Market Roundup
- Fed cuts interest rates, signals it may not need to do more
- BOJ could widen band in which it allows yields to move: deputy governor Amamiya
- BOJ's deputy governor signals central bank may allow yields to fall more
- UK wants a Brexit deal but has the mettle for a no-deal - finance ministry
- German factories post the weakest performance in seven years: PMI
- Eurozone July factory activity contracts at the fastest rate in six years
- Britain to spend an extra £2.1 billion on no-deal Brexit planning
Economic Data Ahead
- (0830 ET/1230 GMT) The number of Americans filing for unemployment benefits is likely to have increased by 8,000 to a seasonally adjusted 214,000 for the week ended Jul. 26, while continuing claims for the week ended Jul. 19 is expected to rise to 1.678 million from the previous month's reading of 1.676 million.
- (0930 ET/1330 GMT) The Markit will release Canada's Manufacturing PMI for the Month of July. The indicator stood at 49.2 in the prior month.
- (0945 ET/1345 GMT) Financial firm Markit releases U.S. Manufacturing PMI for the month of July. The index is likely to show a final reading of 50.0 after posting similar gains in the previous month.
- (1000 ET/1400 GMT) The Institute for Supply Management (ISM) is expected to report that U.S. manufacturing Purchasing Managers' index rose to 52.0 in July from 51.7 in June.
- (1000 ET/1400 GMT) The Commerce Department is likely to report that U.S. construction spending increased 0.3 percent in June after declining 0.8 percent in the previous month.
- (1030 ET/1430 GMT) The Energy Information Administration (EIA) reports its Natural Gas Storage for the week ending July 26.
- N/A Autodata Corp is expected to report that U.S. auto sales figures dropped to an annualized rate of 16.9 million in July from 17.3 million units in June.
Key Events Ahead
- No Significant Events Scheduled
FX Beat
DXY: The dollar index advanced to a 2-year high after Fed Chair Jerome Powell in a news conference characterised the rate cut as a mid-cycle adjustment to policy, a sign to markets that further sharp cuts were not imminent. The greenback against a basket of currencies traded 0.3 percent up at 98.89, having touched a high of 98.93 earlier, its highest since May 15, 2017.
EUR/USD: The euro plunged a 2-year low as the greenback surged after the U.S. central bank cut rates by 25 basis points but ruled out a lengthy easing cycle. The selling pressure around the major intensified after data showed manufacturing activity in the eurozone contracted at its steepest rate since late 2012 in July as demand sank, indicating that the policymakers at the European Central Bank could ease policy further as the bloc’s growth outlook deteriorates. The European currency traded 0.4 percent down at 1.1032, having touched a low of 1.1030 earlier, its lowest since May 16 2017. Immediate resistance is located at 1.1081 (38.2% retracement of 1.1162 and 1.1033), a break above targets 1.1113 (61.8% retracement). On the downside, support is seen at 1.0973 (May 16, 2017, Low), a break below could drag it below 1.0820 (Apr. 24 2017 Low).
USD/JPY: The dollar trimmed gains after rising to a 2-month high earlier in the session as trade negotiations between the U.S. and China concluded in Shanghai, with little sign of progress apart from an agreement to meet again in September. On Wednesday, the U.S. Federal Reserve cut rates by 25 basis points but slashed expectations to lower rates well into next year. The major was trading 0.2 percent up at 108.89, having hit a high of 109.31 earlier, its highest since May 31. Investors’ will continue to track the broad-based market sentiment, ahead of the U.S. unemployment benefit claims, construction spending and manufacturing PMI from both Markit and ISM. Immediate resistance is located at 109.54 (Jan. 29 High), a break above targets 109.92 (May 30 High). On the downside, support is seen at 108.50 (61.8% retracement of 107.21 and 109.31), a break below could take it lower at 108.26 (50% retracement).
GBP/USD: Sterling slumped to a fresh 2-1/2 year low, amid growing probability Britain will leave the European Union without trade agreements on October 31. Earlier in the day, Deputy finance minister Rishi Sunak stated that the United Kingdom wants a Brexit deal but has the mettle to leave the European Union without a deal if necessary. The major traded 0.4 percent down at 1.2109, having hit a low of 1.2084 earlier, it’s lowest since Jan. 17 2017. Investors’ attention will remain on the development surrounding Brexit, ahead of the U.S. fundamental drivers. Immediate resistance is located at 1.2188 (23.2% retracement of 1.2522 and 1.2084), a break above could take it near 1.2253 (38.2% retracement). On the downside, support is seen at 1.2037 (Jan. 11, 2017, Low), a break below targets 1.1986 (Jan 16, 2017, Low). Against the euro, the pound was trading 0.1 percent down at 91.13 pence, having hit a low of 91.90 on Tuesday, it’s lowest since Sept 2017.
USD/CHF: The Swiss franc fell to a 6-week low as the greenback rallied after the U.S. Federal Reserve cut rates by 25 basis points as expected but tampered market expectations of a lengthy easing cycle. However, the Swiss currency's downside was limited as the U.S. and Chinese negotiators ended a brief round of talks with little sign of progress. The major trades 0.2 percent up at 0.9955, having touched a high of 0.9975 earlier; it’s highest since June 19. On the higher side, near-term resistance is around 0.9999 (June 17 High) and any break above will take the pair to next level till 1.0014 (June 19 High). The near-term support is around 0.9919 (5-DMA), and any close below that level will drag it till 0.9882 (July 31 Low).
Equities Recap
European shares advanced, reversing early session losses, as an upbeat batch of bank earnings outweighed the impact of falling expectations of U.S. interest rate cuts.
The pan-European STOXX 600 index rallied 0.5 percent at 387.82 points, while the FTSEurofirst 300 surged 0.5 percent to 1,527.50 points.
Britain's FTSE 100 trades 0.2 percent up at 7,602.05 points, while mid-cap FTSE 250 gained 0.05 to 19,668.21 points.
Germany's DAX rose 0.4 percent at 12,234.01 points; France's CAC 40 trades 0.7 percent higher at 5,555.82 point.
Commodities Recap
Crude oil prices steadied after easing from a 2-week peak in the previous session after the U.S. Federal Reserve dampened hopes for a string of interest rate cuts. International benchmark Brent crude was trading 0.2 percent higher at $64.36 per barrel by 1016 GMT, having hit a high of $65.41 on Wednesday, its highest since July 16. U.S. West Texas Intermediate was trading 0.1 percent down at $57.79 a barrel, after rising as high as $58.79 on Wednesday, its highest since the July 16.
Gold prices plunged to 2-week lows after the U.S. Federal Reserve cut rates by 25 basis points as expected but tampered market expectations of a lengthy easing cycle. Spot gold was trading 0.3 percent down at $1,407.23 per ounce by 1017 GMT, having touched a low of $1,402.78 earlier, its lowest since July 17. U.S. gold futures slipped 1.4 percent to $1,418.10 an ounce.
Treasuries Recap
The U.S. Treasuries suffered during the afternoon session, despite an overnight rate cut by the Federal Reserve ahead of today’s weekly initial jobless claims and ISM manufacturing PMI for the month of July, both scheduled for release by 12:30GMT and 14:00GMT respectively. The yield on the benchmark 10-year Treasury yield surged nearly 2 basis points to 2.039 percent, the super-long 30-year bond yields also edged 1-1/2 basis points higher to 2.541 percent while the yield on the short-term 2-year traded flat at 1.886 percent.
The United Kingdom’s gilts remained steady during European trading hours after the Bank of England (BoE) remained on hold at its monetary policy meeting, held today, keeping the Bank Rate stable at 0.75 percent; investors now shall turn their attention towards the country’s construction PMI for the month of July, scheduled to be released on August 2 by 08:30GMT for further direction in the debt market. The yield on the benchmark 10-year gilts, traded tad higher 0.618 percent, the 30-year yield hovered around 1.315 percent and the yield on the short-term 2-year traded tad 1 basis point higher at 0.438 percent.
The German bunds remained flat higher during European session after the country’s manufacturing PMI for the month of July tumbled, further into contraction, while investors turned a deaf ear to the Federal Reserve rate cut in nearly a decade, thus forcing debt market to trade sideways. The German 10-year bond yields, which move inversely to its price, hovered around 0.433 percent, the yield on 30-year note remained flat at 0.126 percent while the yield on short-term 2-year traded 1-1/2 basis points up at -0.767 percent.
The Australian 10-year government bond yield hovered near record-low during the Asian session after the Federal Reserve cut its benchmark interest rate by 25 basis points for the first time in a decade, also signalling for further rate cuts in the coming months. Investors will now look forward to the release of Australia’s retail sales data for the month of June, scheduled to be released tomorrow, for further direction in the debt market. The yield on Australia’s benchmark 10-year note, which moves inversely to its price, slipped nearly 1 basis point to 1.198 percent, the yield on the long-term 30-year bond hovered around 1.862 percent and the yield on short-term 2-year also remained nearly steady at 0.865 percent.
