European bourses are trading mostly lower (Eurostoxx 50 -0.3%), in-fitting with the global risk sentiment spurred from equity performance seen in US and Asia-Pac hours. The only index immune to losses this morning is the SMI (+0.3%) with the Swiss bourse supported by the luxury sector after a positive update from Swatch (+2.7%) and the latest Swiss watch exports which have also lifted Richemont (+1.8% ) higher in sympathy. Elsewhere, IT names trade higher after chip makers such as Infineon (+0.8%) and STMicroelectronics (+0.5%) are granted some reprieve in the wake of yesterday’s news that Apple could curtail some of their production of the iPhone X. Additionally, material names lag their peers amid the price action seen in the metals complex. Finally, Telecom Italia (+2.8%) top the FSTE MIB after news that the Co. are to unveil their network spin-off proposal on February 7th.
The USD has managed to maintain its recovery momentum despite a complete reversal in month end currency hedge projections from Dollar buying to heavy or above average selling. Indeed, the DXY has now climbed above 89.500 on widespread gains vs its G10 rivals, bar the traditional safe-havens (JPY and CHF) as Wall Street indices retrace further from record peaks and global equity peers follow suit. EUR/USD briefly retested overnight lows around 1.2337 on a weak inflation read from German state Saxony, but very mixed data from others ahead of heavyweight NRW prompted a marked rebound towards 1.2400. Similarly, Cable lost the 1.4000 handle with stops triggered on a break to 1.3980, but has recovered to trade around 1.4030 in choppy price action. AUD/USD mid-range between 0.8040-0.8100 and undermined by ongoing weakness in metals/commodities, while NZD/USD has retreated further towards 0.7300 despite decent NZ trade data as CFTC shorts continue to pare positions. USD/CAD nudging higher again between 1.2330-1.2380 as some positive NAFTA discussions are offset by another downturn in oil prices. Ahead, US President Trump’s State of the Union address kicks off a busy line up of risk events, with the FOMC concluding its 2-day meeting on the last trading day of January and NFP looming on Friday.
Short term and intraday tech traders will or may be content now that Bunds have filled a chart gap to 159.15 (50% retracement of Monday’s down move) having high-ticked at 159.18 before pulling back ahead of the next upside target around 159.25. However, the core German/Eurozone bond has drifted back towards the 159.00 level eyeing potentially upbeat sentiment readings at 10.00GMT and then hefty Italian issuance. Gilts continue to lag with only a fractional extension of the Liffe session high to 122.65, but no adverse reaction to BoE data revealing a sharp slowdown in foreign buying of UK debt in December from the previous month. US Treasuries have climbed a few ticks above par, with the 10 year yield back below 2.70% and favourable month end portfolio/balance sheet requirements could well be impacting before attention turns to less supportive impulses like Trump’s keynote speech, quarterly refunding and the FOMC.
In the energy complex, both WTI and Brent crude futures trade lower amid the resurgence in the USD with prices hovering around the USD 65bbl and USD 69bbl levels respectively with energy newsflow otherwise relatively light. In metals markets, gold trades modestly lower amid the firmer USD with losses capped by the global risk environment and the yellow metal’s safe-haven status. Elsewhere, copper was pressured during Asia-Pac and fell below USD 3.20/lb amid broad declines across the complex and with sentiment spooked as the equity sell-off gathered pace. Additionally, zinc prices have shown losses in London after printing 11 year highs yesterday.