Here are the latest developments in global markets:
- FOREX: The euro erased earlier gains to fall as low as 1.1435 (-0.50%), the lowest since August 20, as a potential clash between Rome and the EU over Italy’s spending plans looked unavoidable – especially after bitter comments by the Deputy Prime Minister, Matteo Salvini in Brussels on Monday. Meanwhile, Italy’s finance minister reiterated today that the deficit target for 2019 will be 2.4% of GDP, but also said that the government will take action if the yield spread widens. US Treasury yields, a safe place for investments when uncertainties rise, rallied to fresh highs on Tuesday, with the 10-year bond yield jumping to a new 7-year high of 3.26%. Italian government bond yields also gained momentum to surge towards a 4 ½-year high of 3.68%. Investors were also concerned that the US-Sino trade dispute could have a greater impact on the global economy than previously thought given the recent steep downfall in stock markets and China’s efforts to increase liquidity by cutting the reserve requirements for banks. Earlier today, the IMF downgraded its global GDP growth forecasts for 2018 and 2019 to 3.7% from 3.9% previously, blaming trade uncertainties and economic shocks in emerging economies. Dollar/yen was flat around 113.16, whereas the dollar index went up to 96.13 (+0.39%). Pound/dollar extended losses for the second day towards 1.3037 (-0.38%) as investors were cautiously rethinking recent positive views on the Brexit talks, especially after a spokesman for the Prime Minister said yesterday that key issues remain to be solved. Pound/yen was down by 0.51% and euro/pound was steady at 0.8769. In antipodean currencies, aussie/dollar and kiwi/dollar stuck around 2 ½-year lows, losing 0.25% in the day. In emerging markets, the majority of currencies were underperforming against the greenback apart from the Brazilian real which was advancing by 1.61% today following favourable election polls on Sunday which provided a wave of support to the right-wing candidate Jair Bolsonaro. The second round of elections will take place on October 28.
- STOCKS: European equities were losing ground at 1115 GMT despite gains in the energy sector. The pan-European STOXX 600 and the blue-chip Euro STOXX 50 were down by 0.33% and 0.28% respectively. The German DAX 30 declined by 0.46%, the French CAC 40 decreased by 0.14% and the Italian FTSE MIB lost 0.14%, remaining near 1 ½-year lows. The British FTSE 100 pulled back by 0.18%. In Asia, Japanese stocks fell by 1.70% near 1-month lows and Chinese shares closed mixed. In the US, futures tracking the S&P 500, Dow Jones and Nasdaq 100 were in the negative territory, pointing to a lower open.
- COMMODITIES: Iranian crude exports amounted to 1.1 million bpd in the first week of October, less than 1.6mn recorded in September and far below the 2.5mn registered in April before the US withdrawal from the 2015 nuclear pact. Falling oil supplies in the Iranian region have become more evident as Iran’s oil clients look for alternative producers ahead of the US sanctions due to take effect in November. WTI crude and Brent were on the recovery after three negative days, trading at $74.68/barrel (+0.52%) and $84.45 (+0.64%) respectively. Meanwhile in the Gulf of Mexico, energy producers evacuated 13 platforms and turned off a fifth of production on Monday as hurricane Michael was threatening t bringo damage to the area before striking Florida on Wednesday with stronger winds. In precious metals, gold was on the downside at $1186/ounce (-0.10%).
Day Ahead: Canadian housing starts, Brexit the highlight of the day
The US is back from holidays, but the calendar remains fairly thin for the session as well as for the rest of the week. The only release worth mentioning is Canada’s housing starts for September due at 1215 GMT, which are expected to have increased to 210.0k from 201.0k in August.
A few minutes later, attention will turn to the UK and specifically to the British parliament, where the UK Brexit secretary Dominic Raab will be commenting at 1230 GMT. Raab is expected to dedicate part of his speech to update lawmakers on the Brexit front. Note that early this week, the Brexit negotiator was told to have been working on the Irish border backstop plans to be sent to the EU before a meeting with European leaders on Wednesday. Yet in the absence of any progress in EU-UK talks, chances for an uneventful EU summit next week are rising.
Earlier today, a lawmaker admitted that there are at least 40 lawmakers in Prime Minister Theresa May’s Conservative Party that want to go against her Brexit deal if the UK leaves the bloc ‘half in and half out’. In case May secures a deal with the EU, she must get the British parliament to approve it, and more specifically, she would need 320 lawmakers to support her plans.
U.S. Secretary of State Mike Pompeo and North Korean leader Kim Jong Un had some progress in their discussion on Monday with the former saying that Pyongyang is ready to allow international inspectors to visit a missile engine test site. Moreover, he unveiled that both sides are close to agreeing details for a second summit between Kim and President Donald Trump.
In New Zealand electronic card retail sales for the month of September will be published at 2145 GMT, while at 2350 GMT Japanese machinery orders for August will attract some interest as well.
In terms of public appearances, Federal Reserve Bank of Chicago President Charles Evans will be talking at 1615 GMT ahead of the Federal Reserve Bank of Philadelphia Harker at 1700 GMT. Also, Bank of England Governor Carney will be a guest speaker at the CISI annual dinner at 1800 GMT.
