RANsquawk Mid-Session Update: Markets subdued, yet yields tick higher

European bourses trade subdued, as 9/10 European sectors trade in the marginal red, supported by energy trading up around 0.30%. Despite the lack of direction in the index markets, stock specific news has resulted in volatility, as Commerzbank outperforms in the Dax, following the company drafting in financial advisers, preparing for potential bids from European rivals. Europe’s earnings season has begun gaining some traction, notably, Essilor, affirming guidance and leading the CAC.  

Fixed Income
Early upside faded and reversed as trade turns defensive ahead of major risk events. Firmer than anticipated flash EZ PMIs probably gave sellers some fundamental/macro momentum, but in truth bears had already gained the upper hand in Bunds when the 10 year German bond topped out ahead of near term chart resistance again. Intraday longs are said to have thrown in the towel from the 161.46-40 area, with hefty stops triggered on a break of the lower level down to 161.28 and Bunds subsequently hitting 161.19. Next downside tech support 161.07, 10 year cash yield 0.47% with 0.5% and obvious target.  UK Gilts also on the backfoot and down to 124.22, USTs likewise awaiting news on the next Fed chair.

A fresh setback for the currency to print fresh 5-month lows at 0.6927. This came as NZ PM-elect Ardern unveiled government plans to review and reform the RBNZ’s Central Bank Act to possibly include employment, alongside inflation as a dual mandate. As it stands, unemployment is near decade lows, while jobs growth however, is at a 2-year low (figures for Q3 released at 2245BST). Although, given that the central bank does not exclude labour market data, its arguable whether a dual mandate will significantly alter the monetary policy skew. What has been brought into question however, is the autonomy of the RBNZ.

AUDNZD further supported by the soft NZD, with the cross moving to its highest level since Apr’16. Near term resistance resides at 1.13, which could curb gains a see the cross top out, while the 2016 high is situated 1.1333.

JPY: The bid in USD/JPY has been revived by the 16 consecutive days of gains for the Nikkei. Although, the upside could potentially top out just north of 114, with the highs seen in May and July at 114.38-49 within sight. Additionally, the price action may well be dictated by US yields as the 10yr approaches the key 2.4% yet again (currently 2.38%).

Oil commentary has once again leaked into the news, with Russia’s Energy Minister Novak stating that he plans to discuss an extension of oil cuts with Saudi’s Falih. Oil markets are fairly unfazed, dampened by the latest update of crude oil flows via the Iraqi Kurdistan pipeline to Turkey have modestly risen to around 300,000BPD, possibly indicating the restart of Iraqi/Kurdistan pipeline functionality.

Copper continues to impress in metal markets, once again looking towards last week’s highs, aided by the stop hunt through USD 3.20. Elsewhere, gold has come off highs around 1300.00, looking at the key October 6th, 1261.30 low.

24 Oct 2017 - 09:51- Fixed IncomeResearch Sheet- Source: RANsquawk

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