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European equities are once again being guided by updates from Italy, where the Government agreed to a 2.4% debt/GDP ratio. Italian stocks are leading the losses, with Italian bank stocks (Ubi Banca -6.0%, UniCredit -6.3%, Intesa Sanpaolo -6.3% and BPER Banca -8.0%) dominating the bottom of the Stoxx 600, as Italian 10 year bond yields continue rising above 3%.
This weakness is spreading to banking names in Europe with all of Commerzbank, Credit Agricole and SocGen shares trading at a loss of over 3%, and the financial sector the marked sector underperformer.
RSA (-10%) is at the foot of the index as the insurer provided poor Q3 underwriting results. the FTSE is the index outperformer for the second straight session, and is being aided by a weaker GBP.
USD – The index has extended post-FOMC gains to just over 95.000, but the Greenback is not bid across the board by any means even though some rebalancing models for the end of September are pointing to a mild bid.
CAD/AUD/CHF – All bucking the general trend and up vs the Usd, with the Loonie rebounding towards 1.3000 and perhaps deriving some encouragement from BoC’s Poloz who remains hopeful of a NAFTA deal. Meanwhile, the Aud is outperforming down under and holding above 0.7200 amidst hefty option expiry interest from 0.7215-25 (2.2 bn) to 0.7230-50 (1.1 bn) and the Franc has regained some composure after recent declines to trade within a 0.9755-75 range.
EUR/GBP/JPY/NZD – The major laggards, as the single currency continues to bear the brunt of Italian budget concerns that have intensified following the coalitions Government’s decision to test the EU boundaries with a 2.4% deficit for 2019. Eur/Usd is only just holding around 1.1600 having breached a series of chart supports and the 30 DMA at 1.1646. Cable is also looking precarious close to its 21 DMA and double bottoms all around 1.3055 following a brief dip below on the back of weaker than forecast UK GDP data. Usd/Jpy has broken higher again, and more convincingly through a tech level at 113.24, which could be pivotal on a closing basis given month, quarter and Japanese half year end. The Kiwi looks hampered by ongoing RBNZ policy neutrality and also anchored by a big option expiry at the 0.6600 strike.
NOK/SEK – More upside and outperformance for the 2 Scandi crowns with impetus from solid or even stellar Norwegian and Swedish retail sales data, as Eur/Nok drops towards 9.4750 and Eur/Sek trades just below 10.2900.
Core bonds retreated a tad further earlier amidst some consolidation and respite in BTPs, but it’s back to liquidation if not capitulation in Italian debt as losses in 10 year futures reach more than 3 full points. Hence, Bunds have rebounded firmly from 158.40 to 159.00 and through resistance in the 158.88-90 area that had been capping the upside. 159.14 beckons next, then a 50% retrace of this month’s move to 159.36 and aside from any further BTP switching the German benchmark may well muster more impetus from positioning for month/Q3/Japanese half year end regardless. Elsewhere, Gilts have also recovered from a new Liffe intraday base of 120.88 to hit 121.25 and US Treasuries are firmer/flatter after Thursday’s part retracement of post-Fed moves, and ahead of a busy data line up including PCE inflation metrics.
The oil market is uneventful and trading within a thin range heading in to the week’s end, with Brent and WTI hanging just below the USD 82/bbl and USD 72.50/bbl areas. The gold market is also lacking any major catalysts, with the yellow metal languishing around the 6 week lows set in Thursday’s session.
The most significant moves in commodities markets has been seen in steel and coke, where Shanghai rebar fell by over 2% and both materials hit 2 month lows amid speculation that China has shelved blanket production cuts for winter, stoking the flame for more expected output