Europe Roundup: Dollar holds gains vs Yen, sterling near 2-week high - September 11, 2015

Market Roundup

• Dollar up on week after lawmaker stirs BOJ easing speculation.
  
  
• Sterling hovers near 2-week highs on BoE's optimistic message.
  
  
• GBP/USD plays in between 1.5422/1.5461. 1.5476 was Thursday's peak.
  
  
• EUR/CHF hit highest level since SNB scrapped 1.2000 floor in January. 1.1019 high.
  
  
• Brent down 1.8% and stocks reverse early gains, DAX off 0.75%.
  
  
• Aussie falls after hitting 8-day high of 0.71 Thursday.
  
  
• UK July Construction output -1.0% m/m vs previous 0.9%. 0.5% expected.
  
  
• UK Q2 Construction orders -0.4% q/q, 1.9% y/y.
  
  
• UK inflation expectations for year ahead 2.0% in August vs 2.2% in May.
  
  
• 46% of Britons expect UK rate hike in next 12 months vs 33% in May.
  
  
• Japan Yamamoto- USD/JPY levels hit before Lehman crisis, circa 124-125, could be among thresholds.
  
  
• JP Yamamoto- BOJ must ease policy further at some point as econ stagnating.
  
  
• Abenomics' architect says yen falls still benefit Japan's economy.
  
  
• China central bank asks banks to strengthen supervision of foreign non-resident accounts.
  
  
• China central bank changes method for examining RRR calculation for banks.
  
  
• ICE north sea Brent crude oil futures down $1 at $47.89 a barrel.

Economic Data Ahead

• (0830 ET/1230 GMT) US August PPI, -0.1% m/m, -0.9% y/y eyed; last +0.2%, -0.8%.
  
  
• (0830 ET/1230 GMT) US August ex-food/energy, +0.1% m/m, +0.7% y/y eyed; last +0.3%, +0.6%.
  
  
• (0900 ET/1300 GMT) Mexico's industrial output is expected to have fallen 0.1 pct in July after bouncing back in June from a steep drop in the previous month.
  
  
• (1000 ET/1400 GMT) US September UOM sentiment index prelim, 91.2 eyed; last 91.9.
  
  
• (1500 ET/1900 GMT) Argentina will release its consumer prices data for August. Inflation accelerated to 1.3 percent in July.

Key Events Ahead

• (1145 ET/1545 GMT) Fed Trade operation 30-year Ginnie Mae (max $950 mn).
  
  
• (1500 ET/1900 GMT) FRB NY releases tentative agency MBS operation schedule period beg Sept 14.

FX Recap

USD: The dollar maintains most of this week's gains against the yen in the face of a business survey that leaned against strengthening speculation of another round of QE by the Bank of Japan. After scaling a 10-day high of 121.38 overnight, the dollar was down less than 0.1 pct at 120.50 yen in early European deals a 1.2 pct gains on the week.

The EUR/USD pair failed another to extend beyond 1.13 handle and wiped out gains in the mid-European session, falling back near session lows. Pair made intraday high at 1.1309 and low at 1.1260 levels. A closely watched measure of German inflation stagnated on a monthly basis in August, the final CPI reading from the German Federal Statistical Office revealed on Friday. Consumer prices remained flat month-on-month in the eighth month of the year. Back in July, the gauge added 0.2% on the same basis. A calmer Asian session, with broad based USD weakness emerging the underlying theme across the FX space. With nothing significant on the macro calendar reported today, the Asian traders shifted their attention towards a slew of Chinese economic releases over the weekend and next week's Fed rate decision appear to have turned a bit cautious on Friday. Besides, the Euro group meeting will take place, with Greece expected to be the main topic. Moving on, we have an eventful New York session later tonight, as the US calendar brings a set of key economic releases PPI and prelim consumer sentiment. Initial support is seen around at 1.1015 and resistance at 1.1363 levels. Option expiries are at 1.1200 (1BLN), 1.1300-10 (1.4BLN), 1.1350 (1BLN).

The Japanese yen extended weakness versus the US dollar on the back of diminishing bids for safe-haven assets as Asian stock markets were seen stabilizing. USD/JPY keeps range below 121 handle, consolidating the gains seen in the previous session. Pair is currently trading at 120.63 levels. It made intraday high at 120.96 and low at 120.36 levels. Today Japan released BSI manufacturing index data with positive numbers at 11.0 mm vs previous -6.0 release. Market will focus on US macroeconomic data for the further directions. Initial resistance is seen at 123.20 and support is seen at 118.42 levels. Option expiries are at 120.50 (700M), 120.70-75 (550M), 121.00 (550M), 121.50 (310M).

The GBP/USD is trading with moderate losses after the BOE reported a drop in its gauge of 12-month inflation expectations. Sterling was trading flat at $1.5445, not far from Thursday's high of $1.5476. The euro was slightly higher, trading at 73.08 pence. Sterling dipped into losses after the latest inflation expectation data from the BOE and GFK printed at 2%, compared to the previous figure of 2.2%. Two-year Inflation expectations remained unchanged at 2.3%. It made an intraday high at 1.5461 and low at 1.5416 levels. Pair is currently trading at 1.5418 levels. Initial support is seen at 1.5185 and resistance is seen around 1.5507 levels.

New Zealand's dollar managed to register some gains on Friday after taking a thumping on Thursday due to a dovish RBNZ. As expected the RBNZ cut rates to 2.75% but it was the dovish commentary from the bank which hit the kiwi yesterday. The bank still sees the New Zealand dollar as overvalued and signalled further monetary easing to come in the near future. A manufacturing release overnight helped to provide some much need relief to the kiwi. The Business NZ Performance of Manufacturing Index (PMI) rose to 55 in August from 53.7 previously. Today's calendar is likely to provide some incentives, with the US Producer Price Index due before the US open, while the University of Michigan will release its consumer sentiment gauge later in the afternoon. Important data is also due out of China this weekend, which could affect the pair, especially as China is a major trading partner for New Zealand, particularly its dairy sector. It made an intraday high at 0.6319 and low at 0.6283 levels. Pair is currently trading at 0.6288 levels Initial support is seen at 0.6195 and resistance at 0.6511 levels. Option expiries are at 0.6300 (400M), 0.6325 (200M).

The Australian dollar was fading lower on Friday as there were no incentives for trading during the Asian session and the pair remains in a declining trend. The AUD/USD pair was 0.4% lower on the day, changing hands around $0.7040 in what looks set to be a calm day ahead. Pair is supported above 0.7000 levels and trading at 0.7050 levels. It has made intraday high at 0.7085 levels and low at 0.7035 levels. Initial support is seen at 0.6908 and resistance at 0.7122 levels. Option expiries are at 0.7100 (357M), 0.7150 (850M).

Equities Recap

Global stocks fell on Friday but remained on track for their biggest weekly gain in eight as investors struggle with the possibility of U.S. interest rates rising next week.

The FTSEuroFirst index of leading 300 shares was down 0.5 pct at 1,408 points, but still up more than 1 pct on the week, its best performance since mid-July. Britain's FTSE 100 fell 0.2 pct at 6,139 points, Germany's DAX inched 0.5 pct lower at 10,161 points and France's CAC 40 was off 0.3 percent at 4,582 points.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.1 percent, but was on for a rise of more than 2.5 percent on the week, its biggest weekly gain in five months. Tokyo's Nikkei ended down 0.19 pct at 18,264.22. The Shanghai Composite Index ended up 0.1 pct on the day and rose 1.2 percent on the week. While CSI300 Index closed down 0.3 pct at 3,347.19 points.

Commodities Recap

Oil prices fell on Friday after Goldman Sachs cut its crude forecasts, citing global over-supply and concerns over the health of the Chinese economy, and after Saudi Arabia dismissed the idea of an oil producer summit. Brent for October fell $1.00 at $47.89 a barrel by 0830 GMT. U.S. crude, also known as West Texas Intermediate or WTI, was down $1.05 at $44.87 a barrel.

Gold clung to small overnight gains near $1,110 an ounce on Friday, but the metal was headed for a third consecutive weekly fall as investors continued to fret over the timing of a looming U.S. interest rate hike. Spot gold was little changed at $1,110.30 an ounce by 0644 GMT, after gaining 0.5 pct in the previous session. U.S. gold, also headed for a third weekly dip, was trading at $1,109.60.

Treasuries Recap

The benchmark 10-year U.S. Treasury yield was down a basis point on the day at 2.21 percent, but up 8 basis points so far this week. The 2-year yield was flat on the day at 0.735 percentbut up slightly on the week.

UK Dec Gilts opened marginally higher at 118.04 (+1) and have traded a fairly narrow 117.87-118.12 range. The bonds ignored much weaker than expected UK construction output data M/M -1.0% (0.5% expected) and Y/Y -0.7% (0.6% expected).

JGB prices finished the day marginally mixed, with the 5s/40s curve steepening by 3bp on the day. Today, the BoJ purchased JPY70bn in the 1-yr and shorter zone, JPY400bn in the 1-yr to 3-yr zone, and JPY400bn in the 3-yr to 5-yr zone under its massive JGB purchase program. The results were mixed. The lack of the BoJ purchase in the super-long zone and weaker US TSY bonds overnight had some negative impact on JGBs.

China's 5-year treasury yields were up six basis points on the week to 3.20 percent.

Short-dated New Zealand government bonds rose, pushing the yield on 2017 notes basis points lower, while longer dated bonds eased. Australian bond futures were softer with the 3-year contract 2 ticks lower at 98.105. The 10-year contract was also down around 2 ticks at 97.2375.