Market Roundup
- USD/JPY +0.75%, EUR/USD -0.5%, GBP/USD -0.65%
- EUR/GBP 0.8765 38-month high: GBP/USD 31-yr low of 1.2737
- DXY +0.5%, DAX +0.6%, Brent -0.65%, Gold +0.6%
- EZ Aug Producer Prices -2.1% y/y vs revised-2.6% previous, -2.1% expected
- UK Sept Construction PMI 52.3 vs 49.2 previous, 49.00 expected
- Japan Sept Consumer Confidence Index 43.0 vs 42.00 previous
- UK FTSE100 hits 7096, just shy of 7122 record high from Apr 2015
- UBS reiterates parity call for EUR/GBP for end of 2017
- India CB cuts repo 25bp to 6.25%- Reuters poll consensus “no change”
- BoJ Gov Kuroda – No immediate NIRP damage to banking sector
- Reuters poll – Nikkei to reach 17.5k by year-end, 18k by mid-’17
- RBA leaves OCR as is at 1.5% as expected
- JPMorgan aims global bond index at yield-hungry investors
- Reuters poll – S&P/ASX 200 to end ’16 at 5.5k, end-June ’17 at 5.55k
- Year's two biggest Australian IPOs could turn market around – Bbg
Economic Data Ahead
- (0830 ET/1230 GMT) The NAPM-New York releases ISM-New York Index for the month of September. The index stood at 47.5 in the previous month.
- (1000 ET/1400 GMT) The Investor's Business Daily (IBD)/ TechnoMetrica Institute of Policy and Politics (TIPP) will release U.S. Economic Optimism index for the month of October. The indicator stood at 46.7 in the prior month.
- (1630 ET/2030 GMT) API reports its weekly crude oil stock.
- (1930 ET/ 2330 GMT) The Australian Industry Group (AiG) releases its Performance of Services Index for the month of August. The index stood at 45.0 in the month of July.
- (1901 ET/2301 GMT) The British Retail Consortium (BRC) will report its Shop Price Index for the month of September. The index posted a decline of 2.0 percent in the previous month.
Key Events Ahead
- (0805 ET/1205 GMT) Richmond Federal Reserve President Jeffrey Lacker will discuss the economic outlook in a speech in Charleston, West Virginia.
- (1145 ET/1545 GMT) FedTrade operation 30-year Fannie Mae / Freddie Mac max $2.775 bln
- (2000 ET/0000 GMT) Federal Reserve Bank of Chicago President Charles Evans speaks on current economic events and monetary policy before the CFA Society, New Zealand Luncheon, in Auckland.
FX Beat
DXY: The dollar rose near 2-week low against the euro and the yen, largely on the back of growing expectations of Federal Reserve rate hike in the coming months. The dollar index against a basket of currencies trades 0.5 percent higher at 96.22, hovering towards a high of 96.31, it’s strongest since Sept 21.
EUR/USD: The euro declined to a near 2-week low, below the 1.1200 handle, as the dollar strengthened on renewed U.S. rate hike expectations. However, the major trimmed losses after Deutsche Bank shares recovered from the recent fall. The European currency trades 0.3 percent lower at 1.1173, having touched a low of 1.1150, its lowest since September 21. In absence of significant U.S. economic data, markets attention will remain on IBD/TIPP Economic Optimism index for further momentum. On the lower side, the support is around 1.1160 (200- day MA) and any break below targets 1.1120/1.1045 level. The minor resistance is around 1.1221 (200- HMA) and any violation above will take it to next immediate resistance around at 1.1250/1.1280 in the short term.
USD/JPY: The dollar rallied against its Japanese counterpart, as prevalent risk-on market sentiment dampened the demand of the safe-haven yen. The major touched a 13-day high after stronger-than-expected U.S. manufacturing sector survey released on Monday revived expectations of a Fed. interest rates hike by the end of this year. The pair trades 0.8 percent up at 102.46, hovering towards a high of 102.49, it’s highest since Sept 21. The major resistance is around 102.35 (55- day EMA) and break above targets 102.80/103.40. On the lower side, major support is around 101.25 (daily TenkeN-Sen ) and any break below 101.25 will drag it till 100.
GBP/USD: Sterling tumbled to its weakest level in more than 30-years against a dollar, as investors wary over the impact of Britain's separation from the European Union. Growing worries of an economic slowdown will increase the likelihood of further easing by the Bank of England in the near term, despite the economy showing resilience post-referendum. Markets ignored better-than-expected construction sector purchasing managers' index, which rose to 52.3, beating estimates of 49.0 and previous 49.2. Sterling trades 0.7 percent lower at 1.2753, having declined to 1.2736, its weakest since June 1985. The short term trend is weak as long as resistance 1.2960 (7- day EMA) holds and any break above will take the pair till 1.3000/ 1.3080. The minor resistance is around 1.2860 (support turned into resistance). On the lower side, any break below 1.2735 will drag the pair further down till 1.2700/1.2507 (161.8% retracement of 1.2865 and 1.3445). Against the euro, the pound hit a 3-year low of 87.65 pence and was 0.3 percent down at 87.52 pence.
USD/CHF: The Swiss franc slumped, extending losses for the third consecutive session as the greenback strengthened across the broad on renewed U.S. interest rate hike expectations. The dollar trades 0.7 percent higher at 0.9797, having touched a near 2-week high of 0.9806 earlier in the session. On the higher side, any break above 0.9800 (200- MA) will take the pair till 0.9890. The short-term weakness can be seen only below 0.9630 and any break below targets 0.9580/0.9530. The minor support is around 0.9740/0.9680.
AUD/USD: The Australian dollar edged up, but trimmed gains to trade between a narrow range after the Reserve Bank of Australia kept rates steady at a record low 1.50 percent and priced in only a modest chance of an easing in the coming months. The RBA governor Philip Lowe did not provide any bias to ease again, but stated that the monetary policy was consistent with sustainable growth in the economy and achieving the inflation target over time. The Aussie trades flat at 0.7670, having touched an early high of 0.7691. Investors will track broader market risk sentiment, amid lack of relevant data from the U.S . On the higher side, major resistance is around 0.7725, any break above will take the pair till 0.7760/0.7800. The major support is around 0.7640 (10- day MA) and break below will drag it till 0.7580/0.7530.
NZD/USD: The New Zealand dollar rose above the 0.7300 handle, but failed to sustain gains as U.S. dollar extended its overnight bullish momentum led by better-than-expected ISM manufacturing PMI. The upside in the major is likely to remain capped as investors expect the RBNZ to deliver another rate cut at its November meeting. The Kiwi trades 0.2 percent up at 0.7284, attempting to close above the 0.7300 handle. Markets now await outcome of dairy auction and the fortnightly release of Global Dairy Trade Price Index for further cues on the major. Immediate resistance is located at 0.7320, break above targets 0.7340/ 0.7370. On the downside, support is seen at 0.7260 (Sept 27 Low), break below could drag it till 0.7220/ 0.7200.
Equities Recap
European shares gained, as a jump in Deutsche Bank shares and U.S. interest rate hike expectations boosted market sentiment.
The pan-European STOXX 600 index increased 0.7 percent at 345.71 points, while the FTSEurofirst 300 index added 0.74 percent at 1,360.74 points.
Britain's FTSE 100 trades 1.51 percent up at 7,088.93 points, while mid-cap FTSE 250 rose 1.87 percent at 18,523.86 points.
Germany's DAX rallied 0.72 percent at 10,586.39 points; France's CAC 40 trades 0.92 percent higher at 4,494.42 points.
Chinese banks will be closed in observance of National Day.
Tokyo's Nikkei gained 0.83 percent at 16,735.65 points, Australia's S&P/ASX 200 index lost 0.12 percent at 5,471.80 points.
Hong Kong’s Hang Seng rose 0.5 percent at 23,689.44 points and South Korea's KOSPI added 0.55 percent at 2,054.86 points.
Commodities Recap
Crude oil prices tumbled, pulling away from a 6-week high touched on Monday after recent news indicated that Iran and Libya continued to increase production, however losses were capped by OPEC agreement to freeze output levels struck last week. Global benchmark Brent crude was trading 0.6 percent lower at $50.49 per barrel at 0927 GMT, having touched a high of $51.11 in the previous session. U.S. West Texas Intermediate crude declined 0.5 percent at $48.38 a barrel, after rising as high as $48.99 on Monday, its highest since Aug. 22.
Gold declined to its lowest in over 2-weeks as the dollar gained strength following upbeat U.S. manufacturing report, renewing expectations of U.S. interest rates hike by the end of the year. Spot gold edged down 0.2 percent to $1,308.93 an ounce by 0941 GMT, having dropped as low as $1,306.64, its lowest since Sept. 16. U.S. gold futures fell 0.2 percent at $1,310.70 an ounce.
Treasuries Recap
The U.S. Treasuries were sold off following the release of stronger than expected ISM manufacturing data for September. The yield on the benchmark 10-year Treasury note rose 3 basis points to 1.624 percent, the yield on 5-year bond jumped 4 basis points to 1.185 percent and the yield on short-term 2-year note climbed 3 basis point to 0.798 percent.
The UK gilts traded lower after recent data showed that country’s construction sector PMI grew more than expected in September. The yield on the benchmark 10-year gilts, which moves inversely to its price, rose 2 basis points to 0.750 percent, the super-long 40-year bond yield climbed 2 basis points to 1.373 percent and the yield on short-term 2-year bond bounced 2 basis points to 0.116 percent.
The German bunds traded nearly flat as investors remain focused on the upcoming 10-year bond auction, which is schedule to take place on Wednesday by 09:35 GMT. The yield on the benchmark 10-year bond hovered around -0.095 percent mark, the yield on long-term 30-year note remained steady at 0.48 percent and the yield on short-term 2-year bond stood flat at -0.684 percent.
The Japanese government bonds traded modestly lower, succumbing to thin trading activity during a relatively quiet session that saw little data of much significance. Moreover, future course in bond prices are likely to be ruled by the movements in the crude oil market. The yield on the benchmark 10-year bonds rose nearly 1 basis point to -0.059 percent and the yield on short-term 2-year bonds climbed ½ basis point to -0.266 percent.
The New Zealand government bonds closed modestly higher as investors remained cautious ahead of the Global Dairy Trade price index figure. The yield on benchmark 10-year bond fell 1 basis point to 2.415 percent, yield on 7-year note also dipped 1 basis point to 2.160 percent and the yield on short-term 2-year note ended 1 basis point lower at 1.960 percent.
The Australian government plunged after Reserve Bank of Australia kept its official rate unchanged at 1.50 percent after cutting 25 basis points in August. The yield on the benchmark 10-year Treasury note rose 13 basis points to 2.082 percent, the yield on 15-year note jumped 12 basis points to 2.420 percent and the yield on short-term 2-year climbed 6-1/2 basis points to 1.615 percent.
