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European equities have been driven by mixed reports from Italy this morning ahead of their upcoming budget. This led equities to start the day in the red on suggestions of possible resignation of the Italian Finance Minister, and/or a delay to today’s presentation.
Some reprieve was offered by a rejection of these reports, but most major bourses are still in the red, with the FTSE MIB leading the losses. The FTSE is bucking the trend as a result of the softer GBP.
Italian banks have been hit the hardest by the budget dispute reports from Italy, as the rise in Italian yields has pushed Unicredit (-3%), Banco BPM (-2.8%) and Intesa Sanpaolo (-2.7%) close to the foot of the Stoxx 600. These stocks are languishing in the red alongside Indivior (-10%), who is leading the losses in the Stoxx 600, after a guidance cut in late European trade yesterday
H&M (+10%) is the marked outperformer in Europe after they tempered investor concerns of slowing profit figures, by highlighting a positive underlying sales trend.
EUR – Not the biggest G10 lose in the FOMC aftermath vs a broadly firm USD (DXY back above 94.500 and up to 94.645 at best), but struggling to maintain 1.1700+ status amidst more Italian fiscal bickering in Rome between Economy Minister Tria and the more anti-austerity factions of the coalition Government. The single currency has derived some underlying support from firmer than expected German state CPI reports implying an upside skew to the national print, while hefty option expiry interest at 1.1700-05 (1.35 bn) may also be keeping the headline pair afloat.
GBP/AUD/CHF/CAD/NZD – The major underperformers against the Greenback, partly on Fed policy guidance reaffirming a final and 4th 25 bp hike this year, followed by 3 more in 2019 and another the year after, but also on other factors. Cable is teetering above 1.3100 as Brexit uncertainty persists, while Aud/Usd is slipping from the 0.7250 level that has been pivotal amidst the ongoing US-China trade rift. The Franc is only just holding circa 0.9700 and around 1.1350 vs the Eur, conscious that the SNB will be watching out for any Roman repercussions and ready to intervene if the Chf strengthens excessively on safe-haven grounds. Elsewhere, the Loonie has lost much of its crude traction following latest NAFTA news that suggests little prospect of a deal anytime soon, with Usd/Cad up over 1.3050 ahead of Canadian average weekly earnings data and a speech from BoC’s Poloz later tonight, while the Kiwi only got a fleeting boost from a relatively upbeat RNBZ assessment of the economy and core inflation as the OCR outlook remained neutral. Hence, Nzd/Usd has reverted to its 0.6650 axis and veering south.
JPY – Holding up much better than the rest in contrast to recent sessions, even though BoJ Governor Kuroda has maintained a dovish stance with powerful easing still appropriate, and it appears that technical impulses may be impacting after the latest rejection of 113.00+ levels. The headline pair retreated towards 112.50 before finding some underlying bids ahead of a 112.35 Fib and a decent expiry between 112.50-40 (1.1 bn), while Eur/Jpy topped out in advance of 133.00 and a quadruple top just above the big figure.
Bunds have pared losses and retreated to a fresh Eurex intraday low of 158.28 (+24 ticks vs +75 ticks at best) in wake of German state inflation data suggesting a circa 0.2% point upward bias to the national y/y consensus, and a partial reprieve for Italian bonds ahead of more budget meetings before the Cabinet convene that has been delayed, but still scheduled to take place today. Moreover, BTPs have gleaned some comfort or at least sighed relief in the knowledge that nervous investors did not shun the latest cash offering, but the 10 year benchmark remains below 126.00. Elsewhere, Gilts continue to track Bunds within tighter confines and recently slipped back below 121.00, to 120.93 (+14 ticks vs +51 ticks at one stage), while US Treasuries are consolidating and unwinding a degree of bull-flattening after the Fed and in front of a pretty packed penultimate session before the end of September (from the trading standpoint). Aside from a raft of data and more from Powell, plus Kaplan, the 7 year auction could be interesting given mixed impulses via softer yields/less concession vs more clarity regarding the FOMC outlook.
The oil market is still in positive territory, with Brent trading around the USD 82/bbl area. Some pressure was offered to the fossil fuel, however, by source reports from Saudi Arabia saying that they are set to increase production by 200-300k BPD to make up for lost Iranian supply for the next 2 months.
In the metals scope, gold is in the green and trading within a thin range after the yellow metal hit 2 week lows in the previous session. Chinese steel rebar has fallen by over 1%, hitting a two week low, with aluminium also slipping to a month long low as demand continues to dry up for the construction materials ahead of the week-long Chinese holiday,