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Europe Roundup: Sterling rallies as UK-EU agree on new Brexit deal, dollar rallies against yen amid developments on U.S.-China trade talks, European shares surge - Thursday, October 17th, 2019

Market Roundup

  • UK lenders see worst outlook for business loans since 2008: BoE survey
     
  • UK retail sales growth softens as department stores disappoint
     
  • Johnson agrees new Brexit deal with EU
     
  • Oil prices fall on signs of large U.S. stock build
     
  • Gold holds below $1,490/oz
     

Economic Data Ahead

  • (0830 ET/1230 GMT) The U.S. Department of Commerce is expected to report that housing starts decreased to an annualized rate of 1.320 million units in September from 1.364 million units in August.
     
  • (0830 ET/1230 GMT) The U.S. building permits are likely to have decreased to a 1.350 million-unit pace in September from a 1.425 million-unit pace in August.
     
  • (0830 ET/1230 GMT) The number of Americans filing for unemployment benefits is likely to have increased by 5,000 to a seasonally adjusted 215,000 for the week ended Oct. 11, while continuing claims for the week ended Oct. 4 is expected to decline to 1.682 million from previous week's 1.684 million.
     
  • (0830 ET/1230 GMT) Philadelphia Federal Reserve manufacturing survey is likely to report that it's business conditions index eased to 8 in October from 12 in September.
     
  • (0830 ET/1230 GMT) Statistics Canada releases manufacturing shipme
    nts data for the month of August. Manufacturing sales are likely to have increased 0.6 percent after declining 1.3 percent in July.
     
  • (0830 ET/1230 GMT) Payrolls processor ADP releases Canada's employment report for the month of September. The report is expected to show that 56,500 jobs were added as compared with 49,300 jobs in August.
     
  • (0915 ET/1315 GMT) The Federal Reserve is likely to report that industrial production eased 0.1 percent in September after increasing 0.6 in the prior month.
     
  • (0915 ET/1315 GMT) The Federal Reserve Board is expected to report that capacity utilization edged down to 77.7 percent in September from 77.9 percent in August.
     
  • (1030 ET/1430 GMT) The Energy Information Administration (EIA) reports its Natural Gas Storage for the week ending October 11.
     
  • (1100 ET/1500 GMT) The Energy Information Administration (EIA) reports its Crude Oil Stocks for the week ending October 11.
     

Key Events Ahead

  • (1400 ET/1800 GMT) Federal Reserve's Board Governor Michelle Bowman's speech
     
  • (1600 ET/2000 GMT) Reserve Bank of Australia Deputy Governor Philip Lowe's Speech.
     
  • (1620 ET/2020 GMT) Federal Reserve Bank of New York President John C. Williams
     

FX Beat

DXY: The dollar index slumped as weak data cast a shadow on the outlook for the U.S. economy in the short term, keeping the door open for the Federal Reserve to cut interest rates again later this month. The greenback against a basket of currencies traded 0.3 percent down at 97.71, having touched a low of 97.50 earlier, its lowest since August 26.

EUR/USD: The euro rallied to a near 2-month peak after French central bank Governor Francois Villeroy de Galhau stated that the European Central Bank should clarify the symmetric nature of its inflation target at its upcoming policy review. The European currency traded 0.4 percent up at 1.1112, having touched a high of 1.1039 earlier, its highest since August 26. Immediate resistance is located at 1.1163, a break above targets 1.1190. On the downside, support is seen at 1.1034 (5-DMA), a break below could drag it below 1.1000.

USD/JPY: The dollar advanced to a 2-1/2 month high after China’s commerce ministry stated that China hoped to reach a phased agreement with Washington as early as possible, and make progress on cancelling tariffs on each others’ goods. The major was trading up at 108.78 having hit a high of 108.93 earlier, its highest since August 1. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. building permits, housing starts, unemployment benefit claims, industrial production, capacity utilization 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 108.48 (5-DMA), a break below could take it near at 108.02.

GBP/USD: Sterling jumped to a fresh 5-month peak after Prime Minister Boris Johnson stated that Britain and the European Union had agreed a new Brexit deal and urged lawmakers to approve it at the weekend. The major traded 0.5 percent up at 1.2889, having hit a high of 1.2989 earlier, it’s highest since May 13. Investors’ attention will remain on the development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.3000, a break above could take it near 1.3049. On the downside, support is seen at 1.2657, a break below targets 1.2597. Against the euro, the pound was trading 0.2 percent up at 86.23 pence, having hit a high of 85.74 earlier, it’s highest since May 8.

USD/CHF: The Swiss franc surged to a 9-day peak as the greenback plunged to multi-week lows against a basket of currencies. The major trades 0.4 percent down at 0.9914, having touched a high of 0.9995 on Tuesday, 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 0.9904, and any close below that level will drag it till 0.9885.

Equities Recap

European shares rebounded, boosted by strong earnings from Swedish telecoms gear maker Ericsson.

The pan-European STOXX 600 index advanced 0.7 percent at 396.25 points, while the FTSEurofirst 300 rallied 0.7 percent to 1,552.52 points.

Britain's FTSE 100 trades 0.6 percent up at 7,213.39 points, while mid-cap FTSE 250 surged 0.7 to 20,320.11 points.

Germany's DAX rose 0.8 percent at 12,773.42 points; France's CAC 40 trades 0.5 percent higher at 5,726.59 points.

Commodities Recap

Crude oil prices surged after China said it hoped to reach a phased trade agreement with the United States as early as possible, although the upside appears limited as industry data showed a larger-than-expected build-up in the U.S. inventories. International benchmark Brent crude was trading 0.4 percent up at $59.27 per barrel by 1017 GMT, having hit a high of $60.66 on Friday, its highest since September 30. U.S. West Texas Intermediate was trading 0.3 percent higher at $53.11 a barrel, after rising as high as $54.91 on Friday, its highest since September 30.

Gold prices eased as risk sentiment improved amid developments on the U.S.-China trade war front and Brexit negotiations. Spot gold was trading 0.3 percent down at $1,485.43 per ounce by 1019 GMT, having touched a low of $1,473.88 on Friday, its lowest since October 1. U.S. gold futures also slipped 0.1 percent to $1,492.

Treasuries Recap

The U.S. Treasuries suffered during the afternoon session ahead of the country’s industrial production, housing starts and building permits data for the month of September, as well as the October Philly Fed survey results and usual weekly jobless claims numbers, all due for release later today. The yield on the benchmark 10-year Treasury yield jumped 4 basis points to 1.787 percent, the super-long 30-year bond yield surged 3 basis points to 2.262 percent and the yield on the short-term 2-year surged 4 basis points to 1.631 percent.

The United Kingdom’s gilts plunged during European trading hours tracking an array of optimism from market participants after Britain and the European Union reached a deal on Brexit, which further cleared the pathway to end all official ties with the latter after over 4 decades. The yield on the benchmark 10-year gilts, jumped 3 basis points to 0.746 percent, the 30-year yield surged 4 basis points to 1.228 percent and the yield on the short-term 2-year traded tad higher at 0.569 percent.

The German bunds slumped during European session after investor sentiments improved, following a draft Brexit deal that could actually smoothen the road for Britain to finally break all ties with the European Union. The German 10-year bond yield, which move inversely to its price, jumped nearly 4 basis points to -0.353 percent, the yield on 30-year note also surged 4 basis points to 0.155 percent while the yield on short-term 2-year traded flat at -0.662 percent.

The Australian government bonds slumped during Asian trading session after trade tensions between the United States and China spurred disturbance amongst the market investors amid disappointment from the country’s domestic labour market report for the month of September, released early today. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, jumped nearly 2-1/2 basis points to 1.077 percent, the yield on the long-term 30-year bond also surged nearly 2-1/2 basis points to 1.664 percent and the yield on short-term 2-year traded 2 basis points higher at 0.750 percent.   

By Lactus Fernandes
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