below 1.0957 (10-DMA).

USD/JPY: The dollar advanced to an over 1-week peak amid optimism around U.S.-China trade talks after a White House official said the first day of talks had gone probably better than expected. The major was trading up at 108.24, having hit a high of 108.25 earlier, its highest since October 1. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. import and export price index, Michigan prelim consumer sentiment index, Fed official's speeches. Immediate resistance is located at 108.37 (September 17 High), a break above targets 108.63 (July 5 High). On the downside, support is seen at 107.66 (21-DMA), a break below could take it near at 107.31 (September 23 Low).

GBP/USD: Sterling surged to a 3-month high after Prime Minister Boris Johnson and his Irish counterpart said they might have found a pathway to an agreement. The major traded 1.2 percent up at 1.2576, having hit a high of 1.2588 earlier, it’s highest since July 4. Investors’ attention will remain on the development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2600, a break above could take it near 1.2644. On the downside, support is seen at 1.2369 (21-DMA), a break below targets 1.2295 (10-DMA). Against the euro, the pound was trading 0.7 percent up at 87.82 pence, having hit a high of 87.61 earlier, it’s highest since May 21

USD/CHF: The Swiss franc plunged to a 1-week trough as risk sentiment improved after the opening rounds of U.S.-China trade negotiations ended with rising hopes for at least a partial trade deal. The major trades 0.1 percent up at 0.9976, having touched a high of 0.9989 earlier, it’s highest since October 4. On the higher side, near-term resistance is around 1.0006 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 till 0.9865.

Equities Recap

European shares rose for the third straight day amid optimism around U.S.-China trade talks and latest Brexit development.

The pan-European STOXX 600 index rallied 1.3 percent at 387.77 points, while the FTSEurofirst 300 surged 1.1 percent to 1,523.00 points.

Britain's FTSE 100 trades 0.2 percent up at 7,203.60 points, while mid-cap FTSE 250 rallied 2.4 to 19,700.97 points.

Germany's DAX rose 1.8 percent at 12,387.32 points; France's CAC 40 trades 1.03 percent higher at 5,626.21 points.

Commodities Recap

Crude oil prices rose to a near 2-week peak after Iranian media said a state-owned oil tanker had been struck by missiles in the Red Sea near Saudi Arabia, although bearish oil demand forecasts limited upside. International benchmark Brent crude was trading 0.7 percent up at $59.19 per barrel by 1010 GMT, having hit a high of $60.63 earlier, its highest since September 30. U.S. West Texas Intermediate was trading 0.9 percent higher at $54.37 a barrel, after rising as high as $54.85 earlier, its highest since September 30.

Gold prices consolidated within narrow ranges as investors awaited more clarity on global uncertainties including trade and Brexit. Spot gold traded flat at $1,493.21 per ounce, having touched a high of $1,516.96 on Thursday, its highest since October 3. U.S. gold futures rose 0.1 percent to $1,502.30.

Treasuries Recap

The U.S. Treasuries plunged during the afternoon session following resumption of talks between the United States and China in Washington yesterday and markets are hopeful of a positive outcome soon on the trade deal. On the economic front, the export and import price indices for the month of September are due for release today by 12:30GMT and Federal Open Market Committee (FOMC) members Kashkari, Rosengren and Kaplan are due to speak later today which shall add further direction to the debt markets. The yield on the benchmark 10-year Treasury yield jumped 4 basis points to 1.698 percent, the super-long 30-year bond yield surged 3 basis points to 2.183 percent and the yield on the short-term 2-year gained 4-1/2 basis points to 1.575 percent.

The German bunds remained steady during European session of the last trading day of the week following a flat reading of the country’s consumer price inflation (CPI) for the month of September month-on-month, while rising 1.2 percent y/y, albeit unchanged from the prior reading. The German 10-year bond yield, which move inversely to its price, hovered around -0.479 percent, the yield on 30-year note remained tad higher at -0.010 percent and the yield on short-term 2-year remained flat at -0.712 percent.

The Australian government bond yields cheered market investors after trade negotiations began between the United States and China in Washington yesterday, keeping markets hopeful of a positive outcome by end of this week. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, jumped 12 basis points to 1.015 percent, the yield on the long-term 30-year bond surged nearly 13 basis points to 1.615 percent and the yield on short-term 2-year remained tad higher at 0.708 percent.

By Lactus Fernandes
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