Europe Roundup: Sterling rallies on renewed Brexit deal hopes, euro steadies amid persisting political uncertainty, European shares slump – Wednesday, October 10th, 2018

Market Roundup

  • EUR/USD 0.02%, USD/JPY 0.23%, GBP/USD 0.05%, EUR/GBP -0.02%
  • DXY 0.04%, DAX -0.53%, FTSE -0.16%, Brent -0.02%, Gold -0.17%
  • Italian bond yields fall after Tria says EU collaboration expected on budget
  • Global financial stability risks rising with trade tensions, IMF says
  • UK PM May's possible Brexit deal could be backed by 30-40 Labour lawmakers – Times
  • EU supervisors monitoring Italian banks' liquidity, no cause for alarm -source
  • Great Britain GDP Estimate (y/y), 1.5%, 1.6% f'cast, 1.6% prev, 1.7% rvsd
  • Great Britain Industrial Output (y/y), 1.3%, 1.0% f'cast, 0.9% prev, 1.0% rvsd
  • France Industrial Output (m/m), 0.3%, 0.1% f'cast, 0.7% prev, 0.8% rvsd
  • Italy Industrial Output (y/y) WDA, -0.8%, -2.0% f'cast, -1.3% prev
  • Trump says China not ready to reach trade deal, repeats threat of more tariffs
  • “New dawn” breaking for UK pay growth, says BoE's Haldane

Economic Data Ahead

  • (0830 ET/1230 GMT) The U.S. producer price index is likely to have increased 0.2 percent in September, while in the 12 months through the same period, it is expected to have advanced 2.8 percent. PPI excluding food and energy probably edged up 0.2 percent after easing 0.1 percent in August.
  • (0830 ET/1230 GMT) The Statistics Canada is likely to report that building permits surged 0.5 percent in August after slumping 0.1 percent in July.
  • (1000 ET/1400 GMT) The U.S. Census Bureau is likely to report that wholesale inventories rose 0.8 percent in August after posting a similar gain in the prior month.
  • (1630 ET/2030 GMT) API reports its weekly crude oil stock.

Key Events Ahead

  • (1215 ET/1615 GMT) Federal Reserve Bank of Chicago President Charles Evans speaks on current economic conditions and monetary policy in Flint, Michigan
  • (1700 ET/2100 GMT) Federal Reserve Bank of Atlanta President Raphael Bostic participates in a discussion at the National Association of Corporate Directors in Atlanta

FX Beat

DXY: The dollar index consolidated after President Donald Trump reiterated his threat to impose tariffs on an additional $267 billion of Chinese imports if Beijing retaliates for the recent levies and other measures the United States has imposed. The greenback against a basket of currencies trades flat at 95.69, having touched a low of 95.55 earlier, its lowest since October 3. FxWirePro's Hourly Dollar Strength Index stood at -40.46 (Neutral) by 1000 GMT.

EUR/USD: The euro gained as the greenback eased following a plunge in the U.S. Treasury yields. The European currency traded 0.1 percent up at 1.1502, having touched a low of 1.1432 on Tuesday, its lowest since August 20. FxWirePro's Hourly Euro Strength Index stood at -82.31 (Slightly Bearish) by 1000 GMT. Immediate resistance is located at 1.1549 (October 5 High), a break above targets 1.1593 (October 3 High). On the downside, support is seen at 1.1450, a break below could drag it till 1.1415.

USD/JPY: The dollar surged after falling for four straight sessions, as strong U.S. economy and expectations of steady interest rate hikes by the Federal Reserve continued to boost investor sentiment. The major was trading 0.2 percent up at 113.20, having hit a low of 112.82 on Monday, its lowest since September 27. FxWirePro's Hourly Yen Strength Index stood at 41.53 (Neutral) by 1000 GMT. Investors’ will continue to track broad-based market sentiment, ahead of the U.S. producer price index, wholesales inventories and Fed officials' speeches. Immediate resistance is located at 113.65 (5-DMA), a break above targets 114.10 (October 5 High). On the downside, support is seen at 112.74 (September 25 Low), a break below could take it lower 112.40 (September 24 Low).

GBP/USD: Sterling rallied to a 2-week peak against the dollar and a 3-1/2 month high versus the euro, bolstered by optimism that Britain and the European Union can agree on a Brexit deal soon. The major traded 0.2 percent up at 1.3163, having hit a high of 1.3185 earlier; it’s highest since September 26. FxWirePro's Hourly Sterling Strength Index stood at 146.36 (Highly Bullish) 1000 GMT. Immediate resistance is located at 1.3217 (September 26 High), a break above could take it near 1.3250. On the downside, support is seen at 1.3060 (5-DMA), a break below targets 1.3000 (September 28 Low). Against the euro, the pound was trading 0.1percent up at 87.36 pence, having hit a high of 87.23, it’s highest since June 15.

USD/CHF: The Swiss franc consolidated near a 7-week low as the greenback held gains ahead of U.S. consumer price index scheduled to release on Friday. The major trades 0.05 percent up at 0.9919, having touched a high of 0.9955 on Tuesday, it’s highest since August 20. FxWirePro's Hourly Swiss Franc Strength Index stood at 100.89 (Highly Bullish) by 1000 GMT. On the higher side, near-term resistance is around 0.9984 (August 6 High) and any break above will take the pair to next level till 1.0010 (July 20 High). The near-term support is around 0.9894 (August 9 Low) and any close below that level will drag it till 0.9842 (August 21 Low).

Equities Recap

European shares tumbled, weighed down by losses in the tech sector, while sterling rallied on reports that Britain and the European Union were making progress towards a Brexit deal.

The pan-European STOXX 600 index plunged 0.2 percent at 372.11 points, while the FTSEurofirst 300 index eased 0.1 percent to 1,464.69 points.

Britain's FTSE 100 trades 0.05 percent up at 7,237.85 points, while mid-cap FTSE 250 declined 0.2 percent to 19,517.55 points.

Germany's DAX fell 0.4 percent at 11,927.42 points; France's CAC 40 trades 0.5 percent lower at 5,291.04 points.

Commodities Recap

Crude oil prices surged as Hurricane Michael moved towards Florida causing the shutdown of nearly 40 percent of U.S. Gulf of Mexico crude production. International benchmark Brent crude was trading 0.2 percent up at $85.00 per barrel by 1044 GMT, having hit a low of $82.64 on Monday, its lowest since October 1. U.S. West Texas Intermediate was trading 0.4 percent higher at $74.92 a barrel, after falling as low as $73.10 on Monday, its lowest since October 1.

Gold held declined, as the dollar steadied near a 7-week peak on the back of a strong U.S. economy and expectations of steady interest rate hikes by the Federal Reserve. Spot gold declined 0.1 percent down at $1,188.60 an ounce at 1046 GMT, having hit a low of $1183.20 on Tuesday, its lowest since September 28. U.S. gold futures rose 0.1 percent to $1,192.60 an ounce.

Treasuries Recap

The Italian bond yields fell after the country's economy minister, Giovanni Tria, said the government will do all it can to recover market confidence. The Italy/Germany 10-year bond yield spread was tighter by four basis points on the day at around 295 bps.  Elsewhere euro zone bond yields were up to one basis point higher, with Germany's 10-year yield, the benchmark for the region, at 0.55 percent

The longer-dated Japanese government bond prices firmed, with the December 10-year JGB futures closed 0.04 point higher at 150.05. The yield on the benchmark 10-year JGB slipped 0.5 basis point to 0.150 percent, the 20-year JGB yield and the 30-year JGB yield both lost half a basis point to 0.680 and 0.940 percent, respectively. The five-year JGB yield was flat at minus 0.065 percent.

The New Zealand government bond prices and Australian bond futures firmed a touch in line with Treasuries. The 3-year Aussie bond futures contract rose half a tick to 97.860, while the 10-year contract added 2.5 ticks to 97.2350.

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