It was all about the stock markets today, which fell 2%-2.5% before a strong bounce and then a drift lower into the close, to finish down around 0.5%; probably not a bad result on the day but the longer term charts still look ominous and selling rallies is still preferred. It was therefore generally a risk-off session, with the Yen and Gold in demand, although they too both saw a mild reversal late in the day as stocks recovered.
The FX markets have been choppy/sideways but going nowhere fast and look to be on hold while awaiting tomorrow’s ECB Meeting and Friday’s US GDP reading. In terms of news today, the EU commission has told Italy to resubmit their budget after refusing to accept the Italian proposal, but the Italian PM, Conte, has said that there is no “Plan B”. The result was expected and the Euro showed little reaction but this is going to be an ongoing problem and not a positive input for the Euro. Meanwhile, Sterling was underpinned today following a headline that the EU is said to be willing to offer a UK-wide customs union agreement proposal to Theresa May.
Elsewhere, WTI was a major player during the session, falling another 4% and putting the 16 month uptrend under severe pressure. 63.50 looks quite possible now.
It will be the global flash PMIs that dominate the calendar on Wednesday, with little else of the agenda. As we already said, traders are more likely to stand aside while waiting on Thursday’s ECB Meeting and then on Friday’s US GDP reading, when the US government releases its first estimate for Q3 gross domestic product, followed by the personal-consumption expenditures. Unexpectedly strong readings could send Treasury yields on a fresh run higher, probable leading to a stronger dollar, although recent data has suggested that, even with the economy growing at a healthy clip, inflation pressures remain muted. Bond yields did head sharply lower today but then recovered in line with US stocks and the 10s are currently at 3.17%.
Economic data will include:
Wed: Japan/EU/US Preliminary PMIs
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