Pound Eases On Brexit

europe stock market update

Market Roundup

  • Italy needs 50 billion euro budget for ‘shock’ stimulus: Salvini
  • Fate of Brexit deal in hands of the EU: UK Conservative chairman
  • UK’s Johnson puts health service off limits in potential U.S. trade deal
  • Investors await EU response to Johnson demand

Economic Data Ahead

  • (0830 ET/1230 GMT) Statistics Canada releases manufacturing shipments data for the month of June. Manufacturing sales are likely to have decreased 1.7 percent after rising 1.6 percent in May.

Key Events Ahead

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  • (1800 ET/2200 GMT) Federal Reserve Vice Chair for Supervision Randal K. Quarles’ speech.

FX Beat

DXY: The dollar index hit a fresh 2-1/2 week peak as the yields on U.S. benchmark 10-year government bonds pulled away from 3-year lows, supported by reports that Germany is prepared to increase fiscal spending and China took steps to lower corporate borrowing costs. The greenback against a basket of currencies traded flat at 98.39, having touched a high of 98.42 earlier, its highest since August 2.

EUR/USD: The euro consolidated near 2-week lows as investors awaited Italian Prime Minister Giuseppe Conte’s speech in the parliament, where he will defend his record. PM Conte might hand in his resignation immediately afterwards or could instead wait for a formal vote to make it clear he is being unseated by the far-right League. The European currency traded flat at 1.1080, having touched a low of 1.1066 on Friday, its lowest since August 1. Immediate resistance is located at 1.1105 (23.6% retracement of 1.1230 and 1.1066), a break above targets 1.1129 (38.2% retracement). On the downside, support is seen at 1.1060 (July 31 Low), a break below could drag it below 1.1026 (August 1 Low).


USD/JPY: The dollar declined, halting a 3-day rally as investors remained cautious ahead of the minutes from the U.S. Federal Reserve’s July meeting due on Wednesday and the Fed’s Jackson Hole seminar later in the week for clues on the monetary policy outlook. The major was trading 0.3 percent down at 106.35, having hit a low of 105.05 last week, its lowest since Jan 3. Investors’ will continue to track the broad-based market sentiment, ahead of Fed’s Quarles’ speech. Immediate resistance is located at 107.09 (21-DMA), a break above targets 107.56 (August 2 High). On the downside, support is seen at 105.89 (August 8 Low), a break below could take it lower at 105.29 (Aug. 9 Low).

GBP/USD: Sterling plunged below the 1.2100 handle as investors waited for European Union leaders’ response to a demand from Britain’s prime minister to remove the Irish backstop from the Brexit deal. On Monday, PM Boris Johnson wrote to European Council President Donald Tusk to propose replacing the Irish backstop with a commitment to put in place alternative arrangements by the end of a post-Brexit transition period. The major traded 0.2 percent down at 1.2097, having hit a low of 1.2014 last week, it’s lowest since Jan. 2017. Investors’ attention will remain on the development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2210 (38.2% retracement of 1.2522 and 1.2079), a break above could take it near 1.2331 (61.8% retracement). On the downside, support is seen at 1.2073 (August 16 Low), a break below targets 1.2041 (August 13, Low). Against the euro, the pound was trading 0.3 percent down at 91.60 pence, having hit a high of 90.90 on Friday, it’s highest since July 31.

USD/CHF: The Swiss franc edged higher, hovering away from a 2-week low hit in the previous session, amid concerns that major economies could tip into recession. The major trades 0.2 percent down at 0.9792, having touched a high of 0.9821on Monday, it’s highest since August 5. On the higher side, near-term resistance is around 0.9855 (61.8% retracement of 0.9975 and 0.9659) and any break above will take the pair to next level till 0.9980 (78.6% retracement). The near-term support is around 0.9753 (10-DMA), and any close below that level will drag it till 0.9705 (August 14 Low).

Equities Recap

European shares rallied for the third straight session, boosted by gains in the healthcare sector.

The pan-European STOXX 600 index rose 0.2 percent at 374.510 points, while the FTSEurofirst 300 surged 0.2 percent to 1,474.69 points.

Britain’s FTSE 100 trades 0.5 percent up at 7,223.30 points, while mid-cap FTSE 250 rose 0.2 to 19,140.60 points.

Germany’s DAX rallied 0.05 percent at 11,720.78 points; France’s CAC 40 trades 0.2 percent higher at 5,384.39 points.

Commodities Recap

Crude oil prices rose, extending gains for the third straight session on optimism U.S.-China trade tensions will ease and on hopes major economies will take stimulus measures to avoid a potential economic slowdown that could dent oil demand. International benchmark Brent crude was trading higher at $59.84 per barrel by 0949 GMT, having hit a high of $59.90 earlier, its highest since August 14. U.S. West Texas Intermediate was trading up at $56.13 a barrel, after rising as high as $56.57 earlier, its highest since August 14.

Gold prices steadied after falling to a 1-week low earlier in the day, as investors awaited meetings by policymakers later this week for clues on the path forward for interest rate cuts. Spot gold traded flat at $1,504.23 per ounce at 1000 GMT, having touched a low of $1,492.74 earlier, its lowest since August 13. On Monday, gold fell 1.1 percent below the key level of $1,500 and its biggest daily decline since July 19.

Treasuries Recap

The U.S. Treasuries jumped during the afternoon session ahead of the Federal Open Market Committee’s (FOMC) end-July monetary policy meeting minutes, scheduled to be released on August 21 by 18:00GMT. Also, Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium by end of this week, shall add further direction to the debt market. The yield on the benchmark 10-year Treasury yield slumped 3 basis points to 1.566 percent, the super-long 30-year bond yields plunged 4 basis points to 2.046 percent and the yield on the short-term 2-year traded nearly 1-1/2 basis points lower at 1.525 percent.

The United Kingdom’s gilts gained during European trading hours, amid a muted session that barely witnessed any data of major economic significance. However, fears of a global economic breakdown and possibilities of a no-deal Brexit worried investors furthermore, pulling yields lower. The yield on the benchmark 10-year gilts, suffered 2-1/2 basis points to 0.444 percent, the 30-year yield also lost 2-1/2 basis points to 1.022 percent and the yield on the short-term 2-year too traded nearly 2-1/2 basis points lower at 0.465 percent.

The German bunds surged during European trading session ahead of the country’s super-long 30-year auction, scheduled to be held on August 21 by 15:10GMT and the manufacturing PMI for the similar month, due for release on August 22 by 13:00GMT for further direction in the debt market. The German 10-year bond yields, which move inversely to its price, plunged 4 basis points to -0.686 percent, the yield on 30-year note suffered nearly 3-1/2 basis points to -0.172 percent and the yield on short-term 2-year traded 1-1/2 basis points lower at -0.910 percent.

The Australian government bonds suffered during Asian session of the second trading day of the week following investors’ improved appetite after global recession fears eased, tracking hopes of stimuli from major economies like China and Germany to support the ailing economies. However, the downside in bond prices was capped by the Reserve Bank of Australia’s (RBA) hint at further monetary policy easing in its August meeting minutes, released early today. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, jumped 2-1/2 basis points to 0.952 percent, the yield on the long-term 30-year bond surged 3 basis points to 1.542 percent while the yield on short-term 2-year traded steady at 0.751 percent.

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