Bitcoin Vulnerable to IMF Comments Falls

Bitcoin’s role as a “safe haven” asset in turbulent times is looking more unlikely.

As the U.S. stock market saw its biggest drop since February on Wednesday, the largest digital currency dropped 6 percent along with it. Bitcoin, sometimes referred to as “digital gold,” and other top cryptocurrencies wiped out $13 billion of value in a matter of hours, according to data from CoinMarketCap.com.

Other top cryptocurrencies followed bitcoin’s lead, with XRP and ethereum both tumbling more than 10 percent. The downward moves came after the International Monetary Fund warned that cryptocurrencies “could create new vulnerabilities in the international financial system.”




h
Bitcoin proponents have billed it as a store of value, or “digital gold,” and a possible replacement for traditional currencies.

This week’s market plunge, and this year’s global turmoil, should have made ideal conditions for digital currencies to prove that. The Dow Jones Industrial Average closed more than 800 points lower Wednesday, its biggest loss since February, hurt by quickly rising interest rates and a rout in tech stocks.

While U.S. stock market has otherwise fared pretty well this year, government-backed currencies were dragged down by ongoing Brexit concerns in 2018, and there were growing trade tensions between the U.S., China and European Union.

via CNBC

DAX slides as Asian markets sink

The DAX index continues to see red this week. In the Thursday session, the index is at 11,533, down 1.53% since the Wednesday close. In economic news, the ECB will release the accounts of the August policy meeting. Later in the day, the U.S Treasury publishes its semi-annual currency report.

Down, down and down. The downward spiral in global stock markets has turned into a bloodbath, with some European shares falling to 20-month lows. This is the DAX’s lowest level since February 2017. The DAX posted heavy losses overnight, as Asian markets dropped sharply, and has fallen 4.2% this week. The decline is apparent in all sectors, with all but a handful of companies in the red on Thursday.

Investors will be keeping a close eye on the ECB policy meeting accounts, looking for hints as to the timing of a rate hike next year. The ECB has stated that it will not raise rates before the “end of the summer”, which many analysts have interpreted as September 2019. However, that time period is not etched in stone, and the ECB could opt to raise rates earlier, if warranted by economic conditions. Besides inflation, ECB policymakers will have to weigh other factors such as the U.S-China trade war when deciding when to raise interest rates.

Will there be any surprises in the U.S Treasury currency report? The report provides details of global exchange rate policies, as well as a list of countries which are deemed currency manipulators. In the April report, the U.S did not name any of its major partners as currency manipulators. Since then, the Trump administration has imposed some $200 billion in tariffs on Chinese goods. China has retaliated with its own tariffs on U.S goods, and there has been speculation that China could respond to the U.S tariffs by devaluating the Chinese yuan in order to bolster Chinese exports. In 2015 and 2016, the markets dropped sharply on fears that China would implement a major devaluation of its currency. Traders should treat the report as a market-mover.

High hopes give way to steeper slopes

European open – Trump attacks Fed as markets tank

Thursday (October 11)

  • 7:30 ECB Monetary Policy Meeting Accounts
  • Tentative – US Treasury Currency Report

Friday (October 12)

  • 2:00 German Final CPI. Estimate 0.4%
  • 5:00 Eurozone Industrial Production. Estimate 0.4%

*All release times are DST

*Key events are in bold

 

DAX, Thursday, October 11 at 6:15 DST

Previous Close: 11,12 Open: 11,568 Low: 11,532 High: 11,637 Close: 11,533

EUR/USD – Euro hits 1-week high, US consumer inflation next

EUR/USD has edged higher in the Thursday session. Currently, the pair is trading at 1.1546, up 0.23% on the day. On the release front, French Final CPI declined 0.2%, matching the forecast. The ECB will release the accounts of the August policy meeting. In the U.S, the key indicators are CPI reports. We’ll also get a look at unemployment claims and the Treasury currency report. On Friday, Germany releases Final CPI and the eurozone publishes Industrial Production. The U.S releases UoM Consumer Sentiment.

With bonds yields continuing to rise, investors have reacted negatively and stock markets continue to spin lower. The U.S dollar often is the winner in times of crisis, providing a safe haven for nervous investors. However, the euro has weathered this latest crisis, holding its own against the greenback this week. On Thursday, German 10-year bonds fetched 0.55%, marking a 6-month high. The markets will be keeping a close eye on U.S consumer inflation data – strong numbers would likely increase the likelihood of a December rate hike in the U.S and reinvigorate the dollar.

Investors will be keeping a close eye on the ECB policy meeting accounts, looking for hints as to the timing of a rate hike next year. The ECB has stated that it will not raise rates before the “end of the summer”, which many analysts have interpreted as September 2019. However, that time period is not etched in stone, and the ECB could opt to raise rates earlier, if warranted by economic conditions. Besides inflation, ECB policymakers will have to weigh other factors such as the U.S-China trade war when deciding when to raise interest rates.

High hopes give way to steeper slopes

European open – Trump attacks Fed as markets tank

EUR/USD Fundamentals

Thursday (October 11)

  • 2:45 French Final CPI. Estimate -0.2%. Actual -0.2%
  • 7:30 ECB Monetary Policy Meeting Accounts
  • 8:30 US CPI. Estimate 0.2%
  • 8:30 US Core CPI. Estimate 0.2%
  • 8:30 US Unemployment Claims. Estimate 207K
  • 10:30 US Natural Gas Storage. Estimate 87B
  • 11:00 US Crude Oil Inventories. Estimate 2.3M
  • 13:01 US 30-year Bond Auction
  • Tentative – US Treasury Currency Report

Friday (October 12)

  • 2:00 German Final CPI. Estimate 0.4%
  • 5:00 Eurozone Industrial Production. Estimate 0.4%
  • 8:30 US Import Prices. Estimate 0.3%
  • 10:00 US Preliminary UoM Consumer Sentiment. Estimate 100.4
  • 10:00 US Preliminary UoM Inflation Expectations
  • 12:30 US FOMC Member Raphael Bostic Speaks
  • 12th-18th US Federal Budget Balance. Estimate 71.0B
  • 10:30 US FOMC Member Randal Quarles Speaks

*All release times are DST

*Key events are in bold

EUR/USD for Thursday, October 11, 2018

EUR/USD for October 11 at 5:30 DST

Open: 1.1520 High: 1.1573 Low: 1.1520 Close: 1.1546

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1190 1.1300 1.1434 1.1553 1.1637 1.1718

EUR/USD posted small gains in the Asian session but given up these gains in European trade

  • 1.1434 is providing support
  • 1.1553 was tested earlier in resistance and could break in the Thursday session

Further levels in both directions:

  • Below: 1.1434, 1.1300 and 1.1190
  • Above: 1.1553, 1.1637, 1.1718 and 1.1840
  • Current range: 1.1434 to 1.1553

Pace of equities’ declines slows as Asia mulls Wall Street weakness

Asia shares pressured, but not dramatic

With the biggest one-day losses in about eight months plaguing Wall Street yesterday, Asian equities continued the bearish sentiment, though not quite to the same degree. Considering the US30 index fell 3.9%, the SPX500 4% and the NAS100 5.3%, today’s losses of 0.97% for the JP225 CFD and 2.4% for the HK33 index and 0.66% for China shares appear small by comparison.

Does this mean that yesterday’s sell-off was purely technical in nature, and thereby short term? Certainly there were no specific new headlines to induce the selling, just the usual trade wars, high US yields and Brexit, which have been with us for a few days/weeks now.

However, the SPX500 index has traded below the 200-day moving average for the first time since May 4 today, hitting its lowest in just over three months. The NAS100 index had broken through the same moving average in late trading yesterday, though the US30 index is still holding above it so far. These breaches could suggest that the current correction may have further to run, as technical momentum models may trigger more selling signals.

 

SPX500 Daily Chart

Source: Oanda fxTrade

Euro gets a leg up

The Euro was one of the top performers versus the US dollar in the Asian session, seemingly helped by talk that Italy aims to reduce its deficit to GDP ratio to 2% by 2020. Though this news was first mentioned last week, nevertheless markets appeared to relish any sign of better news. EUR/USD rose as much as 0.44% to 1.1571, the highest in more than a week, before settling back at 1.1567. A potential candlestick doji reversal pattern on Tuesday has been confirmed with an up-day yesterday and, combined with bullish divergence on the stochastics indicator, the pair has traded higher today.

In the broader market, the US dollar retreated 0.18% against a basket of six major currencies.

 

EUR/USD Daily Chart

Source: Oanda fxTrade

 

US consumer prices in the spotlight

The highlight on the data calendar today will be the release of US CPI for September. Prices are seen rising at a slower 2.4% y/y pace than August’s 2.7%, and this would be welcome music to the Fed’s ears as inflation has hovered above the 2% target level for some time.

Aside from the US CPI data, we hear speeches from Carney and Vlieghe at the Bank of England and EIA data on crude oil inventories and natural gas storage as at October 5. The US 30-year bond auction may draw attention as yesterday’s 10-year auction saw the highest yield since 2011, as demand fell to its lowest since February.

You can view the full MarketPulse calendar at https://www.marketpulse.com/economic-events/

 

OANDA Trading Podcast Market Update (11 Oct 2018)

OANDA Trading Podcast Market Update (11 Oct 2018) 938NOW

Dollar Loses Momentum as Stocks Drop Awaiting Inflation Data

The EUR/USD rose 0.42 percent on Wednesday. The single currency is trading at 1.1539. The surge was due to positive Brexit comments but was limited as Italian budget drama continues. As the deadline for a final divorce agreement between the UK and the EU nears there has been a lot of talk of getting closer to an amicable split. The market is still awaiting any definite details that could send the euro even higher.



The US dollar is taking a breather even as US yields continue to climb. Inflation data in the US is still supportive of more rate hikes. The PPI release today met the forecast at 0.2 percent after last month’s loss of 0.1 percent. Tomorrow’s CPI datapoint will be crucial for the US dollar as fundamentals continue to push the greenback higher.

Yesterday US President Donald Trump once again spoke against more Fed rate hikes. The President echoes the view of many (including some Fed members) that inflation is not a problem and is urging the Fed to slow down its planned rate hikes. The Fed has hiked 3 times this year and is on track to add another 25 basis points lift in December.

Loonie Lower as USMCA High Fades

The Canadian dollar is lower on Wednesday. The loonie is lost 0.38 percent versus the USD as lower oil prices and higher US yields put downward pressure on the currency.

The IMF did not cut the growth forecast for Canada, in fact mentioned that the USMCA might boost growth. The loonie has been riding the trade agreement wave, but the market is now focusing on fundamentals.


usdcad Canadian dollar graph, October 10, 2018

Returning form the Thanksgiving holiday CAD traders have seen housing starts and building permits come in lower than expectations. The Bank of Canada (BoC) could hike rates in October, but economic data has to prove that the economy can take it.

Although the USMCA is a big positive for the loonie, the agreement is not final as politicians in all member countries need to ratify the agreement and with midterms in the US and a looming federal election in Canada next year there could be some obstacles ahead.

Mexican Peso Stays Close to 19

The Mexican peso had a volatile day as the US PPI validated the Fed’s rate hike path. The Mexican central bank kept rates unchanged in October and the market is anticipating a rate hike in December the U.S. Federal Reserve. Interest rate divergence put some pressure on the peso, but after reaching daily highs the US dollar ran out of steam. The pair is trading at 19.03 awaiting the release of US inflation on Thursday.



Gold Higher Awaiting US Inflation Data

Gold prices rose 0.14 percent on Wednesday. The US dollar is mixed against major pairs with the euro and sterling gaining on positive Brexit news. The dollar is losing some steam after the producer price index PPI met expectations at 0.2 percent. Investors will be on the lookout for the Consumer Price Index (CPI) to be released on Thursday at 8:30 am EDT.



A rate hike by the Fed was already priced in at the end of the September meeting and with high probabilities of a December rate lift its time to question the staying power of the US dollar.

Global growth has been downgraded and if trade disputes increase the pace of growth of the US looks to take a hit next year. Gold will fail to get any traction if US economic data continues its steady solid pace.

Oil Prices Await US Weekly Inventories

Oil prices dropped 2 percent on Wednesday. Energy prices are back to levels last seen on Monday after a global growth downgrade and the lower estimated impact of Hurricane Michael in the US.


West Texas Intermediate graph

The IMF downgraded its outlook for global growth on Tuesday. Growth is now estimated at 3.7 percent this year and next, from a previous 3.9 percent made last summer. Trade concerns were the biggest factor behind the downgrade.

Weather disruptions will continue to keep the black stuff bid as the sanctions against Iranian exports are set to begin. Buyers have already limited their purchases of Iranian crude and decisions like that of Sinopec to halve its purchases of oil loadings signal a more stringent enforcement from the US.


West Texas Intermediate graph

Hurricane Michael is not expected to affect Gulf of Mexico production beyond workers who were evacuated return to work after the storm has passed. The release of API inventories and weekly US crude data by the Energy Information Administration (EIA) will weigh on prices later today and tomorrow.

US weekly energy stocks are expected to increase by 2.3 million barrels and could put further downward pressure on prices. Lack of pipelines are a concern as Permian Basin oil and natural gas supply will be constrained. The bottleneck created by higher supply into an existing pipeline capacity will be sorted next year, but in the meantime it won’t be a big of a factor.
Market events to watch this week:

Thursday, October 11
7:30am EUR ECB Monetary Policy Meeting Accounts
8:30am USD CPI m/m
11:00am USD Crude Oil Inventories
Friday, October 12
10:00am USD Prelim UoM Consumer Sentiment

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

Canada: Building permits, August 2018

Canadian municipalities issued $8.1 billion worth of building permits in August, up 0.4% from July. Strength in the non-residential sector drove the increase, while the residential sector declined for the third consecutive month.

Non-residential sector: High value projects drive the increase

In the non-residential sector, $3.2 billion worth of permits were issued in August, up 8.8% from the previous month. Both the institutional (+25.8%) and commercial (+8.9%) components contributed to the gain, which was largely the result of the issuance of permits for a new hospital in Ontario and new office buildings in British Columbia.

Meanwhile, the value of industrial permits fell 5.9% in August to $677 million. This followed a 13.4% gain in July, as multiple permits were issued that month for transportation terminals and manufacturing structures in Ontario and Alberta.

Residential sector: Third consecutive month of declines for both components

Municipalities issued $5.0 billion worth of residential permits in August, down 4.4% from July and marking the third consecutive monthly decline for the sector. Five of the six provinces that posted decreases had lower intentions for both single and multi-family construction.

The value of permits for single-family dwellings was down 5.2% to $2.2 billion, maintaining the general downward trend that began in January 2018. While eight provinces posted decreases in the month, Ontario and British Columbia contributed the most to the decline.

In the multi-family dwelling component, the value of permits fell 3.8% to $2.7 billion. Despite the monthly decline, the year-to-date value was $3.5 billion higher than the same time last year. Multi-family dwellings have represented over 70% of the total units for six of eight months so far this year. There are no previous years on record where multi-units exceeded that level.

Provinces and census metropolitan areas: British Columbia reaches another record high

In August, only three provinces reported gains, led by a record high in British Columbia. The largest decline occurred in Ontario, due to lower construction intentions in the residential sector.

The value of permits in British Columbia reached a record high of $1.8 billion in August, 12.8% above the previous record set in March 2018. In the non-residential sector, the value of permits passed the $600-million mark for the first time. Large projects for office buildings in the Vancouver census metropolitan area (CMA) were largely responsible for the growth.

In the CMA of Vancouver, the value of permits rose 66.4% to $1.4 billion in August, accounting for three-quarters of the value in British Columbia. Although most of the increase came from the City of Vancouver, the City of Burnaby issued over $250 million worth of permits for apartment buildings, bringing the total to over $800 million for the year.

In Ontario, all components declined in August, except institutional buildings. The value of permits in the residential sector dropped 13.9%. This followed several strong months in the multi-family dwelling component.

At the CMA level, the value of residential permits in Ottawa fell 60.9% in August, following a 59.9% gain in July. This was due to the implementation of higher development fees in the city, as developers applied for permits ahead of August’s fee increase.

StatsCanada

U.S producer prices increase for first time in three months

U.S. producer prices rose for the first time in three months amid a surge in gauges reflecting airfares and rail-transportation costs, a Labor Department report showed Wednesday in Washington.

HIGHLIGHTS OF PRODUCER PRICES (SEPTEMBER)

  • Producer-price index rose 0.2% m/m (matching est.) after a 0.1% drop in prior month; up 2.6% y/y (est. 2.7%) after 2.8% gain
  • Excluding food and energy, core gauge rose 0.2% m/m (matching est.); up 2.5% y/y (matching est.) after 2.3%
  • PPI excluding food, energy and trade services, a measure some economists prefer because it strips out the most volatile components, rose 0.4% m/m, most since Jan.; up 2.9% y/y, same as Aug.
  • Key Takeaways

    The monthly increase in the broad index stemmed partly from a 1.8 percent rise in transportation and warehousing services, a record in data back to 2009. That reflected a 5.5 percent jump in the category of airline passenger services, also a high in figures dating to 2009, while rail transportation of freight and mail was up 1.4 percent, the most since 2012.

    Overall, services prices increased 0.3 percent while the cost of goods fell 0.1 percent, reflecting declines in both food and energy. The decrease in goods prices was the first since May 2017.

    While the figures — which highlight wholesale and other selling prices at businesses — are less prominent in investors’ minds than the consumer price index out Thursday, they illustrate how changes in input costs are feeding into inflation. PPI reports have limited usefulness in predicting the monthly CPI reports, JPMorgan Chase & Co. economists said in a recent note.

    Amid trade tariffs and retaliatory levies, inflation pressures are being closely watched, particularly for signs of how likely they filter through production pipelines and on to businesses and consumers. Benchmark Treasury yields have climbed to multi- year highs this month amid investor expectations that the Federal Reserve will continue raising interest rates to the point of eventually restricting growth.

    Other Details

  • Energy prices fell 0.8 percent from the prior month, biggest drop since March; food costs dropped 0.6 percent, same decline as prior month
  • One-third of advance in final demand services stemmed from airline passenger services, which mostly reflects airfares
  • BLOOMBERG

    EUR/USD – Lack of data leaves euro trading sideways

    EUR/USD is unchanged in the Wednesday session. Currently, the pair is trading at 1.1497, down 0.04% on the day. On the release front, there are no key German or eurozone indicators. In Germany, the yield on 10-year bonds rose to 0.55%. On Thursday, the ECB releases the details from its August policy meeting. The U.S releases key inflation indicators this week, starting with Producer Price Index reports. PPI and Core PPI are both expected to post gains of 0.2%, after a decline of 0.1% in the previous release. The U.S. will also publish the Treasury Currency report, a semi-annual publication.

    Traders are awaiting the U.S Treasury’s next currency report, which was last released in April. In that report, the U.S did not name any of its major partners as currency manipulators, but it did criticize China for the “non-market direction” of its economy. Since then, the Trump administration has imposed some $200 billion in tariffs on Chinese goods. China has retaliated with its own tariffs on U.S goods, and there has been speculation that China could respond to the U.S tariffs by devaluating the Chinese yuan, in order to bolster Chinese exports. In 2015 and 2016, the markets dropped sharply on fears that China would implement a major devaluation of its currency. The report should be treated as a market-mover.

    With the ECB on track to wind up its stimulus program at the end of the year, the markets are focusing on the timing of a rate hike next year. The ECB has stated that it will not raise rates before the “end of the summer”, which many analysts have interpreted as September 2019. However, that time period is not etched in stone, and the ECB could opt to raise rates earlier, if warranted by economic conditions. Besides inflation, ECB policymakers will have to weigh other factors such as the U.S-China trade war when deciding when to raise interest rates.

    European open – Brexit reports provide early lift

    Dollar gains pause, but probably not for long

    Pound extends gains on Brexit noise

    EUR/USD Fundamentals

    Wednesday (October 10)

    • 2:45 French Industrial Production. Estimate 0.1%. Actual 0.3%
    • 4:00 Italian Industrial Production. Estimate 0.7%. Actual 1.7%
    • 5:33 German 10-year Bond Auction. Actual 0.55/1.1
    • 8:30 US PPI. Estimate 0.2%
    • 8:30 US Core PPI. Estimate 0.2%
    • 10:00 US Final Wholesale Inventories. Estimate 0.8%
    • 13:01 US 10-year Bond Auction
    • Tentative – US Treasury Currency Report
    • 18:00 US FOMC Raphael Bostic Speaks

    Thursday (October 11)

    • 7:30 ECB Monetary Policy Meeting Accounts
    • 8:30 US CPI. Estimate 0.2%
    • 8:30 US Core CPI. Estimate 0.2%
    • 8:30 US Unemployment Claims. Estimate 207K

    *All release times are DST

    *Key events are in bold

    EUR/USD for Wednesday, October 10, 2018

    EUR/USD for October 9 at 655 DST

    Open: 1.1490 High: 1.1515 Low: 1.1480 Close: 1.1497

    EUR/USD Technical

    S1 S2 S1 R1 R2 R3
    1.1190 1.1300 1.1434 1.1553 1.1637 1.1718

    EUR/USD posted small gains in the Asian session but given up these gains in European trade

    • 1.1434 is providing weak support
    • 1.1553 is the next resistance line

    Further levels in both directions:

    • Below: 1.1434, 1.1300 and 1.1190
    • Above: 1.1553, 1.1637, 1.1718 and 1.1840
    • Current range: 1.1434 to 1.1553

    Dollar gains pause, but probably not for long

    Wednesday October 10: Five things the markets are talking about

    U.S treasury yields are largely stable, after declining from their seven-year high print yesterday.

    Euro equities are on the back foot after Asia stocks managed to break a multi losing session.

    Elsewhere, the ‘big’ dollar has stalled temporarily after U.S President Trump said the Fed should not raise interest rates as fast. However, Trump’s plea is unlikely to alter the broader theme of dollar gains in the short-term.

    Dollar ‘bulls’ have yet to have a clear understanding of what the top is for the Fed cycle, and until the Trump administration changes its tune on China and trade, investors will continue to support the USD against emerging markets and pro-growth currencies.

    For the dollar ‘bear’s’ next month’s midterm elections have the potential to derail dollar demand, especially where the loss of the House by the GoP would curtail most hopes for fresh fiscal stimulus. However, a month is a long time in politics.

    Despite the U.S bond rout easing a tad, +$230B of new U.S debt is coming to the market this week, which should put pressure on dealers to back up yields.

    U.S producer and consumer price data is also due in the next two-days and it too will determine where yields go from here.

    1. Stocks mixed results

    In Japan, the Nikkei edged a tad higher overnight as investors picked up defensive stocks on the dips, while index-heavyweight SoftBank dived on news it was to buy a majority stake in U.S shared office space provider WeWork. The Nikkei share average ended +0.2% higher, while the broader Topix was also up +0.2%.

    Down-under, Aussie stocks rallied after its worst 48-hours in six-months. The ASX 200 closed +0.1% higher as the health-care sector rebounded +1.5%, reversing some of yesterday’s -3.9% losses, the biggest drop in seven-years. In S. Korea, the Kospi stock index closed down -1.12% overnight, hitting its lowest close in 18-months after the IMF cut its growth forecast for the country.

    In China, stocks were mixed after the close overnight, as gains in utilities and communications led shares higher while losses in the energy sector led shares lower. At the close, the Shanghai composite rallied +0.18%.

    In Hong Kong, stocks closed marginally higher earlier this morning, with investors remaining nervous about volatility in the U.S and a weak yuan. The Hang Seng Index edged up +0.08%.

    In Europe, regional bourses continue their bearish tone with declines across the board. Sino-U.S trade concerns, coupled with Italian budget and U.K Brexit commentary continue to weigh on markets.

    U.S stocks are set to open in the ‘red’ (-0.1%).

    Indices: Stoxx600 -0.4% at 371.5, FTSE -0.1% at 7227, DAX -0.6% at 11904, CAC-40 -0.7% at 5283, IBEX-35 -0.6% at 9203, FTSE MIB -0.2% at 20023, SMI 0% at 8960, S&P 500 Futures -0.1%

    2. Oil dips as IMF cuts growth outlook; eyes on hurricane

    Oil prices have eased a tad after the IMF yesterday lowered its global growth forecasts. Nevertheless, markets are well supported on pullbacks as Hurricane Michael, a category 4, moves toward Florida causing the shutdown of nearly +40% of U.S Gulf of Mexico crude production.

    Brent crude is down -20c at +$84.80 a barrel, after a +1.3% gain on yesterday. U.S light crude is down -15c at +$74.81.

    Also providing an underlying bid is data showing crude exports from Iran, OPEC’s third-largest producer, are declining before the imposition of new U.S sanctions next month.

    According to tanker data, Iran’s crude exports fell further in the first week of October, as buyers sought alternatives ahead of U.S sanctions that are to take effect on Nov. 4. Iran exported +1.1M bpd of crude in the first week of October, down from at least +2.5M bpd in April – before President Trump imposed sanctions.

    Yesterday, the IMF cut its global economic growth forecasts for 2018 and 2019, raising concerns that demand for oil may also slump.

    Ahead of the U.S open, gold is holding steady in a narrow range overnight, as the ‘big’ dollar pulls back from its seven-week high – support remains strong for the dollar on the back of a strong U.S. economy and expectations of steady interest rate hikes by the Fed. Spot gold is little changed at +$1,189.35 an ounce, moving largely within a +$4 range. U.S. gold futures have rallied +0.1% to +$1,192.60 an ounce.

    3. Sovereign yields dip, including Italy’s BTP’s

    Italian BTP yields have eased a tad this morning after Italy’s Economy Minister Giovanni Tria confirmed budget forecasts and said that he expected collaboration with the E.U over the budget.

    After hitting multi-year highs yesterday, Italian government bond yields fell -2 bps along the curve – the two-year BTP yield fell to +1.70%. The spread of Italy’s 10-year BTP’s over Germany’s has widened +10 bps to +3.026%.

    Yesterday, President Trump repeated his displeasure with higher short-term interest rates set by the Fed. Trump believes U.S inflation remains “in check,” which does not warrant a tighter monetary policy, especially at the Fed’s current pace.

    The yield on U.S 10’s has eased -1 bps to +3.21%. In Germany, the 10-year Bund yield has decreased -1 bps to +0.54%, while in the U.K, the 10-year Gilt yield has backed up less than +1 bps to +1.719%.

    4. Dollar takes a breather

    The pound (£1.3160 +0.10%) has advanced to a four-month high against the EUR and a two-week high against the dollar, on signs of momentum in the Brexit negotiations. According to the Times, a group of between 30 and 40 Labour members of parliament will defy Jeremy Corbyn and endorse a less hard-line proposal to prevent a ‘no-deal’ exit from the E.U.

    Note: Both the U.K and E.U are said to have made progress in Brexit negotiations over Irish backstop.

    Rising Italian bond yields continue to provide some resistance for the EUR (€1.1482), but major falls are not in the cards as long as the ‘single’ unit’s existence is not threatened, and as long as the ECB indicates ‘whatever it takes’ promise is in place.

    The USD/JPY (¥113.19) is a tad higher as the yen snapped a four-day winning streak as some safe-haven flows retreated as U.S Treasury rates stabilized.

    5. U.K economy picked up in the summer

    Data this morning showed that U.K economic growth picked up over the summer, supported by stronger retail sales and house building in response to warmer-than-usual weather.

    According to the ONS, economic output in the three-months through August was +0.7% higher than in the three-months through May, equivalent to annualized growth of +2.8%.

    However, there were signs that the U.K economy was losing traction towards the end of the period, with output flat in August compared with July.

    According to the ONS, “the economy continued to rebound strongly after a weak spring with retail, food and drink production and house building all performing particularly well during the hot summer months.”

    Note: The BoE indicated it would follow its two rate rises with a number of further moves over the coming years if the economy continues grow at around its current rate. However, expect the Brexit strategy to determine monetary policy, at least in the short-term.

    Other data showed that the U.K’s trade deficit widened in August as its goods deficit deepened to -£11.2B from -£10.4B in July, while its manufacturing output was -0.2% lower in August than in July, a second straight month of decline.

    Forex heatmap

    Pound extends gains on Brexit noise

     

    Investors take Brexit comments positively

    The pound rallied to the highest level in nearly two weeks during the Asian session amid slightly more positive sentiment on a Brexit deal. Dow Jones reported that unnamed diplomats had said the gaps on the Ireland border issue had been narrowed, though still with differences, and were predicting that a deal could be settled by Monday.

    Earlier, Ireland’s foreign minister had said he still sees a strong chance of a Brexit deal and hopes to get more certainty in the next six weeks. UK Brexit Minister Raab also said that talks have intensified, though reiterated that the UK would not accept any deal that threatens its constitutional integrity while a govt spokesman said a new Irish border proposal would be put forward “in due course”.

    While the comments lack substance, and traders have been subsequently disappointed by such headlines in the past, investors have interpreted them positively and, coinciding with a mild bout of weakness for the US dollar, have bid GBP/USD higher. GBP/USD traded as high as 1.3162 in Asia, the highest since September 27, and the next potential resistance point could be the September high near 1.33, should momentum continue.

     

    GBP/USD Daily Chart

    Source: Oanda fxTrade

     

    Data to support recent gains?

    Today we see how the UK’s manufacturing sector is faring when faced with Brexit and trade war uncertainty. So far the impact appears to be negligible, and this month’s data is unlikely to upset that theme. Industrial production is seen rising 1.0% y/y in August following a 0.9% advance in July. The trade deficit is expected to widen to GBP10.9 billion from GBP9.97 billion while the trade balance outside of the EU is forecast to widen to GBP3.1 billion from GBP2.8 billion. If the numbers are better than forecast, this could extend the pound’s recent bullish bias.

     

    UK Data Calendar

    Source: MarketPulse

     

    US producer prices to lead in to CPI

    While the US data highlight for this week will be the CPI data tomorrow, September’s PPI numbers are released today and could give a hint of what is to come. Producer prices are expected to be 2.8% higher than a year ago, the same as in August. Store sales will be measured by the Redbook Index, while wholesale inventories are seen steady in August. Fed’s Evans speaks to complete the event and data deck.

    The full MarketPulse data calendar can be viewed at https://www.marketpulse.com/economic-events/

     

    Source: MarketPulse