Market Roundup
• Fed's Bostic: Difficult to know cause of equity sell-off.
• Fed's Bostic: Economy can hold up to market turbulence, rate hikes on track.
• EU rejects Italian draft budget, setting up standoff with defiant Italy.
• Two regional Fed banks urged holding discount rate steady before last meeting –minutes.
• UK PM May to address her lawmakers on Wednesday after attacks over Brexit.
• Turkey: Saudi hunt for Khashoggi killers must go "top to bottom".
• White House official: we'll quit arms control treaty in due course.
• Argentine peso weakens 1.41 percent as safe-haven dollar gains.
• Gold jumps as stocks dip; palladium hits all-time high.
• US 20 Oct w/e Redbook y/y, 5.5%, 5.8% previous.
• US Oct Rich Fed Comp. Index, 15, 29 previous.
Looking Ahead - Economic Data (GMT)
• 00:30 Japan Oct Nikkei Mfg PMI Flash, 52.5 previous
Looking Ahead - Events, Other Releases (GMT)
• 23 Oct 22:15 Chicago Fed's Charles Evans participates in moderated Q&A at Northwestern University in Evanston, USA
• 24 Oct 07:30 Swedish Central Bank announces interest rate decision and publishes the Monetary Policy Report in Stockholm
• 24 Oct 13:15 Minneapolis Fed's Neel Kashkari participates in Q&A before the "Innovation in Early Childhood Development and K-12 Education" conference in Minneapolis
• 24 Oct 14:00 Bank of Canada key policy interest rate announcement and Monetary Policy Report in Ottawa
• 24 Oct 15:15 Bank of Canada's Stephen Poloz and Carolyn Wilkins hold a press conference on the Monetary Policy Report in Ottawa
• 24 Oct 17:10 Cleveland Fed's Loretta Mester participates in a moderated Q&A at Cornell Club in New York
• 24 Oct 18:00 Federal Reserve issues the Beige Book of economic conditions in Washington D.C.
Currency Summaries
EUR/USD is likely to find support at 1.1429 levels and currently trading at 1.1469 levels. The pair has made session high at 1.1492 and hit lows at 1.1448 levels. The euro was little against US dollar on Tuesday after the European Commission rejected Italy's 2019 budget and said it will ask Rome to present a new document within three weeks, according to reports from Italian news agency AGI, citing EU sources. The dispute over Italy's spending plans and doubts about the leadership of Britain's prime minister, who is mired in a stalemate over Brexit, has investors focusing on the likelihood of further political turmoil in Europe. Italy's government of the right-wing League and anti-establishment 5-Star Movement has been locked in a dispute with Brussels over fiscal issues and presented a budget plan this month that hikes the deficit to 2.4 percent of gross domestic product. Worries about Italy's spending has bred some doubt about the European Central Bank's plan to raise interest rates next summer, and that has hurt the euro. But on Tuesday, it rose 0.1 percent, last at $1.1469. The dollar index, a gauge of the greenback's value against six major currencies, fell by about 10 basis points over the day, last at 95.927.
GBP/USD is supported in the range of 1.2921 levels and currently trading at 1.2981 levels. It reached session high at 1.3014 and dropped to session low at 1.2967 levels. The British pound gained against the dollar on Tuesday after a media report that the European Union could offer British Prime Minister Theresa May a UK-wide customs union to clinch a Brexit deal. The pound's strength was only brief, the market remains unconvinced May can successfully sell any deal to her Conservative party colleagues and get it through parliament.EU diplomats have told Reuters that the bloc is examining ways to solve the Irish border problem by keeping the whole of the United Kingdom, and not just Northern Ireland, inside the EU’s customs territory. This would be fully settled only in post-Brexit negotiations – and the EU would set stricter terms than May offered. The EU also still wants some element of special protection for Northern Ireland in the treaty, although it may be only hypothetical. The pound rose from below $1.30 to as high as $1.3044 after the RTE report, up 0.6 percent on the day, before giving up most of the gains to trade at $1.2981.
USD/CAD is supported at 1.3025 levels and is trading at 1.3085 levels. It has made session high at 1.3121 and lows at 1.3078 levels. The Canadian dollar edged higher against its U.S. counterpart on Tuesday as investors maintained bets that the Bank of Canada will hike interest rates on Wednesday even as oil prices plunged. The central bank, which sees Canada's economy operating near capacity, has hiked four times since July 2017 to leave its key policy rate at 1.50 percent. Chances of a rate increase on Wednesday held at more than 90 percent despite further volatility in global equity markets and a sharp drop in the price of oil, one of Canada's major exports. U.S. crude oil futures settled 4.2 percent lower at $66.43 a barrel as the sell-off in stocks raised worries about demand growth and after Saudi Arabia said it could supply more crude quickly if needed, easing concerns ahead of U.S. sanctions on Iran. The Canadian dollar was last trading 0.1 percent higher at 1.3078 to the greenback. The currency, which on Friday hit its weakest level in more than five weeks at 1.3132, traded in a narrow range of 1.3082 to 1.3123.
AUD/USD is supported around 0.7054 levels and currently trading at 0.7083 levels. It hit session high at 0.8037 and made session lows at 0.7984 levels. The Australian dollar gained against greenback on Tuesday as optimism over Chinese policy stimulus supported Australian dollar. Sentiment had briefly brightened as China pledged new policies to support private companies, including helping them raise funds in capital markets. The news sparked a bounce in Australian dollar but, gains were limited as investors feared Beijing was digging in for a protracted trade battle with Washighton given there was no sign of the U.S. backing down. The central bank has taken a number of steps this year to spur commercial banks to lend. But Beijing has so far stopped short of massive credit stimulus, concerned about undoing its multi-year campaign to reduce corporate leverage and curb risky lending practices. The People's Bank of China will provide initial funding to institutions that can help enhance the credit profile of private companies that are operating normally but face temporary liquidity difficulties. The Aussie was last trading at $0.7083, after failing to break support around $0.7054. Any break there would be very bearish.
Equities Recap
European shares fell sharply on Tuesday as disappointing company results, particularly in the tech sector and a mix of political worries including Italy's budget woes piled pressure on markets.
UK's benchmark FTSE 100 closed down 1.04 percent, the pan-European FTSEurofirst 300 ended the day down by 1.43 percent, Germany's Dax ended down by 2.08 percent, France’s CAC finished the day down by 1.53 percent.
U.S. stocks fell on Tuesday after worries about the earnings outlook added to recent selling pressure, though major indexes ended well off the day's lows as investors snapped up beaten-down shares late in the session.
Dow Jones closed down by 0.49 percent, S&P 500 ended down by 0.54 percent, Nasdaq finished the day down by 0.40 percent.
Treasuries Recap
Benchmark U.S. Treasury yields fell to their lowest in almost three weeks on Tuesday as tumbling equity markets worldwide fed investor demand for low-risk debt.
Benchmark 10-year notes gained 14/32 in price to yield 3.143 percent, after falling to 3.11 percent, the lowest yield since Oct. 3. The yield curve between two-year and 10-year notes flattened to 25 basis points, also the lowest since Oct. 3.
Commodities Recap
Gold rose 1 percent on Tuesday to its highest level in over three months as the dollar weakened and global stock markets tumbled, with rising political and economic uncertainties adding to bullion's appeal.
Spot gold was up 1 percent at $1,233.21 an ounce at 1:47 p.m. EDT (1747 GMT), having earlier touched its highest since July 17 at $1,239.68.
U.S. gold futures rose 0.9 percent to $1,236.10, also helped by positive currency fundamentals as the dollar turned lower.
Oil prices plunged about 5 percent on Tuesday to two-month lows as a sell-off in global equity markets raised worries about demand growth and after Saudi Arabia said it could supply more crude quickly if needed, easing concerns ahead of U.S. sanctions on Iran.
Brent crude futures fell 4.3 percent, or $3.39, to settle at $76.44 a barrel after plunging 5 percent to $75.88, the lowest since Sept. 7.
U.S. crude ended the session at $66.43 a barrel, down $2.93, after falling 5.2 percent to a session low of $65.74, the lowest level since Aug. 20.
