The European equities were unsuccessful in holding onto early gains, yet again. The Focus on trade-related optimism rapidly shifted to a weaker GDP release, as mixed German regional inflation data and waning economic confidence.
Solid earnings from BP and Volkswagen boosted the oil and gas and the auto sectors but failed to keep the Euro Stoxx and the DAX out of the red.
Yield curves were bear flatter, as the 10Y Bund yields tested 40bp to the upside before reversing. The Italian assets were offered after their weaker GDP print, and BTP futures remained around their session lows after the auction results, despite a small pickup in demand. The weakness spread to the semi-core and peripheral bonds with a small focus on Spain. The Bund/BTP spread widened approximately 6bp back out above 300bp.
The EUR was one of the weaker Group-of-10 performers, as the AUD and NZD continued to buck the trend. The main reason behind the EUR weakness was poor EU economic data and early month-end related pressure which helped lift the USD.
The WTI crude dropped back below $67, while Base metals were somewhat lower.
In the key headlines for the European session:
- Eurozone prelim. 3Q GDP: 0.2% q/q vs 0.4% est.; 1.7% y/y vs +1.8% est.; Oct Economic Conf: 109.8 vs 110.0 est.
- Italy prelim. 3Q GDP: 0.0% q/q vs 0.2% est.; 0.8% y/y vs 1.0% est.
- Italy’s Siri says changing budget parameters not on Govt agenda at the moment
- K. Chancellor Hammond says left himself room for a no-deal stimulus
- Trump sees ‘great deal’ with China, but says China not ready
- S. said to expand Chinese tariffs December if Trump/Xi talks fail to ease tensions
- Trump plans to sign exec order ending birthright citizenship: Axios
The European session saw some optimism from the recent comments from President Donald Trump, however, lower than expected GDP simply did not agree with investors as the market exited green and reentered red once again. As the U.S. session starts, investors are looking towards the Consumer Confidence during that session since the falling approval ratings of Donald Trump might have some severe effect on the market.
More importantly, investors in the U.S. are growing more and more concerned over time as the Mid-Term elections are just around the corner and the prospect of the Republican party losing its standing inside of the House, might give investors cold-feet and start to exit markets.
The Economic Calendar, as stated, will feature the Conference Board Consumer Confidence as the expectation is to drop from 138.4 to 136.3 and that might show the growing negativity in the U.S. economy. Moreover, the U.S. will be facing another round of bond selling with the focus on 4- and 8-week bills.
The dollar extended its recent advance as month-end flows that kicked off the London session lent support, sending the euro and sterling to fresh daily lows. The common currency subsequently got brief support from regional German inflation data and rebounded while Antipodean currencies led gains in G-10. Treasuries slipped, commodity currencies rose, and the yen dropped as risk-off bets lost traction following Trump’s comments on a possible trade deal with China. Risk appetite sent European stocks higher before they lost steam.
EUR/USD – While at only bar 5 on weekly DeMark buy setup, it has completed one on the daily, with bar 8 low at 1.1336, suggesting a relief rebound may be ahead; RSI still to send definite reversal signal; a correction targets 21-DMA initially.
GBP/USD – Drop stalls after daily DeMark buy setup completed Friday; stays bearish as 21-DMA, currently at 1.3023, looks to cross below 55-DMA.
USD/JPY – Retains bullish bias, 21- DMA at 112.71 tested.
AUD/USD – Struggles to overcome 21-DMA resistance at 0.7097