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Europe Roundup: Sterling slumps to 2-1/2 year low as UK economy contracts, euro gains despite Italy's political turmoil, gold steadies above $1500 level - Friday, August 9th, 2019

Market Roundup

  • UK's Javid not expecting recession 'at all' after GDP declines
  • UK economy suffers pre-Brexit contraction in the second quarter, first since 2012
  • UK GDP fell at a quarterly rate of 0.2% in the three months to June
  • Italy's Salvini pulls the plug on government, calls for elections

Economic Data Ahead

  • (0815 ET/1215 GMT) Canadian Mortgage and Housing Corp will report housing starts for the month of July. The indicator is expected to rise at a seasonally adjusted annualized rate of 203,500 after increasing 245,700 in the previous month
  • (0830 ET/1230 GMT) The U.S. producer price index is likely to have increased 0.2 percent in July, while in the 12 months through the same period, it is expected to have advanced 1.7 percent. PPI excluding food and energy probably edged up 0.2 percent after posting a gain of 0.3 percent in June.
  • (0830 ET/1230 GMT) Statistics Canada is likely to report that building permits surged 1.5 percent in June after plunging 13.0 percent in the previous month.
  • (0830 ET/1230 GMT) Statistics Canada releases the employment report for July. The economy probably added 12,500 jobs, compared to a drop of 2,200 jobs in June.
  • (0830 ET/1230 GMT) Canada's unemployment rate is expected to stay unchanged at 5.5 percent for the month of July.
  • (1300 ET/1700 GMT) Baker Hughes reports U.S. Oil Rig Count. 

Key Events Ahead

  • No Significant Event Scheduled

FX Beat

DXY: The dollar index consolidated within narrow ranges amid trade war worries and the prospect of early elections in Italy and Britain. The greenback against a basket of currencies traded flat at 97.55, having touched a low of 97.21 on Tuesday, its lowest since July 22.

EUR/USD: The euro surged despite a breakdown in Italy’s governing coalition and the prospect of new elections. Italian Deputy Prime Minister Matteo Salvini stated that his League party’s coalition with the 5-Star Movement was untenable and called for early elections. The European currency traded 0.2 percent up at 1.1198, having touched a high of 1.1249 on Tuesday, its highest since July 19. Immediate resistance is located at 1.1233 (July 17 High), a break above targets 1.1282 (July 19 High). On the downside, support is seen at 1.1164 (38.2% retracement of 1.1026 and 1.1249), a break below could drag it below 1.1138 (50% retracement).

USD/JPY: The dollar slumped, hovering towards a 7-month low hit earlier in the week, weighed down by concern about the escalating trade war between Beijing and Washington. The major was trading 0.3 percent down at 105.76, having hit a low of 105.49 on Wednesday, its lowest since Jan 3. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. producer price index data. Immediate resistance is located at 106.39 (23.6% retracement of 109.31 and 105.49), a break above targets 106.95 (38.2% retracement). On the downside, support is seen at 105.52 (Aug. 6 Low), a break below could take it lower at 104.65 (Jan. 3 Low).

GBP/USD: Sterling plunged to a 2-1/2 year low after data showed the British economy shrank unexpectedly for the first time since 2012 in the second quarter, dragged down by a slump in manufacturing. The economy's gross domestic product fell at a quarterly rate of 0.2 percent in the three months to June, while year-on-year economic growth declined to 1.2 percent from 1.8 percent in the first quarter. The major traded 0.5 percent down at 1.2072, having hit a low of 1.2056 earlier, it’s lowest since Jan. 2017. Immediate resistance is located at 1.2236 (38.2% retracement of 1.2522 and 1.2079), a break above could take it near 1.2291 (50% retracement). On the downside, support is seen at 1.2017 (Jan 17, 2017, Low), a break below targets 1.1986 (Jan 16, 2017, Low). Against the euro, the pound was trading 0.7 percent down at 92.76 pence, having hit a low of 92.89 earlier, it’s lowest since August 2017.

USD/CHF: The Swiss franc surged, extending gains for the third straight session as fears of a snap election in Italy and U.S.-China trade conflict concerns encouraged demand for safe-haven currencies. The major trades 0.2 percent down at 0.9732, having touched a low of 0.9692 on Wednesday; it’s lowest since September 27. On the higher side, near-term resistance is around 0.9800 (38.2% retracement of 0.9975 and 0.9703) and any break above will take the pair to next level till 0.9834 (50% retracement). The near-term support is around 0.9700, and any close below that level will drag it till 0.9650 (Sept. 6 Low).

Equities Recap

European shares plunged as worries about the stability of Italy’s government and ongoing U.S.-China trade tensions dented investor sentiment.

The pan-European STOXX 600 index declined 0.7 percent at 372.16 points, while the FTSEurofirst 300 fell 0.7 percent to 1,464.64 points.

Britain's FTSE 100 trades 0.1 percent down at 7,279.98 points, while mid-cap FTSE 250 rallied 0.5 to 19,139.68 points.

Germany's DAX eased 1.2 percent at 11,703.00 points; France's CAC 40 trades 0.9 percent lower at 5,335.61 points.

Commodities Recap

Crude oil prices surged, supported by expectations of more OPEC production cuts despite the International Energy Agency reporting demand growth at its lowest level since the financial crisis of 2008. International benchmark Brent crude was trading 0.7 percent higher at $58.30 per barrel by 1138 GMT, having hit a low of $55.86 on Wednesday, its lowest since January. U.S. West Texas Intermediate was trading 0.4 percent up at $53.08 a barrel, after falling as low as $50.51 on Wednesday, its lowest since the January.

Gold prices held firm above $1,500 an ounce and were on course for its biggest weekly gain in more than three years on heightened trade tensions between Washington and Beijing. Spot gold was trading 0.2 percent up at $1,502.91 per ounce at 1141 GMT, having touched a high of $1,510.29 on Wednesday, its highest since April 2013. Bullion has risen 4.3 percent so far this week, and about 17 percent for the year, gaining more than $100 in the past week. U.S. gold futures rose 0.3 percent to $1,514.30 an ounce.

Treasuries Recap

The yield on the U.S. benchmark 10-year Treasury yield has lost nearly 10 basis point from high 1.79% and is currently trading around  1.704%. The 30-year bond yield declined nearly 10 basis points from minor top 2.318% made yesterday. The short-term 2-year traded lower at 1.608 percent.

The United Kingdom’s gilts surged during European trading hours Friday after the country’s gross domestic product (GDP) for the second quarter of this year and manufacturing production for the month of June disappointed market sentiments. The yield on the benchmark 10-year gilts suffered nearly 4 basis points to 0.482 percent, the 30-year yield also slumped 4 basis points to 1.138 percent and the yield on the short-term 2-year traded 2-1/2 basis points lower at 0.439 percent.

 The German bunds jumped during European trading session Friday after the country’s trade balance for the month of June narrowed down amid an otherwise muted day that witnessed data of little economic significance. The German 10-year bond yields, which move inversely to its price, slumped 2-1/2 basis points to -0.584 percent, the yield on 30-year note plunged 3 basis points to -0.067 percent and the yield on short-term 2-year traded 1-1/2 basis points down at -0.865 percent.

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