U.S. equities sell off, gold falls, U.K. pound rises on Brexit optimism, and U.S. treasury auction raises eyebrows
Both main USA equity markets, the DJIA and SPX, sold off during Tuesday’s New York session, as the markets raced back into life after the close for the President’s Day bank holiday. Both key indices eventually closed down, ending an unbroken winning streak of six days. Certain earnings spooked the markets, most notably the giant retailer Walmart, whose annual results missed the forecast by some distance, as its online sales disappointed, and as a consequence the stock closed down by circa 10%. Such a shock result can often create ripple effects in the markets due to the importance the retail sector and consumers have, as essential elements of the USA economy. Market optimism wasn’t helped by investment bank J.P. Morgan citing that the stock market correction early February was “only the appetizer” for a bear market selloff later in the year.
The U.S. Treasury’s auction, of two year notes and three and six month treasury bills, was conducted at rates not witnessed since 2008, whilst the ten year rate rose to 2.89%. In total the U.S. Treasury sold $179 billion of securities, as it attempts to rebuild its cash balance, the short dated bills raised the highest yields seen in a decade. The dollar index rose by circa 0.6%, the U.S. dollar rose by a similar amount versus both euro, and yen. Gold slumped by circa $20 per ounce on the day, closing out at approx. 1,329. WTI oil slipped back through the $62 a barrel level.
European news mainly centered on Germany’s various ZEW sentiment readings. Expectations for February fell, but beat the 16.0 forecast, by coming in at 17.8. Germany’s producer price index rose to 2.1%, which may have an inflationary influence during the coming months. Swiss exports fell by -5.1% in January, whilst overall Eurozone consumer confidence fell to -0.1% in February. The U.K. trade body the CBI published its latest trends sales prices and orders surveys, both missed targets and combined with flat industrial production and manufacturing production recently slumping, the indications for U.K. manufacturing looks uncertain.
The U.K. FTSE 100 fell, whilst Germany’s DAX and France’s CAC equity markets rose. Sterling initially fell in the European trading session, but as news broke that the European Parliament were apparently considering reaching a highly accommodating trade and access deal for the U.K., all GBP pairs immediately spiked sharply upwards. The levels were subsequently maintained, as Brexit minister Davis delivered a speech in Vienna that appeared to calm the E.U.’s doubts, with regards to the U.K.’s previous difficult stance. The pound rose by over 1% versus the euro and Canada’s dollar, whilst the rise versus the U.S. dollar was negligible, as dollar strength returned to the FX markets.
EURO
EUR/USD traded in a wide bearish range throughout the day, falling through to S2 the major currency pair remained at this level, down circa 0.6% on the day, closing out the day at approx. 1.233. EUR/GBP traded in an extremely wide bearish range consistently throughout the day, crashing through S3 and remaining there towards the end of the day, closing down over 1% at 0.881, falling through the 100 DMA which is tightly clustered with the 200 DMA, indicating that the currency pair has traded in a range during these periods, an observation that becomes clearer, when the security is observed on a weekly chart.
STERLING
GBP/USD whipsawed in a tight range, initially falling through S1, the currency pair recovered to rise up to the daily PP, closing out close to flat on the day, just below the 1.400 handle at 1.399, resting near to the daily pivot point. GBP/CHF followed a similar price action pattern, closing out the day up over 1%, at 1.309.
U.S. DOLLAR
USD/JPY traded in a wide bullish range through the day, breaching the 107.0 handle, breaching R2, ending the day at circa 107.2 and closing up for the first day since February 6th. USD/CHF traded in a wide bullish range, breaching R2, threatening to breach R3, price closed out at approx. 0.936, up circa 0.8% on the day. USD/CAD followed a similar pattern to USD/CHF, closing the day up 0.7% at 1.264, whilst breaching the 100 DMA.
GOLD
XAU/USD sold off throughout the day, trading in an extremely wide bearish range, crashing through S3. After printing an intraday high of 1,348, close to the daily PP early in the Asian session, the security began a steady and consistent collapse, as the precious metal ended the day down circa 1.1% at 1,329, a weekly low.
INDICES SNAPSHOT FOR FEBRUARY 20th.
• DJIA closed down 1.01%.
• SPX closed down 0.58%.
• FTSE 100 closed down 0.01%.
• DAX closed up 0.83%.
• CAC closed up 0.64%.
KEY ECONOMIC CALENDAR EVENTS FOR FEBRUARY 21st.
• EUR. Markit/BME Germany Manufacturing PMI (FEB P).
• EUR. Markit Eurozone Services PMI (FEB P).
• GBP. Claimant Count Rate (JAN).
• GBP. Weekly Earnings ex Bonus (3M/YoY) (DEC).
• GBP. ILO Unemployment Rate 3Mths (DEC).
• GBP. Public Sector Net Borrowing (JAN).
• GBP. BOE’s: Carney, Broadbent, Haldane and Tenreyro Speak in London.
• USD. FOMC Meeting Minutes (31 JAN).
RELEASES TO MONITOR CAREFULLY ON WEDNESDAY FEBRUARY 21st.
There’s a raft of PMIs for the Eurozone and the U.K. published in the morning trading session, focus will be on Germany’s manufacturing PMI and the composite readings for many of the leading European economies.
The U.K.’s official stats agency, the ONS, will reveal the latest employment and unemployment data concerning the U.K., unemployment is forecast to remain at the multi decade low of 4.3%. Wage data will also be published, the expectation is for annual wage growth (minus bonuses) to come in unchanged at 2.4% for the final quarter (on quarter) of 2017. Various public borrowing figures for the U.K. govt will be revealed, the PNSB being the highlight, forecast to come in at -11.4b for January.
There’s various PMIs for the USA published in the afternoon session, as are home sales, forecast to make a seasonal improvement month on month for January. The most prominent economic calendar release of the day involves the FOMC publicizing the minutes for its latest rate setting and monetary policy meeting held in January. This publication takes on more significance than during recent months, due to the interest rate sensitivity that currently exists, which caused the market correction in late January, early February.
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