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Europe Roundup: Sterling slumps ahead of Brexit parliamentary vote, euro at 1-week low as German GDP eases, European shares rally - Tuesday, January 15th, 2019

Market Roundup

  • Eurozone Dec 2018 reserve assets total increase to 719.05 eur vs previous 700.36 eur (revised from 700.27 eur)
  • Eurozone Nov 2018 eurostat trade nsa, eur increase to 19 eur vs previous
  • Germany 2018 full year GDP decrease to 1.5 % (forecast 1.5 %) vs previous 2.2 %

Economic Data Ahead

  • (0830 ET/1330 GMT) The Federal Reserve Bank of New York is expected to report that manufacturing activity index in New York State grew to 11.25 percent in January after rising 10.90 percent in December.
  • (0830 ET/1330 GMT) The U.S. producer price index is likely to have decreased 0.1 percent in December, while in the 12 months through the same period, it is expected to have advanced 2.5 percent. PPI excluding food and energy probably edged up 0.2 percent after rising 0.3 percent in November.
  • (1000 ET/1500 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 January. The indicator rose to 52.6 in December.
  • (1630 ET/2130 GMT) API reports its weekly crude oil stock.

Key Events Ahead

  • (0815 ET/1315 GMT) Riksbank First Deputy Governor Kerstin af Jochnick will participate in a panel discussion of the most important factors for the Swedish business sector in 2019 as part of the conference DI Varlden in Stockholm.
  • (0830 ET/1330 GMT) Federal Reserve Bank of Philadelphia issues historical revisions to its monthly Non-manufacturing Business Outlook Survey in Philadelphia, United States.
  • (1000 ET/1500 GMT) ECB's President Mario Draghi addresses the European Parliament and responds to questions from lawmakers about the ECB's annual report for 2017 in Strasbourg, France.
  • (1130 ET/1630 GMT) Federal Reserve Bank of Minneapolis President Neel Kashkari speaks on the regional economy before the Rochester Economic Summit in Rochester, Minnesota.
  • (1230 ET/1730 GMT) Bank of Brazil Governor Illan Goldfajn speaks at Geneva's International Centre for Monetary and Banking Studies (ICMB) on Central Banking in Emerging Markets in Geneva, Switzerland.
  • (1300 ET/1800 GMT)  Federal Reserve Bank of Kansas City President Esther George is likely to speak on the economic and monetary policy outlook before The Central Exchange.
  • (1315 ET/1815 GMT) Federal Reserve Bank of Dallas President Robert Kaplan participates in moderated question-and-answer session before the Plano Chamber of Commerce Annual Meeting in Plano, Texas.
  • (1400 ET/1900 GMT) Bank of Spain Governor Pablo Hernández de Cos will deliver a speech on the Spanish economy at the 9th edition of Spain Investors Day in Madrid.

FX Beat

DXY: The dollar index rallied to a near 1-week peak, as the euro weakened on German economic slowdown, while sterling plunged ahead of the Brexit parliamentary vote. The greenback against a basket of currencies trades 0.3 percent up at 95.83, having touched a high of 95.90 earlier, its highest since Jan. 9. FxWirePro's Hourly Dollar Strength Index stood at 54.08 (Bullish) by 1000 GMT.

EUR/USD: The euro slumped to a 1-week low after GDP figures showed the German economy grew by 1.5 percent in 2018, the weakest rate in five years. Moreover, news that all the ECB supervised banks will get a target date by when they will have to fully cover their stock of impaired loans dented the bid tone around the major. The European currency traded 0.3 percent down at 1.1429, having touched a low of 1.1423, its lowest since Jan.8. FxWirePro's Hourly Euro Strength Index stood at -152.93 (Highly Bearish) by 1000 GMT. Immediate resistance is located at 1.1500 (November 7 High), a break above targets 1.1599 (October 11 High). On the downside, support is seen at 1.1411 (Jan. 8 Low), a break below could drag it till 1.1394 (Jan. 7 Low).

USD/JPY: The dollar gained, reversing most of its previous session losses as China signalled more stimulus measures in the near term as a tariff war with the U.S. dented its trade sector.  However, heightened expectations the Federal Reserve will hold off on raising rates this year capped gains. The major was trading 0.3 percent up at 108.49, having hit a high of 108.75 earlier, its highest since Jan 9. FxWirePro's Hourly Yen Strength Index stood at 30.78 (Neutral) by 1000 GMT. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. producer price index. Immediate resistance is located at 109.08 (January 8 High), a break above targets 109.46 (April 26 High). On the downside, support is seen at 107.65 (April 23 Low), a break below could take it lower 107.35 (April 20 Low).

GBP/USD: Sterling plunged from a near 2-month high as markets braced for a parliament vote on Prime Minister Theresa May's Brexit deal later in the day. Investors expect a delay to Britain's March 29 departure date from the European Union or a second referendum that could end up cancelling Brexit. The major traded 0.1 percent down at 1.2842, having hit a high of 1.2929 on Monday; it’s highest since November 15. FxWirePro's Hourly Sterling Strength Index stood at 127.02 (Highly Bullish) 1000 GMT. Immediate resistance is located at 1.2946 (November 12 High), a break above could take it near 1.3030 (November 15 High). On the downside, support is seen at 1.2788 (5-DMA), a break below targets 1.2723 (November 15 Low). Against the euro, the pound was trading flat at 89.04 pence, having hit a high of 88.75 on Monday, it’s lowest since December 5.

USD/CHF: The Swiss franc slumped to a 1-week low, as the greenback surged across the board. The major trades 0.6 percent up at 0.9863, having touched a high of 0.9865 earlier; it’s highest since January 7. FxWirePro's Hourly Swiss Franc Strength Index stood at -88.41 (Slightly Bearish) by 1000 GMT. On the higher side, near-term resistance is around 0.9885 (December 28 High) and any break above will take the pair to next level till 0.9906 (January 3 High). The near-term support is around 0.9787 (January 7 Low), and any close below that level will drag it till 0.9732 (January 9 Low).

Equities Recap

European shares surged, as tech, mining, and car stocks gained after China signalled more stimulus measures to prop-up a slowing economy.

The pan-European STOXX 600 index advanced 0.2 percent at 348.24 points, while the FTSEurofirst 300 index rallied 0.2 percent to 1,369.53 points.

Britain's FTSE 100 trades 0.1 percent up at 6,860.24 points, while mid-cap FTSE 250 fell 0.1 to 18,404.10 points.

Germany's DAX rose 0.3 percent at 10,884.18 points; France's CAC 40 trades 0.3 percent higher at 4,778.94 points.

Commodities Recap

Crude oil prices surged amid supply cuts by producer club OPEC and Russia, however, a darkening economic outlook limited the upside. International benchmark Brent crude was trading 0.1 percent up at $59.27 per barrel by 1030 GMT, having hit a high of $62.46 on Friday, its highest since December 7. U.S. West Texas Intermediate was trading 0.05 percent higher at $50.75 a barrel, after rising as high as $53.29 on Friday, its highest since the December 7.

Gold prices declined, as a bounce in Chinese equities boosted interest in riskier assets. Spot gold edged lower 0.2 percent to $1,288.92 per ounce by 1032 GMT, having touched a high of $1,298.42 earlier in the month, its highest level since June 15. U.S. gold futures were 0.1 percent lower at $1,290.50 an ounce.

Treasuries Recap

The U.S. Treasuries rose during late afternoon session, ahead of the country’s trade balance and producer price index (PPI) data for the month of December, scheduled to be released today by 13:30GMT. The yield on the benchmark 10-year Treasuries slumped 2-1/2 basis points to 2.686 percent, the super-long 30-year bond yields also suffered by 2-1/2 basis points to 3.036 percent and the yield on the short-term 2-year slipped 1 basis point to 2.524 percent.

The German bunds gained during European session ahead of the European Central Bank (ECB) President Mario Draghi’s speech, scheduled to be held today by 15:00GMT. The German 10-year bond yields, which move inversely to its price, plunged 3 basis points to 0.203 percent, the yield on 30-year note slumped nearly 2-1/2 basis points to 0.815 percent and the yield on short-term 2-year traded 1-1/2 basis points down at -0.610 percent.

The Japanese government bonds remained mixed on the second trading day of the week amid a quiet session ahead of the country’s national consumer price inflation (CPI) data and Bank of Japan (BoJ) Governor Kuroda’s speech, both scheduled to for later in the week for further direction in the debt market. The yield on the benchmark 10-year JGB note, which moves inversely to its price, rose 1 basis point to -0.011 percent, the yield on the long-term 30-year note hovered around 0.705 percent and the yield on short-term 2-year slumped 15 basis points to -0.149 percent.

The Australian government bond yields climbed across the curve during Asian trading session Tuesday as risk sentiment improved and Wall Street shares trimmed previous losses. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose 2 basis points to  2.289 percent, the yield on the long-term 30-year bond also jumped 2 basis points to 2.837 percent and the yield on short-term 2-year up 1 basis point to 1.877 percent.

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