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Europe Roundup: Sterling off 5-month highs as investors await Brexit talks, euro tumbles as EZ inflation eases more than expected, markets eye U.S. retail sales - October 16th, 2019

Market Roundup

  • Italy's cabinet approves 2020 budget that cuts taxes, cracks down on evaders
     
  • Italy to introduce tax on digital companies from 2020
     
  • Eurozone September inflation unexpectedly revised down to 0.8%
     
  • Eurozone inflation drops more than foreseen
     
  • Eurozone trade surplus widens

Economic Data Ahead

  • (0830 ET/1230 GMT) The U.S. Commerce Department is expected to report that retail sales edged up 0.3 percent in September after advancing 0.4 percent in August. While excluding autos, retail sales are likely to have gained 0.2 percent, after staying flat in the previous month.
     
  • (0830 ET/1230 GMT) Statistics Canada will report foreign portfolio investment in domestic stocks for the month of August.
     
  • (0830 ET/1230 GMT) Statistics Canada will release investment in foreign securities figures for the month of August.
     
  • (0830 ET/1230 GMT) Statistics Canada is expected to report that the annual inflation rate rose 2.1 percent in September from 1.9 percent in August, while core consumer price index rose 0.1 percent in August.
     
  • (1000 ET/1400 GMT) The U.S. Commerce Department is expected to report that business inventories rose 0.2 percent in September, after rising 0.4 percent in August.
     
  • (1000 ET/1400 GMT) The National Association of Home Builders (NAHB) is expected to report that the U.S. Housing Market Index rose to 68 in October after posting a similar increase in September.
     
  • (1400 ET/1800 GMT) The Fed issues its Beige Book, a summary of anecdotes on the health of the economy.
     
  • N/A 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

  • (1000 ET/1400 GMT) European Central Bank Executive Board member Philip Richard Lane's speech
     
  • (1500 ET/1900 GMT) Federal Reserve Board of Governors member Lael Brainard gives a speech
     
  • (1800 ET/2200 GMT) Bank of England Governor Mark Carney speech
     
  • (1810 ET/2210 GMT) Reserve Bank of Australia Assistant Governor Guy Debelle's speech.
     

FX Beat

DXY: The dollar index slumped to multi-week lows as escalating trade tariffs from China and the United States over the recent months has forced central banks to start cutting interest rates as global growth expectations weakened. The greenback against a basket of currencies traded down at 98.17, having touched a low of 98.30 earlier, its lowest since September 20.

EUR/USD: The euro declined after data showed Eurozone inflation dropped to its slowest pace in nearly three years in September, more than previously estimated. The European currency traded down at 1.1028, having touched a high of 1.1062 on Friday, 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 1.1013 (5-DMA), a break below could drag it below 1.0989 (10-DMA).

USD/JPY: The dollar plunged, halting a 5-day rally amid concerns that elevated trade tensions between Washington and Beijing will continue to weigh on the global growth outlook. Beijing criticized new U.S. legislation after the U.S. House of Representatives passed four pieces of legislation taking a hard line on China. The major was trading 0.1 percent down at 108.70 having hit a high of 108.89 on Tuesday, its highest since August 1. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. retail sales, business inventories, housing market index and Fed officials' speeches. Immediate resistance is located at 108.99 (July 31 High), a break above targets 109.31 (August 1 High). On the downside, support is seen at 108.22 (5-DMA), a break below could take it near at 107.64 (10-DMA)

GBP/USD: Sterling slumped from a near 5-month peak after Irish Prime Minister Leo Varadkar stated that there are still issues to be resolved in Brexit negotiations. The major traded 0.4 percent down at 1.2732, having hit a high of 1.2801 on Tuesday, it’s highest since May 21. Investors’ attention will remain on the development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2826, a break above could take it near 1.2865. On the downside, support is seen at 1.2633 (5-DMA), a break below targets 1.2605. Against the euro, the pound was trading 0.3 percent down at 86.41 pence, having hit a high of 86.24 earlier, it’s highest since May 13

USD/CHF: The Swiss franc rose, retreating from an over 1-week low as uncertainty over the outcome of Brexit negotiations undermined investor risk sentiment. The major trades 0.1 percent down at 0.9980, having touched a high of 0.9995 the day before, it’s highest since October 4. On the higher side, near-term resistance is around 1.0012 and any break above will take the pair to the next level till 1.0037. The near-term support is around 0.9924, and any close below that level will drag it till 0.9885.

Equities Recap

European shares slumped as uncertainty over the outcome of London’s last-ditch Brexit talks with Brussels weakened investor sentiment.

The pan-European STOXX 600 index tumbled 0.3 percent at 393.71 points, while the FTSEurofirst 300 declined 0.05 percent to 1,543.90 points.

Britain's FTSE 100 trades 0.2 percent down at 7,196.33 points, while mid-cap FTSE 250 eased 0.9 to 20,015.10 points.

Germany's DAX rose 0.2 percent at 12,659.18 points; France's CAC 40 trades 0.05 percent lower at 5,699.48 points.

Commodities Recap

Crude oil prices declined, weighed down by concerns about weaker demand for fuel due to slower economic growth and forecasts of a further rise in U.S. crude inventories. International benchmark Brent crude was trading 0.4 percent down at $58.61 per barrel by 1038 GMT, having hit a high of $60.66 on Friday, its highest since September 30. U.S. West Texas Intermediate was trading 0.1 percent lower at $52.85 a barrel, after rising as high as $54.91 on Friday, its highest since September 30.

Gold prices steadied after tumbling nearly 1 percent in the previous session, amid uncertainties surrounding Britain’s negotiations to leave the European Union. Spot gold was trading 0.1 percent up at $1,482.80 per ounce by 1042 GMT, having touched a low of $1,473.88 on Friday, its lowest since October 1. U.S. gold futures were 0.2 percent higher at $1,486.90 per ounce.

Treasuries Recap

The U.S. Treasuries surged during the afternoon session ahead of the country’s retail sales for the month of September, scheduled to be released today by 12:30GMT. Also, Chicago Fed President Evans and FOMC member Brainard are scheduled to deliver their respective speeches today at 13:00GMT and 19:00GMT. The yield on the benchmark 10-year Treasury yield plunged 3-1/2 basis points to 1.734 percent, the super-long 30-year bond yield fell 1-1/2 basis points to 2.215 percent and the yield on the short-term 2-year plummeted 2-1/2 basis points to 1.598 percent.

The United Kingdom’s gilts jumped during European trading hours after the country’s consumer price inflation (CPI) for the month of September came in lower than market expectations, albeit remaining unchanged from that in August, while still eyeing the Bank of England (BoE) Governor Mark Carney’s speech, scheduled to be delivered today by 13:00GMT. The yield on the benchmark 10-year gilts, plunged 4 basis points to 0.653 percent, the 30-year yield slumped 2 basis points to 1.133 percent and the yield on the short-term 2-year plummeted 3-1/2 basis points to 0.499 percent.

The German bunds remained flat during European session after the eurozone’s consumer price inflation (CPI) for the month of September, slipped slightly, falling short of market expectations as well. Also, eurozone’s trade balance remained subdued for the similar period, but failed to create any major economic impact on the debt market. The German 10-year bond yield, which move inversely to its price, hovered around -0.425 percent, the yield on 30-year note also remained flat at 0.079 percent and the yield on short-term 2-year remained tad down at -0.692 percent.

The Australian government bonds suffered during Asian trading session tracking a similar movement in the United States’ Treasuries after hopes arose of a successful Brexit deal soon amid a calmer trade talk situation between the U.S. and China. However, investors shall keep a close eye on Australia’s labour market report for the month of September, scheduled to be released on October 17 by 00:30GMT, for further direction in the debt market. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, jumped 3-1/2 basis points to 1.048 percent, the yield on the long-term 30-year bond surged nearly 4 basis points to 1.636 percent and the yield on short-term 2-year traded nearly 2 basis points higher at 0.722 percent.

By Lactus Fernandes
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