Europe Roundup: Sterling, European shares decline, Fed rate hike talk supports dollar, markets eye Fed's Brainard speech

13 September 2016, 00:52
Eko Rediantoro

Market Roundup

  • USD/JPY -0.65%, EUR/USD -0.12%, GBP/USD -0.15%
  • DXY +0.13%, DAX -1.97%, Brent -1.5%, Iron -1.97%
  • Asian stocks fall after WST drop and Europe follows
  • China state-owned bks selling USD to support CNY-Traders
  • PBOC says not factual it relied on state-owned bks to sell Dollars

  • German 10-year bond yield  hits 0.058 high point since Wed’s-0.127 low
  • Swiss sight depos mixed latest week, domestics fall, total rise
  • Hillary Clinton diagnosed with pneumonia, rumors swarm – various media
  • What would happen if Clinton dropped out of U.S election-Telegraph
  • CFTC IMM CTA data – Specs lift USD bets for first time in six weeks
  • BoJ to weigh different approach, but markets wonder what next – Nikkei
  • PBOC – China should curb money flows into property, state firms – CBN
  • North Korea ready for another nuclear test – Yonhap

Economic Data Ahead

  • (0930 ET/1330 GMT)  The Conference Board releases Britains Leading Economic Index for the month of August. The index posted a slump of 0.3 percent in July.
  • (1845 ET/2245 GMT) Statistics New Zealand will release food price index for the month of August. The indicator posted a decline of 0.2 percent in the previous month.

Key Events Ahead

  • (0805 ET/1205 GMT) Federal Reserve Bank of Atlanta President Dennis Lockhart speaks on monetary policy and the economic outlook at the National Association for Business Economics 58th annual meeting in Atlanta, Georgia. 
  • (1145 ET/1545 GMT) FedTrade operation 15-yr Fannie Mae/Freddie Mac max $525 mln.
  • (1300 ET/1700 GMT) Federal Reserve Bank of Minneapolis President Neel Kashkari participates in St. Paul BOMAs Thought Leader Seminar and St. Paul Port Authoritys Experts Forum, in St. Paul, Minnesota.
  • (1300 ET/1700 GMT) FOMC Member Lael Brainard Speech.
  • (1830 ET/2230 GMT) Reserve Bank of Australia Assistant Governor Christopher Kent Speech.

FX Beat

DXY: The dollar index, against a basket of currencies trades 0.1 percent down at 95.29, pulling away from a high of 95.58 hit in the previous session.

EUR/USD: The euro reversed early gains, as the dollar outperformed higher-yielding currencies on renewed expectations of an interest rate hike by the Federal Reserve in the near term. The major trades flat at 1.1231, having touched an intra-day low of 1.1210. Investors now await Fed Governor Lael Brainards speech for further cues on the economic outlook, just before the Feds Open Market Committee blackout period. On the higher side, any break above 1.12650 will take the pair till 1.1300/1.13270/1.1360. The major support is around 1.1180 (55- day EMA) and any break below targets 1.1137 (200- day MA)/1.1100. Overall trend reversal is only above 1.1360.

USD/JPY: The Japanese yen gained, as investors rushed towards safe-haven assets amid risk-off market profile. The dollar slumped below the 102.00 handle, pulling away from a peak of 103.05 hit last week. The major trades 0.7 percent lower at 101.89, hovering towards a low of 101.72 touched earlier in the session. The short term trend is slightly bearish as long as resistance e 103.15 (55- day EMA) holds. The major resistance is around 103.15 (55-day EMA) and break above targets 103.80/104.60. On the lower side, major support is around 101.20 and any break below 101.20 will drag the pair till 100.55/100.        

GBP/USD: Sterling declined, extending losses for the fourth consecutive session, after recording its first week of losses in four, as markets await Federal Reserve officials speeches for further hints on the prospects of U.S. interest rates hike. The Bank of England will hold its policy meeting on Thursday and is not expected to announce new policy measures, having re-launched an asset-purchase programme and slashed interest rates to record lows last month. However, markets will seek for clues on further measures in coming months. Sterling trades flat at 1.3263, having touched an early low of 1.3285, its lowest since Sept. 1. Any break above 1.3480 confirms major trend reversal, a jump till 1.3770 is possible. On the lower side, major support is around 1.322 and break below targets 1.3160 (21- day MA). Against the euro, it was little changed at 84.61 pence, having hit a 1-week low of 84.95 pence last week.

USD/CHF: The Swiss franc edged down as the greenback rose on increasing expectations of U.S. interest rate hike as early as September. The major trades higher at 0.9745, having touched an early high of 0.9763. On the higher side, any break above 0.9750 will take the pair till 0.9770/0.9830.  Any break below 0.9700 will take it to next level till 0.9670. The short-term weakness can be seen only below 0.9630.

AUD/USD: The Australian dollar slumped below the 0.7500 handle after hawkish comments from Fed’s member Rosenberg strengthened the greenback. The Aussie trades 0.5 percent lower at 0.7499, having touched a low of 0.7494, it’s lowest since Aug. 31. Renewed selling pressure in oil prices also added to the ongoing bearish momentum. On the higher side, any break above 0.756 (55- day EMA) will take the pair till 0.7625/0.7650.  The major support is around 0.7490 and break below will drag it till 0.7390 (200- day MA).

NZD/USD: The New Zealand dollar declined for the third straight session after hitting a 16-month high last week. The major fell below the 0.7300 handle, as investors sold off riskier assets on renewed talks of an interest rate hike by the Federal Reserve in the near term, amid lower oil prices. The Kiwi trades 0.3 percent lower at 0.7297, having touched a 1-week of 0.7291 earlier in the session. Immediate resistance is located at 0.7350, break above targets 0.7376 (5-DMA). On the downside, support is seen at 0.7277, break below could drag it till 0.7250.

Equities Recap

European shares declined in a volatile market, putting them on course for their biggest losses since June, on growing concerns that the ECB and BoJ may slow their monetary policy easing efforts.

The pan-European STOXX 600 index shed 1.7 percent at 339.48 points, while the FTSEurofirst 300 index declined 1.7 percent at 1,336.42 points.

Britains FTSE 100 trades 1.56 percent down at 6,670.95 points, while mid-cap FTSE 250 slumped 1.58 percent at 17,611.90 points.

Germanys DAX dropped 2.10 percent at 10,351.39 points; Frances CAC 40 trades 2.11 percent lower at 4,396.41 points.

Tokyos Nikkei lost 1.73 percent at 16,672.92 points, Australias S&P/ASX 200 index fell 2.18 percent at 5,222.90 points and South Koreas KOSPI shed 2.28 percent at 1,991.48 points.

Shanghai composite index declined 1.3 percent at 3,021.98 points, while CSI300 index tumbled 1.7 percent at 3,262.60 points. Hong Kongs Hang Seng index slumped 3.36 pct at 23,290.60 points.

Commodities Recap

Crude oil declined, extending previous session losses, as speculators slashed their bullish bets after a result showed a rise in oil drilling activity in the United States. Global benchmark Brent crude oil tumbled 1.5 percent to $47.11 a barrel by 1032 GMT, having dropped to a low of $46.99 earlier in the session. U.S. West Texas Intermediate futures fell 1.6 percent to $44.95 a barrel.

Gold edged down, as the greenback strengthened across the broad after recent Federal Reserve officials speech revived expectations of a U.S. interest rate hike this month. Spot gold fell 0.1 percent at $1,324.90 an ounce at 1039 GMT. U.S. gold futures nudged 0.1 percent lower at $1,328.30 an ounce.

Treasuries Recap

The 10-year US Treasury yield broke above its August high of 1.63 percent by several basis points, following Fed official Rosengrens speech that suggested that he favours a prompt rate hike. We foresee that it will break June high of 1.74 percent on Fed rate hike expectations. The yield on the benchmark 10-year Treasury note rose more than 2 basis points to 1.691 percent, the yield on 5-year bond bounced 1 basis point to 1.234 percent and the yield on short-term 2-year note also climbed 1 basis point to 0.798 percent.

The Eurozone periphery bonds slumped as the European Central Bank kept its monetary policy rate and the pace of quantitative easing steady. The French 10-year bond yields rose 2 basis points to 0.270 percent, Irish 10-year bonds yield also climbed 2 basis points to 0.510 percent, Italian equivalent ticked 4-1/2 basis points higher to 1.296 percent, Netherlands 10-year bonds yield climbed 2 basis points to 0.144 percent, Portuguese equivalents inched 7-1/2 basis points higher to 3.229 percent, Spanish 10-year bonds yield bounced 2 basis points to 1.102 percent.

The UK gilts traded mixed following a rise in the United States Treasury yields after hawkish comments made by the Federal Reserve policymakers. The yield on the benchmark 10-year gilts rose 1 basis point to 0.867 percent, the super-long 40-year bond yield bounced 2-1/2 basis points to 1.408 percent and the yield on short-term 2-year bond dipped nearly 2 basis points to 0.163 percent.

The German bund yields moved into positive territory for the first time since the United Kingdom voted to leave the European Union. The yield on the benchmark 10-year bond rose 3 basis points to 0.044 percent, the yield on long-term 30-year note jumped more than 2 basis points to 0.627 percent and the yield on short-term 2-year bond climbed 1 basis point to -0.619 percent.

The Japanese government bond traded mixed following hawkish comments made by the United States Federal Reserve policymakers. The benchmark 10-year bond yield remained steady at -0.013 percent, the super-long 30-year JGB yield climbed 4-1/2 basis points to 0.560 percent and the short-term 2-year JGB yield slid 5 basis points to -0.247 percent.

The New Zealand government bonds closed mixed, succumbing to thin trading activity during a relatively quiet session that witnessed data of little significance. The yield on the benchmark 10-year bond fell 1 basis point to 2.455 percent, the yield on 7-year note ended 1 basis point lower at 2.135 percent and the yield on short-term 2-year note jumped 6 basis points to 1.935 percent.

The Australian government bonds plunged as the United States Federal Reserve rate hike speculation gathered steam following hawkish comments from the Fed policymakers. The yield on the benchmark 10-year Treasury note rose to near two-month high by 9-1/2 basis points to 2.116 percent and the yield on short-term 2-year also jumped 4-1/2 basis points to 1.611 percent

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