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Major European equities are lower across the board (Eurostoxx 50 -0.7%) as the sentiment seen in Asia spilt over onto the region. Material names lag amid the slump in base metal prices, while consumer staples outperform. The finance sector is also experiencing weakness with the likes of Spanish banks exposed to Mexico (BBVA -5.8%, Sabadell -2.4%, Santander -1.8%) pressured after Mexican banks fell overnight amid a surprise proposal from the incoming President AMLO to scrap bank fees. (Note: BBVA made 28% of its revenues and 34% of its operating income from Mexico last year.) Meanwhile, UBS (-4.0%) shares declines after the US Justice Department filed a lawsuit against the bank for defrauding investors in its sales of mortgage-backed securities leading up to the global financial crisis. Over in Germany, steel-maker Thyssenkrupp (-10.3%) shares slumped after the company announced a profit warning due to provisions for an ongoing cartel probe and quality problems at its auto business. Elsewhere, Richemont (-6.3%) shares declines amid disappointing earnings, hitting the likes of European Luxury names (LVMH -1.7%, Kering -3.0%) in sympathy.
DXY – The buck appears to have stopped for the Greenback on Wednesday, and its resurgence from mid-term election lows has been fuelled to a degree by the latest FOMC policy statement that effectively underpins market expectations for a December hike. Amidst almost universal gains vs currency counterparts, the index is now nudging 97.000 from just shy of 95.700 at one stage and the 2018 peak of 97.201 is back within striking distance.
GBP – Brexit impulses continue to ebb and flow between positive vibes on deal prospects and the proverbial cliff edge withdrawal, but the bottom line is that Irish border and back-stop differences remain unresolved to leave the UK at risk of failing to agree terms at home and/or with the EU. Hence, Sterling has lost momentum and is underperforming alongside the NOK (undermined by much softer than expected Norwegian inflation data to trade down around 9.5700 vs the Eur) within the G10 ranks, as Cable teeters above 1.3000, and largely shrugged off a barrage of UK data (GDP firm and trade above consensus, but other elements less encouraging).
CAD/EUR – The next worst majors, with Loonie hit by collapsing oil prices and sliding towards 1.3200 vs its US peer, while the single currency continues its relatively sharp and abrupt pull-back from 1.1500 to retest support ahead of the 1.1300 ytd low. Ongoing Italian-EU budget differences are weighing along with more signs of a slowdown, or even weakness in the Eurozone economy, while hefty option expiries are also eyed (1.1300 in 1.1 bn, 1.1340-50 in 2.0 bn and 1.1375 in 1.3 bn for example).
AUD/NZD – Also falling prey to their US rival’s revival and hardly helped by neutral or wait-and-see policy guidance from the RBA or RBNZ, as Aud/Usd recoils to sub-0.7250 and Nzd/Usd backs off further from almost 0.6800 to under 0.6750.
JPY/CHF – More divergence between the ‘safe-havens’ as the Jpy bucks the overall trend and holds its own vs the Usd, albeit weakening to 114.00+ at one stage overnight, while the Franc is depreciating and not far from 1.1000.
Bunds and Gilts have both advanced further amidst the broadly risk-off environment and with extra incentive from the more pronounced sell-off in crude, while the former will also be keeping note of Italian debt as Roman Government officials and their EU peers continue to wrangle over budget issues, ahead of Tria’s showdown with Centeno. Bunds are just off a 159.82 peak and Gilts have eased off 121.59 (+45 and +41 ticks respectively), while BTPs are closer to the bottom end of a 121.41-122.10 range vs yesterday’s 122.05 close. Elsewhere, US Treasuries are back in bull-flattening mode following the Fed and looking towards PPI data before Michigan sentiment and wholesale trade.
WTI (-1.9%) and Brent (-1.7%) lost the USD 60/bbl and USD 70/bbl handles respectively, after the complex entered into bear market territory amid rising supply and concerns of a slowdown in global economic growth. Both benchmarks declined around 20% from the four-year highs reached at the front end of October and are set for a fifth straight week of declines, while North Sea Brent Crude hit seven-month lows. The slide has been exacerbated by US’ decision to permit eight countries to continue importing Iranian oil after the imposition of sanctions on the OPEC member, as well as record production of crude oil over in the States. Looking ahead, investors and traders will be focusing on this weekend’s meeting of OPEC and its allies where they are set to discuss output strategies in Abu Dhabi on Sunday. During the week, there were source reports that Russia and Saudi are to start discussing oil production cuts in 2019. This comes after OPEC’s October production reached the highest level since 2016, while Russia hiked its output in the prior month to recent highs of 11.4mln BPD. Producers on Sunday will have to discuss the threat of a glut alongside the prospect of lower demand from faltering EM economies and repercussions from US-Sino trade disputes.
Elsewhere, metals trade lower across the board with copper underperforming amid post-FOMC dollar strength and concerns regarding slowing global economic growth. Among precious metals, spot gold (-0.3%) tracks USD action, with the yellow metal dropping to the lowest level this month, while spot silver (-0.4%) is set for its largest weekly percentage decline in nine weeks.