After a painful last week, equities fell further on Monday with Asian markets blinking red across the screen. The Nikkei fell 1.87%, while Hong Kong’s Hang Seng slid 1.50%. In Europe, the atmosphere is not much better as most indices headed lower, with the exception of Italian equities that barely kept their heads above water. However, the uncertainty created by the clash between Italy and the European Union regarding Italy’s budget is far from over. It will likely continue to weight on equities and especially financials. In FX, investors don’t where to stand against the backdrop of tense Brexit negotiations and Italian budget jitters. The greenback has erased partially last week’s losses but still trades with a clear downtrend bias. The single currency edged slightly higher on Monday morning with EUR/USD rising 0.03% to 1.1563. The currency pair currently sits on the 1.1558 support, implied by the 50% Fibonacci level of its August-September rally.
We expect US rates will stabilise as investors finish pricing in the US Fed’s hiking cycle, which should end in 2020. On the long-end of the curve, the pace of the Fed balance sheet unwinding will be closely monitored. Nevertheless, the US central bank has already well communicated about this matter and no surprises are expected.
By Arnaud Masset
