Europe Roundup: Sterling eases on worse-than-expected retail sales, Swiss franc rallies as SNB keeps policy steady, European shares surge – Thursday, September 19th, 2019

Market Roundup

  • UK retail sales declines in August
  • Japan government keeps 'moderate' economic view in September
  • OECD cuts growth outlook to a post-crisis low
  • Japan's land prices rise for the second year on tourism, ultra-low rates

Economic Data Ahead

  • (0830 ET/1230 GMT) The U.S. Commerce Department will report current account data for the second quarter. The deficit likely narrowed to $-127.8 billion from $-130.4 billion.
  • (0830 ET/1230 GMT) The number of Americans filing for unemployment benefits is likely to have increased by 9,000 to a seasonally adjusted 213,000 for the week ended Sept. 13, while continuing claims for the week ended Sept. 6 is expected to rise to 1.672 million from a previous week's reading of 1.670 million.
  • (0830 ET/1230 GMT) Philadelphia Federal Reserve manufacturing survey is likely to show that business activity decreased to 11.0 in September from 16.8 in August.
  • (1000 ET/1400 GMT) National Association of Realtors is likely to report that U.S. existing home sales declined 0.4 percent to an annual rate of 537,000 million units in August.
  • (1030 ET/1430 GMT) The Energy Information Administration reports its Natural Gas Storage for the week ending September 13.

Key Events Ahead

  • No significant events scheduled

FX Beat

DXY: The dollar index eased as the Federal Reserve offered mixed signals about the path for further easing. The U.S. central bank, on a 7-3 vote, lowered the Fed funds target rate to a range of 1.75 percent to 2.00 percent but signalled a higher bar to further reductions in borrowing costs. The greenback against a basket of currencies traded 0.3 percent down at 98.28, having touched a low of 97.86 on Friday, its lowest since August 26.

EUR/USD: The euro gained as investor risk sentiment improved after data showed Eurozone July current account balance rose to 20.55 billion euros from an upwardly revised reading of 18.4 billion euros in the prior month. The European currency traded 0.3 percent up at 1.1066, having touched a high of 1.1109 on Friday, its highest since August 27. Immediate resistance is located at 1.1084 (September 5 High), a break above targets 1.1109 (September 13 High). On the downside, support is seen at 1.1015 (September 9 Low), a break below could drag it below 1.0963 (August 30 High).

USD/JPY: The dollar plunged against the Japanese yen after the Bank of Japan kept monetary policy steady and signaled the chance of expanding stimulus as early as its next policy meeting in October. The major was trading 0.5 percent down at 107.91, having hit a high of 108.47 earlier, its highest since August 1. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. unemployment benefit claims and existing home sales. Immediate resistance is located at 108.63 (July 5 High), a break above targets 108.99 (July 10 High). On the downside, support is seen at 107.52 (September 12 Low), a break below could take it lower at 106.89 (21-DMA).

GBP/USD: Sterling plunged, extending previous session losses after data showed British retail sales unexpectedly fell in August after shoppers bought less online than the month before. The major traded 0.05 percent down at 1.2459, having hit a high of 1.2526 on Tuesday, it’s highest since July 25. Investors’ attention will remain on the development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2522 (July 24 High), a break above could take it near 1.2558 (July 18 High). On the downside, support is seen at 1.2384 (10-DMA), a break below targets 1.2282 (21-DMA). Against the euro, the pound was trading 0.5 percent down at 88.82 pence, having hit a high of 88.20 on Wednesday, it’s highest since May 30.

USD/CHF: The Swiss franc rebounded from a 2-month low and was on track to post its biggest daily jump in a month after the Swiss National Bank kept its policy rate unchanged at -0.75 percent, as expected. The SNB maintained the rate it charges on the excess cash it holds for commercial banks at -0.75 percent, but raised the threshold at which the negative rate charges apply. The major trades 0.6 percent down at 0.9913, having touched a high of 0.9983 earlier, it’s highest since August 1. On the higher side, near-term resistance is around 0.9999 (June 17 High) and any break above will take the pair to next level till 1.0042 (May 24 High). The near-term support is around 0.9880 (September 12 Low), and any close below that level will drag it till 0.9854 (September 13 Low).

Equities Recap

European shares advanced after the U.S. Federal Reserve’s second interest rate cut of the year, while the Bank of Japan and Switzerland’s central bank both kept their deeply negative interest rates on hold.

The pan-European STOXX 600 index rallied 0.3 percent at 390.70 points, while the FTSEurofirst 300 advanced 0.3 percent to 1,534.57 points.

Britain's FTSE 100 trades 0.6 percent up at 7,356.97 points, while mid-cap FTSE 250 gained 0.2 to 20,084.77 points.

Germany's DAX rose 0.2 percent at 12,407.18 points; France's CAC 40 trades 0.4 percent higher at 5,641.34 points.

Commodities Recap

Crude oil prices rallied after days of turbulence, with markets soothed by Saudi Arabia’s pledge to restore full production by end-September at facilities knocked out in drone and missile attacks last weekend. International benchmark Brent crude was trading 2.3 percent higher at $65.44 per barrel by 1038 GMT, having hit a high of $69.64 on Monday, its highest since May 30. U.S. West Texas Intermediate was trading 2.0 percent up at $59.45 a barrel, after rising as high as $63.33 on Monday, its highest since May 21.

Gold prices consolidated within narrow ranges after a sharp fall in the previous session as a lack of clarity in the U.S. Federal Reserve’s monetary policy outlook kept investors on the sidelines. Spot gold rose 0.1 percent higher at $1,496.41 per ounce by 1041 GMT, having touched a low of $1,483.06 on Wednesday, its lowest since August 13. U.S. gold futures were down 0.8 percent at $1,503.

Treasuries Recap

The U.S. Treasuries slightly suffered during the afternoon session ahead of the country’s weekly initial jobless claims, scheduled to be released today by 12:30GMT and the 10-year TIPS auction, also due today by 17:00GMT. The yield on the benchmark 10-year Treasury yield edged 1 basis point up to 1.793 percent, the super-long 30-year bond yield hovered around 2.233 percent and the yield on the short-term 2-year jumped nearly 2 basis points to 1.764 percent.

The United Kingdom’s gilts remained nearly flat during European trading hours, after the country’s retail sales for the month of August fell, albeit meeting market expectations. Also, the Bank of England’s (BoE) monetary policy decision remained unchanged unanimously, which barely impacted debt markets. The yield on the benchmark 10-year gilts, remained flat at 0.642 percent, the 30-year yield suffered nearly 1-1/2 basis points to 1.050 percent and the yield on the short-term 2-year too remained steady at 0.512 percent.

The German bunds suffered during European trading session amid a muted trading session that witnessed data of little economic significance ahead of the country’s producer price index (PPI) for the month of August, scheduled to be released on September 20 by 06:00GMT. The German 10-year bond yield, which move inversely to its price, jumped 3-1/2 basis points to -0.478 percent, the yield on 30-year note also gained 3-1/2 basis points to 0.028 percent and the yield on short-term 2-year traded 2 basis points up at -0.693 percent.

The Japanese government bonds jumped at close of Asian trading session following a 25bp rate cut by the Federal Reserve at its overnight monetary policy meeting, where it maintained a hawkish tone, with promise to 'act as appropriate' to sustain expansion. At close, the yield on the benchmark 10-year JGB note, which moves inversely to its price, plunged 22 basis points to -0.221 percent, the yield on the long-term 30-year suffered 3-1/2 basis points to 0.299 percent and the yield on short-term 2-year slumped 30 basis points to -0.299 percent.

The Australian 10-year government bond yield slumped to over 1-week low after the Federal Reserve cut the federal funds rate by 25 basis points to 1.75-2.00 percent at its monetary policy meeting in the overnight session. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, plunged 7-1/2 basis points to 1.1061 percent, the yield on the long-term 30-year bond also slumped 7 basis points to 1.665 percent and the yield on short-term 2-year plummeted 7-1/2 basis points to 0.797 percent.

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