Market Roundup
• US trade gap widens, -42.6b v -41.8b forecast 36.2b previous; Exports drop 1.8%, imports rise 1.3%.
• US Factory orders increase 2.7% in Oct vs 0.6% in Sep.
• US Labor costs (revised) +0.7% v 0.3% forecast 0.3% previous.
• US Oct durable goods dip, m/m 4.6% v 4.8% in Sep.
• US Senate majority leader: Obamacare repeal will be first action in Senate in January.
• Atlanta Fed’s GDPNow sees Q4 GDP growth at 2.6% vs 2.9% on Dec 1.
• Euro inches lower as eyes shift to ECB meet (Thurs), QE APP 6-month extension eyed, some see tapering of monthly purchases.
• Italian minister, after talking to Renzi, sees a new election in February; PM Renzi expected to resign this week.
• EU finance ministers back larger investment plan to spur growth.
• Oil falls on production cut skepticism, OPEC and Russia output rise; Wall St a touch higher.
• Sterling hits 2-month high on soft Brexit optimism, fades as May’s early ’17 A50 call takes hold.
Looking Ahead - Economic Data (GMT)
• --:-- China FX Reserves (Monthly)* Nov forecast 3.091t, 3.121t-previous
• 22:30 Australia AIG Construction Index Nov 45.90- previous
• 23:00 Japan Reuters Tankan DI Dec 14.00- previous
• 23:50 Japan Foreign Reserves Nov 1242.80b- previous
• 00:30 Australia GDP QQ* Q3 forecast 0.30%, 0.50%- previous
• 00:30 Australia GDP YY* Q3 forecast 2.50%, 3.30%- previous
• 00:30 Australia GDP Final Consumption* Q3 0.80%- previous
• 00:30 Australia GDP Capital Expenditure* Q3 0.00- previous
• 00:30 Australia GDP Chain Price Index* Q3 0.90%- previous
• 05:00 Japan Coincident Indicator MM* Oct 0.20- previous
• 05:00 Japan Leading Indicator* Oct -0.40-prev-0.20%- previous
Looking Ahead - Events, Other Releases (GMT)
• 01:30 Japan Bank of Japan Deputy Gov Kikuo Iwata speaks at a meeting with business leaders
Currency Summaries
EUR/USD is likely to find support at 1.0700 levels and currently trading at 1.0717 levels. The pair has made session high at 1.0751 and hit lows at 1.0700 levels. The euro slipped from three-week highs against the U.S. dollar on Tuesday as investors were cautious ahead of Thursday’s highly anticipated European Central Bank policy meeting. The euro has retraced some of its weakness in recent weeks, with investors seeing the move as overdone and as fears ease that Italy will look to leave the euro zone in the near-term. The renewed weakening of the euro on Tuesday was seen as consolidation after Monday’s strong move, rather than being driven by fundamental factors. Investors are now focusing on the possibility that the ECB may take a more hawkish turn, even as it is widely expected to extend its bond purchase program. The euro was last down 0.46 percent against the dollar, at $1.0713, after hitting a three-week high of $1.0796 on Monday.
GBP/USD is supported in the range of 1.2600 levels and currently trading at 1.2673 levels. It reached session high at 1.2776 and dropped to session low at 1.2626 levels. Sterling fell against the dollar on Tuesday after hitting a two-month high on bets that British government would lose a legal battle to trigger the process for Britain to exit the European Union without parliamentary approval. The pound had initially rallied as high as $1.2775 in early European trading as markets bet the government would lose a court battle to begin the formal process for leaving the EU without parliamentary approval, but declined to trade at 1.2667, down half a percent on the day. Sterling has climbed over 5 percent against the dollar since early October, when it was trading around $1.20 on expectations for a hard Brexit in which, tight controls on immigration are prioritised over European single market access. That view was driven in large part by comments from May and other senior members of the ruling Conservative party at its annual conference.
USD/CAD is supported at 1.3230 levels and is trading at 1.3290 levels. It has made session high at 1.3310 and lows at 1.3273 levels. The Canadian dollar lost ground against its U.S. counterpart on Tuesday as oil fell and domestic trade data showed a disappointing drop in export volumes. Canada posted a smaller-than-expected trade deficit of C$1.13 billion in October, down from a record C$4.38 billion shortfall in September, when a one-time shipment of oil machinery boosted imports, Statistics Canada data showed. On Monday, the loonie reached a more than six-week peak against the greenback at C$1.3236, helped by recent stronger-than-expected domestic data and the agreement by major oil producers to cut output. Still, the Canadian dollar is expected to weaken over the coming months as likely monetary policy divergence overshadows higher oil prices. The Bank of Canada is widely expected to hold interest rates at 0.50 percent on Wednesday, with investors focused on the policy statement for any mention of how the U.S. election of Donald Trump could affect the Canadian and U.S. economies.
AUD/USD is supported around 0.7430 levels and currently trading at 0.7455 levels. It hit session high at 0.7464 and made session lows at 0.7444 levels. The Australian dollar declined modestly against US dollar on Tuesday as the Australian dollar was weighted down by fall in oil prices and firmer dollar. The Aussie dollar declined to trade at $0.7459, from $0.7477 early, having dipped to a trough of $0.7414 on Monday amid wild swings in the euro. Reserve Bank of Australia kept rates on hold at its monthly policy meeting but sounded cautious on economic growth after a run of soft data pointed to a possible contraction last quarter. The Reserve Bank of Australia (RBA) ended Tuesday's meeting with rates at a record low of 1.5 percent following two easings this year but conceded the annual pace of growth was set to slow. Governor Philip Lowe also dropped a reference to the economy growing at potential in his statement. Policymakers have been sounding more optimistic on the economic outlook amid higher prices for key commodity exports. Australia's gross domestic product is due on Wednesday and analysts now fear it could show a small contraction, the first since early 2011.
Equities Recap
European shares rose on Tuesday for the second day with banking stocks surging to an 11-month high as investors dipped back into a beaten-down sector following Italy's constitutional referendum on the weekend.
The UK's benchmark FTSE 100 closed up by 0.4 percent, FTSEurofirst 300 ended the day up by 0.92 percent, Germany's Dax ended up 0.9, and France’s CAC finished the day up by 1.4 percent.
Wall Street climbed on Tuesday as telecom stalwarts AT&T and Verizon gained and bank shares added to their torrid post-election rally, helping the Dow set another record closing high.
Dow Jones closed up by 0.18 percent, S&P 500 ended up 0.34 percent, Nasdaq finished the day up by 0.45 percent.
Treasuries Recap
Most U.S. Treasury yields were little changed on Tuesday, holding in narrow ranges as traders awaited possible clues from the European Central Bank on its bond purchase program following its policy meeting on Thursday.
The Benchmark 10-year Treasury yield was 2.394 percent, up 0.7 basis point from Monday, while the 30-year bond yield was 3.080 percent, up 2.5 basis points.
The U.S. two-year note yield was 1.120 percent, down 0.4 basis point and not far below its highest level since April 2010 reached in late November.
Commodities Recap
Gold hovered near 10-month lows on Tuesday as the market braced for an increase in U.S. interest rates this month and anticipated more monetary tightening next year.
Spot gold was down 0.18 percent at $1,168.08 an ounce by 2:22 p.m. EST (1922 GMT), up slightly from Monday's 10-month low at $1,157.
U.S. gold futures settled down $6.4, or 0.54 percent, at $1,170.1 per ounce.
Oil prices on Tuesday ended lower for the first time in a week since OPEC agreed to cut output on growing skepticism that the cartel would be able to reduce supplies as data showed record high production in most major export regions.
Brent futures lost $1.01, or 1.8 percent, to settle at $53.93 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 86 cents, or 1.7 percent, to $50.93 per barrel.
