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Europe Roundup: Sterling at 3-year low on Brexit uncertainties, euro tumbles on rate outlook, investors eye U.S. ISM manufacturing PMI - Tuesday, September 3rd, 2019

Market Roundup

  • Italian parties agree agenda to form new government
  • Spain's Socialists make proposals for government deal
  • Eurozone producer prices inch up in July due to dearer energy

Economic Data Ahead

  • (0930 ET/1330 GMT) The Markit will release Canada's Manufacturing PMI for the Month of August. The indicator stood at 50.2 in the prior month.
  • (0945 ET/1345 GMT) Financial firm Markit releases U.S. Manufacturing PMI for the month of August. The index is likely to show a final reading of 49.9 after posting similar gains in the previous month.
  • (1000 ET/1400 GMT) The Institute for Supply Management (ISM) is expected to report that U.S. manufacturing Purchasing Managers' index eased to 51.0 in August from 51.2 in July.
  • (1000 ET/1400 GMT) The Commerce Department is likely to report that U.S. construction spending increased 0.3 percent in July after falling 1.3 percent in the previous month.
  • (1630 ET/2030 GMT) The Energy Information Administration (EIA) reports its Crude Oil Stocks for the week ending August 30.

Key Events Ahead

  • (1700 ET/2100 GMT) Boston Federal Reserve President Eric Rosengren gives a speech

FX Beat

DXY: The dollar index surged to a more than a 2-year peak, as investors await the U.S. August ISM manufacturing PMI, which is expected to be stable at 51.2. The greenback against a basket of currencies traded 0.3 percent up at 99.29, having touched a high of 99.37 earlier, its highest since May 2017.

EUR/USD: The euro slumped to a fresh over 2-year low on growing expectations that the European Central Bank will ease monetary policy at a meeting next week. The ECB’s Governing Council holds its next monetary policy meeting on September 12 and has all but promised a stimulus package, with economic growth faltering amid a global trade war and Germany’s manufacturing sector already in recession. The European currency traded 0.3 percent down at 1.0936, having touched a low of 1.0925 earlier, its lowest since May 2017. Immediate resistance is located at 1.0982 (23.6% retracement of 1.1163 and 1.0925), a break above targets 1.1017 (38.2% retracement). On the downside, support is seen at 1.0900, a break below could drag it below 1.0870.

USD/JPY: The dollar eased, reversing most of its previous session gains after Bloomberg News reported that Chinese and U.S. officials are struggling to agree a schedule for a round of trade negotiations that had been expected this month. The major was trading 0.05 percent down at 106.13, having hit a low of 104.44 last week, its lowest since November 2016. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. construction spending and manufacturing PMI from both the Markit and ISM. Immediate resistance is located at 106.73 (August 23 High), a break above targets 107.09 (August 6 High). On the downside, support is seen at 105.65 (August 28 Low), a break below could take it lower at 105.26 (August 9 Low).

GBP/USD: Sterling plunged below the 1.2000 handle to hit a 3-year low, amid mounting uncertainty as British lawmakers prepared to vote on the first stage of a plan to block Prime Minister Boris Johnson from pursuing a no-deal Brexit ahead of the Oct. 31 deadline. The major traded 0.3 percent down at 1.2026, having hit a low of 1.1958 earlier, it’s lowest since October 2016. Investors’ attention will remain on the development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2092 (38.2% retracement of 1.2309 and 1.1958), a break above could take it near 1.2134 (50% retracement). On the downside, support is seen at 1.1944 (August 12 Low), a break below targets 1.1900. Against the euro, the pound was trading 0.1 percent down at 90.90 pence, having hit a low of 91.48 earlier, it’s lowest since August 22.

USD/CHF: The Swiss franc declined to a fresh 1-month low as the greenback rose across the board. The major trades up at 0.9904, having touched a high of 0.9929 earlier, it’s highest since August 1. On the higher side, near-term resistance is around 0.9949 (July 31 High) and any break above will take the pair to next level till 0.9975 (August 1 High). The near-term support is around 0.9859 (August 30 Low), and any close below that level will drag it till 0.9814 (August 2 Low).

Equities Recap

European shares plunged for the first time in four sessions, as uncertainty over Britain’s exit from the European Union and trade tensions between the United States and China weighed on market sentiment.

The pan-European STOXX 600 index tumbled 0.3 percent at 379.25 points, while the FTSEurofirst 300 eased 0.3 percent to 1,493.70 points.

Britain's FTSE 100 trades 0.3 percent down at 7,257.40 points, while mid-cap FTSE 250 declined 0.4 to 19,401.74 points.

Germany's DAX fell 0.3 percent at 11,912.88 points; France's CAC 40 trades 0.5 percent lower at 5,468.67 points.

Commodities Recap

Crude oil prices fell by 1 percent to a 3-1/2 week low, weighed down by the protracted U.S.-China trade dispute that has dragged on the global economy as well as rising OPEC and Russian oil output.  International benchmark Brent crude was trading 1.4 percent lower at $57.67 per barrel by 1128 GMT, having hit a low of $57.67 earlier, its lowest since August 9. U.S. West Texas Intermediate was trading 1.2 percent down at $54.11 a barrel, after falling as low as $53.93 earlier, its lowest since August 27.

Gold prices rose on the back of uncertainties surrounding U.S.-China trade relations and Britain’s departure from the European Union. Spot gold was trading 0.1 percent down at $1,530.68 per ounce by 1131 GMT, having touched a low of $1,516.76 on Friday, its lowest since August 23. U.S. gold futures were up 0.8 percent at $1,541.40.

Treasuries Recap

The yield on 10-year U.S. Treasuries fell 2 basis points to 1.482 percent, off a three-year low of 1.443 percent touched last week. The yield dropped more than 50 basis points last month, the biggest monthly drop since August 2011.

The Italian 10-year bond yield fell to a new record lows on optimism that 5-Star members would approve a coalition deal with the Democratic Party, while German Bund yields fell to record lows on renewed political uncertainty in Britain. Italy’s 10-year bond yield fell below 0.90 percent for the first time, while the gap over safer German Bund yields tightened to around 161 bps. Germany’s benchmark 10-year bond yield fell to a fresh record low at -0.74 percent.

The UK 10-year gilt yields fell to a record low of 0.34 percent , set for their biggest two-day fall since early July.

The Japanese government bond prices were steady to slightly firmer amid an escalating U.S.-China trade dispute. The 10-year JGB yield was unchanged at minus 0.270 percent. The 20-year yield declined 1 basis point to 0.045 percent, hovering back near a three-year trough of 0.040 percent set last week.

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