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Europe Roundup: Sterling slumps on renewed Brexit concerns, dollar index near 5-month peak as U.S. Treasury yields rally, European shares ease – Wednesday, May 16th, 2018

Market Roundup

  • EUR/USD -0.31%, USD/JPY -0.17%, GBP/USD -0.21%, EUR/GBP -0.08%
     
  • DXY 0.24%, DAX 0.21%, FTSE 0.01%, Brent -0.62%, Gold 0.05%
     
  • Japan's GDP ends best growth run in decades as spending, trade fade
     
  • Oil eases, signs of demand slowing as price nears $80
     
  • EU concerned about 'collateral damage' from U.S.-China spat – commissioner
     
  • Italian markets unnerved by 5-Star, League coalition plans
     
  • EZ Apr HICP Final YY, 1.2%, 1.2% forecast, 1.2% previous
     
  • EZ Apr HICP ex F&E YY, 1.1%, 1.1% forecast, 1.1% previous
     
  • Germany Apr HICP Final YY, 1.4%, 1.4% forecast, 1.4% previous
     
  • Germany Apr CPI Final, 1.6%, 1.6% forecast, 1.6% previous
     
  • Germany's booming construction sector raises 2018 forecast

Economic Data Ahead

  • (0830 ET/1230 GMT) The U.S. Department of Commerce is expected to report that housing starts decreased to an annualized rate of 1.310 million units in April from 1.319 million units in March.
     
  • (0830 ET/1230 GMT) The U.S. building permits are likely to have decreased to a 1.350 million-unit pace in April from a 1.354 million-unit pace in March.
     
  • (0830 ET/1230 GMT) Statistics Canada releases manufacturing shipments data for the month of March. Manufacturing sales are likely to have increased 1.2 percent after rising 1.9 percent in February.
     
  • (0915 ET/1315 GMT) The Federal Reserve is likely to report that industrial production rose 0.6 percent in April, after increasing 0.5 in the prior month.
     
  • (0915 ET/1315 GMT) The Federal Reserve Board is expected to report that capacity utilization edged up to 78.4 percent in April from 78.0 percent in March.
     
  • (1030 ET/1430 GMT) The Energy Information Administration (EIA) reports its Crude Oil Stocks for the week ending May 11.

Key Events Ahead

  • (0815 ET/1215 GMT) ECB's Draghi speaks at Colloquium in honour of the ECB Vice President Vitor Constancio organised by the ECB in Frankfurt, Germany
     
  • (0830 ET/1230 GMT) ECB's Coeure chairing Session 1 at Colloquium in honour of the ECB Vice President Vitor Constancio organised by the ECB in Frankfurt
     
  • (0830 ET/1230 GMT) Fed's Bostic discusses the economy at an event sponsored by the Federal Reserve Bank of Atlanta, Georgia
     
  • (1030 ET/1430 GMT) ECB's Praet chairing Session 2 at Colloquium in honour of the ECB Vice President Vitor Constancio organised by the ECB in Frankfurt
     
  • (1200 ET/1600 GMT) The Swiss National Bank Chairman of the Governing Board Thomas J. Jordan's speech.
     
  • (1230 ET/1630 GMT) Bank of Canada Deputy Governor Lawrence Schembri is scheduled to speak on Canada's economic potential at a joint event of CFA Society Ottawa and the Ottawa Economics Association in Ottawa, Canada.
     
  • (1730 ET/2130 GMT) Fed's Bullard holds media availability prior to a Homer Jones Memorial Lecture hosted by the Federal Reserve Bank of St. Louis
     
  • (1830 ET/2230 GMT) Fed's Bullard gives opening remarks before the Homer Jones Memorial Lecture hosted by the Federal Reserve Bank of St. Louis
     

FX Beat

DXY: The dollar index rose to a fresh near 5-month peak as the 10-year U.S. Treasury yields rallied above the psychologically important 3 percent level to hit its highest level since 2011. The greenback against a basket of currencies trades 0.2 percent up at 93.50, having touched a high of 93.55 earlier, its highest since Dec. 22. FxWirePro's Hourly Dollar Strength Index stood at 101.30 (Highly Bullish) by 1000 GMT.

EUR/USD: The euro slumped to a fresh 4-1/2 month low after data showed Euro zone inflation slowed in April, adding to the concerns of European Central Bank policymakers seeking to phase out a monetary stimulus package. The economy's consumer price index came in at 1.2 percent in April compared to last year, for a 0.3 percent monthly rise. The European currency traded 0.3 percent down at 1.1799, having touched a low of 1.1794 earlier, its lowest since Dec. 19. FxWirePro's Hourly Euro Strength Index stood at -169.13 (Highly Bearish) by 1000 GMT. Immediate resistance is located at 1.1894 (5-DMA), a break above targets 1.1978 (May 7 High). On the downside, support is seen at 1.1776 (Dec. 19 Low), a break below could drag it till 1.1741.

USD/JPY: The dollar retreated from a 3-1/2-month peak as North Korea's cancellation of a June 12 summit in Singapore added to a backdrop of geopolitical worries for financial markets. However, resurgent U.S. Treasury yields limited the downside. The major was trading 0.2 percent down at 110.10, having hit a high of 110.45 the day before, its highest since Feb. 2. FxWirePro's Hourly Yen Strength Index stood at 77.84 (Slightly Bullish) by 1000 GMT. Investors’ will continue to track broad-based market sentiment, ahead of the U.S. housing starts, building permits, industrial production and Fed officials' speeches. Immediate resistance is located at 110.48 (Feb. 2 High), a break above targets 110.98 (Jan. 16 High). On the downside, support is seen at 109.69 (5-DMA), a break below could take it lower 108.97 (10-DMA).

GBP/USD: Sterling slumped, extending previous session losses, amid renewed concerns about Britain's Brexit negotiations and relatively modest UK wage growth. Moreover, easing expectations for British interest rate hikes and repeated complaints from EU officials that Britain has not been clear on what it wants, dented the sterling bulls' sentiments. The major traded 0.2 percent down at 1.3472, having hit a low of 1.3451 on Tuesday, it’s lowest since Dec. 29. FxWirePro's Hourly Sterling Strength Index stood at -63.96 (Bearish) by 1000 GMT. Immediate resistance is located at 1.3608, a break above could take it near 1.3665. On the downside, support is seen at 1.3428, a break below targets 1.3405. Against the euro, the pound was trading 0.2 percent up at 87.49 pence, having hit a high of 87.44 pence earlier, it’s highest since May 10.

USD/CHF: The Swiss franc extended losses for the third straight session, as the greenback rallied to a fresh near a 5-month high following a surge in the benchmark 10-year Treasury yield. The major trades up at 1.0015, having touched a low of 0.9957 on Monday, it’s lowest since May. 3. FxWirePro's Hourly Swiss Franc Strength Index stood at 54.40 (Bullish) by 1000 GMT. On the higher side, near-term resistance is around 1.0056 (May 10 High) and any break above will take the pair to next level till 1.0099 (May 2017 High). The near-term support is around 0.9936 and any close below that level will drag it till 0.9899.

Equities Recap

European shares slightly eased as political worries weighed on Italian banks, while the greenback surged near 5-month peak after benchmark Treasury yield rose above 3 percent.

The pan-European STOXX 600 index declined 0.05 percent at 392.33 points, while the FTSEurofirst 300 index eased 0.1 percent to 1,539.28 points.

Britain's FTSE 100 trades 0.1 percent up at 7,526.44 points, while mid-cap FTSE 250 gained 0.1 percent to 20,806.28 points.

Germany's DAX rose 0.2 percent at 12,998.18 points; France's CAC 40 trades 0.05 percent lower at 5,551.00 points.

Commodities Recap

Crude oil prices eased after a rise in U.S. crude inventory added to signs demand may be slowing in spite of ongoing output cuts by producer group OPEC and U.S. sanctions against Iran. International benchmark Brent crude was trading 0.05 percent down at $77.95 per barrel by 1012 GMT, having hit a high of $79.43 on Tuesday, its highest since Nov. 2014. U.S. West Texas Intermediate was trading 0.2 percent up at $71.16 a barrel, after rising as high as $71.89 the day before, its highest since Nov. 2014.

Gold prices consolidated near 4-1/2 month lows, weighed down by surging U.S. bond yields and a stronger dollar. Spot gold eased 0.1 percent to $1,289.72 per ounce at 1016 GMT, having shed 1.7 percent and recording a low of $1,288.59 on Tuesday, its lowest price level since Dec. 28. U.S. gold futures for June delivery were up 0.3 percent at $1,293.60 per ounce.

Treasuries Recap

The 10-year U.S Treasury yield stood at 3.066 percent lower by 0.013 bps, while 5-year yield was 0.011 bps down at 2.913 percent.

The Italian/German 10-year bond yield gap tightened to 136 basis points from 139 basis points at the open. The Italian 10-year bond yields hit a 2-month high at 2.003 percent. Italian 2-year bond yields rose to 0.007 percent to trade above zero percent for the first time since May 2017.

The Japanese government bond prices dipped, with the June 10-year JGB futures down 0.05 point to 150.66. The 2-year JGB yield rose half a basis point to minus 0.135 percent. The 20-year yield was 1 basis point higher at 0.540 percent.

The Australian government bond futures eased, with the three-year bond contract down 3 ticks at 97.73. The 10-year contract slipped 5.5 ticks to 97.105. The New Zealand government bonds were slightly up with yields down about 1 basis point across the curve.


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