EU mid-session: Mixed sentiment in Europe as focus falls on US Inflation data


European equity open followed the mixed sentiment seen in Asia as investors focus on the pending US inflation data. Sectors are mixed with energy among the outperformers as oil prices recover from yesterday’s losses, despite the rise in US crude output whilst sector heavyweight Total (+1.4%) at the top of the CAC 40 following an upgrade at Barclays. Likewise, BP (+0.9%) and Royal Dutch Shell (+0.6%) are moving in sympathy. Telecom sector is underperforming after France’s Iliad (-5.7%) slumped after the company FY 2017 results miss forecast, whilst Mediatset (-3.1%) is at the foot of the FTSE MIB following a downgrade at JP Morgan. Elsewhere, German utilities company E.ON (+5.7%) is again performing strong amid reports of the company expecting as many as 5000 job cuts and EUR 600mln to EUR 800mln of synergies as part of its asset swaps with RWE (+1.3%).


The DXY is still straddling 90.000, with the Usd largely rangebound vs G10 majors aside from the Jpy and Nzd that have broken out of Monday’s narrow bands in opposite directions. Usd/Jpy saw importer demand in the low 106.20 area and then short covering from leveraged accounts on the way up towards offers at 106.90 before eclipsing yesterday’s peak and retesting highs just over 107.00 seen after Friday’s NFP release. Follow through buying pushed the pair up to and just over nearest resistance around 107.20. Conversely, the Kiwi is looking to consolidate and build on gains above 0.7300 with the aid of some upbeat minor NZ data overnight, and ahead of tonight’s top tier Q4 GDP and current account updates. Aud/Usd continues to encounter resistance/offers in advance of 0.7900, and will look for further direction from RBA Assistant Governor Kent later. Eur/Usd remains in a tight band above 1.2300, and with a key Fib still limiting dips below the handle (1.2266), while the 30 DMA (1.2350) provides a near term cap. Cable is sticking close to the 1.3900 handle awaiting the UK Budget and any further Brexit news after some positive reports about transition implementation on Monday, while Usd/Cad is slightly firmer above 1.2850 after comments from Canada’s PM claiming that exemptions of US import tariffs are not contingent on NAFTA negotiations. Note, BoC Governor Poloz is due to speak this afternoon, and staying with Central Banks the January BoJ minutes will be released shortly before midnight.

Fixed Income

Gilts have extended pre-UK Budget gains to 20 ticks at a fresh 121.43 Liffe high, but not their advantage over Bunds as the core Eurozone debt future plays catch-up and a bit more on the back of stops once yesterday’s Eurex intraday high was breached. The 10 year benchmark just topped out at 157.49 (+22 ticks), but next on the radar could be the March to date peak at 157.69. Not seeing much in the way of fundamental drivers for the latest upturn in bonds, but perhaps some spread positioning as US Treasuries remain nearer the lows of the overnight session, ahead of CPI data and more bill/long end issuance. This does not really resemble a risk-on or FTQ move given Jpy weakness in FX and firmer EU stocks.


Oil prices are taking a breather, with WTI and Brent trading with marginal gains, the latter back above USD 65/bbl from the sell-off seen yesterday fuelled by a Genscape build in stockpiles and the relentless rise in US Crude output reported by EIA. US April shale output is expected to hit record highs at 6.95mln bpd. In the metals complex, Iron ore continued the longest stretch of losses since 2016 whereas gold prices are creeping lower awaiting the US CPI data to gauge the outlook for inflation.