EU MID-SESSION UPDATE: Stocks indecisive this morning with eyes on a raft of tier 1 US data and a slew of central bank speakers

Equities: Indecisive trade in major EU bourses this morning with the Eurostoxx 50 relatively flat. Focus in the session will be on the slew of central bank speakers and US data later in the session. Energy names have been supported by the upside in WTI and Brent crude futures, in which Brent briefly made a break above USD 57. In stock specific news, Bayer shares are outperofmring in the DAX after reports that BASF is to purchase the company’s seed unit for EUR 5.9bln. FTSE 100 the laggard today, slipping 0.4% amid the move higher in GBP, while the worst performing stock in the FTSE, GKN, has seen a sharp drop after a profit warning.


GBP: Much of the latest FX volatility occurred post European close yesterday, as reports from Handelsblatt circulated, stating that EU Brexit negotiator Barnier could offer the UK a two-year transitional deal, with the offer tied to the UK meeting its exit obligations to the EU.

Sterling has recovered all and more of the losses prompted by Barnier’s earlier comments on Thursday, as Cable breaks through 1.33, and above October’s previous highs to resume this week’s overall bullish trend.  Comments could continue to dictate Sterling direction as many will await BoE’s Carney this evening.


EUR: EUR/GBP initially followed the trend of the bullish pound, however, marginal support was seen on reports that the ECB is set to mull reducing QE to EUR 30bln/month from January and extending it until at least September 2018, while sources also stated that policymakers are in agreement about extending asset purchases at the October meeting, but are still debating the taper size. EUR 30bln over nine months was initially perceived by markets as marginally hawkish. 

Nevertheless, the Euro has been offered against most of its major counterparts in early European trade, amidst comments from ECB’s Weidmann, stating again that he is against softening the capital key, and thus favouring Bunds.

EUR/GBP now below 0.89, EUR/USD through yesterday’s lows and EUR/JPY continuing its bearish attack, looking toward the 131.80 support level.

JPY: The Yen has outperformed generally, up 0.37% for the session vs the Usd, despite this week’s option expiries closing with just short of 2bln between 112.65 – 113.00. The pair trades sub-112.00, looking at the 200 DMA at 111.82.

USD: The dollar index has been muted, with much of the trade impetus coming from the other major currencies, as anticipation turns to tier 1 data (CPI and retail sales), then Yellen who is set to speak over the weekend.

Fixed Income: Bunds bolstered by latest ECB source reports and a technical short squeeze, which lifted the core 10 year bond future through this week’s previous peak and a new high for the month. EZ periphery debt also benefiting from suggestions that QE could be extended by 9 months at least (longer end of the previously touted 6-9 month range), and seemingly unperturbed by talk that the monthly pace of asset purchases could be scaled down relatively sharply to Eur30 bn from January 2018.

Conversely, some signs of compromise in the form of a contingent 2-year Brexit transition offer from the EU, per media reports, has left UK Gilts languishing and underperforming again, with similar divergence seen at the short end of the curve (ie Short Sterling contracts down vs firmer Euribor and Eurodollar peers).

US Treasuries largely holding modest gains made in wake of a solid 30 year auction, and braced for Friday’s key data (CPI and retail sales, latter possibly carrying an upside skew on above consensus PPI).

Commodities: WTI and Brent crude futures hovering near intra-day highs this morning. Participants will be keeping an eye out on President Trumps remarks over the Iran nuclear deal, where it is expected that he will refuse to certify Iran’s compliance with the accord and as such this may lead to sanctions on Iran yet again. Additionally, Chinese trade data out last night showed that Chinese imports of crude oil climbed to the second highest level on record.

13 Oct 2017 - 09:46- Research Sheet- Source: RANsquawk

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