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Europe Roundup: Sterling rallies as UK lawmakers try to avoid no-deal Brexit, euro steadies as Italian political tensions ease, European shares at 1-month peak - September 4th, 2019 

Market Roundup

  • British PM Johnson bids for election as opponents seek to stop no-deal Brexit
  • ECB needs policy review, should boost focus on climate change: Lagarde
  • Eurozone business growth stays tepid as summer ends: PMI

Economic Data Ahead

  • (0830 ET/1230 GMT) The United States releases trade balance figures for the month of July. The economy's trade deficit is expected to have narrowed to $53.5 billion from 55.2 billion in June.
  • (0830 ET/1230 GMT) Statistics Canada is likely to report that international trade deficit expanded to C$0.40 billion in July from C$0.14 billion in June.
  • (0945 ET/1345 GMT) The NAPM-New York releases ISM-New York Index for the month of August. The index stood at 43.5 in the previous month.
  • (1000 ET/1400 GMT) Bank of Canada will meet to announce its benchmark interest rate.
  • (1000 ET/1400 GMT) The Investor's Business Daily (IBD)/ Techno Metrica Institute of Policy and Politics (TIPP) will release U.S. Economic Optimism index for the month of September. The indicator rose to 55.1 in August.
  • (1400 ET/1800 GMT) The Fed issues its Beige Book, a summary of anecdotes on the health of the economy.
  • (1630 ET/2030 GMT) API reports its weekly crude oil stock.

Key Events Ahead

  • (0915 ET/1315 GMT) Bank of England Governor Mark Carney's speech
  • (0925 ET/1325 GMT) Federal Reserve Bank of New York president John C. Williams gives a speech
  • (1000 ET/1400 GMT) Member of the Executive Board of the European Central Bank Yves Mersch's speech
  • (1230 ET/1630 GMT) Federal Reserve Bank of St. Louis President James Bullard's speech
  • (1230 ET/1630 GMT) Federal Reserve's Board Governor Michelle W. "Miki" Bowman" gives a speech
  • (1230 ET/1630 GMT) European Central Bank Vice-president Luis De Guindos' speech
  • (1300 ET/1700 GMT) Federal Reserve Bank Minneapolis president Neel Kashkari's speech
  • (1515 ET/1915 GMT) Federal Reserve Bank of Chicago President Charles L. Evans

FX Beat

DXY: The dollar index plunged as disappointing factory data forced markets to price in a 25 basis point interest rate cut at the U.S. Federal Reserve’s meeting later this month. The greenback against a basket of currencies traded 0.3 percent down at 98.62, having touched a high of 99.37 on Tuesday, its highest since May 2017.

EUR/USD: The euro rose, extending previous session rebound after members of Italy’s anti-establishment 5-Star Movement overwhelmingly backed a proposed coalition with the Democratic Party, paving the way for a new government to take office. The European currency traded 0.3 percent up at 1.1008, having touched a low of 1.0925 on Tuesday, its lowest since May 2017. Immediate resistance is located at 1.1044 (50% retracement of 1.1163 and 1.0925), a break above targets 1.1072 (61.80% retracement). On the downside, support is seen at 1.0930, a break below could drag it below 1.0870.

USD/JPY: The dollar rose, reversing most of its previous session losses as investor risk sentiment improved after data showed activity in China’s services sector expanded at the fastest pace in three months in August as new orders rose, prompting the biggest increase in hiring in over a year. The major was trading 0.3 percent up at 106.20, 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. trade balance and speeches by Fed officials. 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 rallied after the British lawmakers defeated Boris Johnson in parliament late on Tuesday in an attempt to prevent him from taking Britain out of the European Union without a transition agreement, prompting the prime minister to announce that he would immediately push for a snap election. The major traded 0.9 percent up at 1.2219, having hit a low of 1.1958 on Tuesday, 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 1.2234 (78.6% retracement of 1.2309 and 1.1958), a break above could take it near 1.2309. On the downside, support is seen at 1.2014 (August 12 Low), a break below targets 1.1986 (Jan. 16 2017 Low). Against the euro, the pound was trading 0.5 percent up at 90.30 pence,  having hit a low of 91.48 on Tuesday, it’s lowest since August 22.

USD/CHF: The Swiss franc rose, extending previous session gains as the greenback slumped across the board. The major trades 0.2 percent down at 0.9845, having touched a high of 0.9929 on Tuesday, 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 0.9834 (10-DMA), and any close below that level will drag it till 0.9814 (August 2 Low).

Equities Recap

European shares rallied to 1-month highs, as political developments in Italy and Britain eased investors’ tensions.

The pan-European STOXX 600 index rallied 0.9 percent at 383.07 points, while the FTSEurofirst 300 surged 0.9 percent to 1,507.41 points.

Britain's FTSE 100 trades 0.4 percent up at 7,297.93 points, while mid-cap FTSE 250 gained 0.7 to 19,597.02 points.

Germany's DAX rose 1.0 percent at 12,030.46 points; France's CAC 40 trades 1.1 percent higher at 5,524.36 points.

Commodities Recap

Crude oil prices surged, boosted by a wider market pickup on positive news from China’s services sector, after three days of losses on fears about a weakening global economy. International benchmark Brent crude was trading 1.3 percent higher at $58.92 per barrel by 1139 GMT, having hit a low of $57.21 on Tuesday, its lowest since August 9. U.S. West Texas Intermediate was trading 1.5 percent up at $54.69 a barrel, after falling as low as $52.82 on Tuesday, its lowest since August 9.

Gold prices declined as investors booked profits after a 1 percent jump in the previous session and as political risks in Europe and Asia receded, although concerns over the global economy and the U.S.-China trade war kept the metal close to a 6-year peak. Spot gold fell 0.9 percent to $1,534.24 per ounce by 1141 GMT, having touched a high of $1,550.00 earlier, its highest since August 29. U.S. gold futures were down 0.7 percent at $1,545.70.

Treasuries Recap

The Italian bond yields fell to fresh lows after members of Italy’s anti-establishment 5-Star Movement backed a proposed coalition with the centre-left Democratic Party. Italy’s 10-year bond yield fell 4 basis points to a fresh record low of 0.82 percent, while five-year bond yields hovered closer to 0 percent. Italy’s 10-year bond yield gap over German Bund yields tightened to around 149 bps, its narrowest in more than a year.

The Japanese government bond prices climbed, with the benchmark 10-year yield touching a level just shy of an all-time low hit in 2016. Prices of benchmark 10-year JGB futures rose as much as 0.16 point to 155.38, hitting a record high. The 10-year JGB yield fell half a basis point to minus 0.285 percent, hovering around a record low of minus 0.30 percent hit in 2016. The 20-year JGB yield stood flat at 0.035 percent, the 30-year yield was unchanged at 0.115 percent, while the 40-year yield dropped half a basis point to 0.125 percent.

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