The European equities resumed their slump after the Asian stocks were spooked by Amazon and Alphabet earnings. Those companies were trading heavily pre-market, with AMZN down 9.7% and GOOGL off 6.1%. The Tech and auto sectors underperformed around -3%, with car-parts name Valeo plunging approximately 19%, joining other names flagging a China slowdown.
The Bunds and U.S. Treasuries pushed higher, with the curve steepening slightly. The BTPs are rangebound so far despite one official expecting the S&P’s scheduled rating review to mirror Moody’s later today. The Bund/BTP spread widened slightly to 316bp as officials continue to trade budget views, while other peripheral and semi-core bonds followed suit. The Gilts tracked Bunds, al the while the GBP was steady.
The NZD and AUD underperformed in the Group-of-10 currency basket, while the yen saw small strength. The USD/CNH eventually pared its gains after the People Bank of China Deputy Governor warned short-sellers.
The WTI drifted lower with base metals little changed.
In the key headlines for the European session:
- Italy Govt considering the fund to support troubled banks if at risk due to Italian debt holdings: Stampa
- ECB survey of professional forecast lower growth outlook for 2018 and 2019; leaves 2018-2020 inflation forecast unchanged
- Some BOJ officials are comfortable with rates as high as about 0.25 percent, according to people familiar with the matter
- Brexit talks said to be on hold as U.K. Cabinet can’t agree on new proposals
- Fed’s Mester says U.S. economy doing very well, inflation to remain near 2% with “appropriate adjustments in monetary policy”
- Fed’s Clarida sees further gradual rate hikes still appropriate
- China mulls further tax, fee cuts including VAT adjustment: News
As the European session followed the Asian session, with stocks continuing to suffer from the latest disappointing earnings from Amazon and Alphabet. The U.S. session is bound to open lower as well with NASDAQ expected to suffer greatly from this move.
The Economic Calendar for the day will be quite important as the U.S. has its third-quarter GDP growth which is expected to come in at 3.3% vs last quarters 4.2%. This might be due to the Trade Tariffs that the U.S. has been implementing left and right on various countries. Moreover, the University of Michigan Consumer Sentiment is expected to remain unchanged at 99.00 as the expected figure is a drop of 0.1 points to 98.9.
In speeches for the day, the Fed takes a break from the past couple of days and in their stead comes the ECB President Draghi and Executive Board member Benoit Coeure who are scheduled to speak today.
Risk-off sentiment dominated as the week headed to a close. Stock rout and PBOC comments over restrictions on using support tools for bond financing in some sectors with overcapacity kept the Antipodean and commodities currencies under pressure. The Aussie slipped to a two-year low and the dollar touched its strongest level since June 2017. A balancing act from Mario Draghi and deadlocked Brexit talks kept the euro and sterling in tighter ranges than other G-10 peers. Bonds advanced, while the Bloomberg Commodity Index dropped below its 55-DMA for the first time in six weeks.
EUR/USD – Moving averages crossover satisfied as pair hits two- month low; close below 1.1301 suggests price action develops within Wave 3 of a move starting back in March, which in theory would target levels around 1.0800; YTD low in focus, at bar 8 on daily DeMark buy setup.
GBP/USD – Hits lowest since Sept. 5 as bearish momentum gets stronger; yet may complete a daily DeMark buy setup Friday to suggest relief rebound.
USD/JPY – Retains bullish bias, needs 55-DMA support to hold.
AUD/USD – At bar 8 on daily DeMark sell setup as bulls can’t get a break.
EUR/CHF – Bullish bias persists as long as 55-DMA supports.