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ECB QE Faced GC Pushback, Quiet Overnight

Morning Briefing September 13th 2019

Europe’s main data events on Friday are the release of Spanish inflation figures at 0800BST which is followed by the publication of the EZ’s trade balance at 1000BST. In the US the release of retail sales data at 1330BST will be closely watched.

Spain’s final inflation figures are seen in line with flash estimates, which showed annual HICP slowing to 0.4% after registering at 0.6% for two successive months while monthly inflation declined at a slower pace in August (-0.1%) than in July (-1.1%). INE, the Spanish stats agency noted that the decline was led by a decrease in electricity prices. Meanwhile, core inflation remained on June’s level of 0.9% in July.

The EZ’s trade surplus narrowed in June to EUR 17.9bn (SA) following an expansion to EUR 19.6bn in May. Markets look for the EZ trade surplus to contract further by EUR 0.4bn to EUR 17.5bn in July. Exports declined by 0.6% m/m after May’s rebound to 1.5%. Meanwhile, imports increased slightly by 0.3%, following two consecutive months of decline. In Jan-Jun 2019, exports increased in three of the Big Four member states compared with the same period a year earlier: France (6.0%), Italy (3.0%) and Spain (1.0%), while they stagnated in Germany (0.0%), the largest member state.

Retail sales are expected to slow in August after surging in July, with markets expecting a 0.2% increase this month. Following a spike in July online sales, primarily an effect of Amazon Prime Day on July 15-16, August gains should be relatively modest. Solid gains in auto purchases are forecasted to prop up sales amid weakness in building materials, a reflection of existing home sales data released earlier in August. Expectations for the upcoming data reflect continued strength in consumer spending, which has continued to swell amid the current strength of the labour market, wage growth and a high level of savings – all of which are conducive to household spending. Despite escalating trade tensions, which have begun to hurt business and manufacturing activity, the American consumer is relatively unfazed.

The events calendar remains quiet with the highlight being ECB’s de Guindos, Draghi and Coeure participating at the Eurogroup meeting in Helsinki.

Global Economic Trading Calendar


BOND SUMMARY: Ltd trade for Tsys with T-Notes +0-01 at 129-15, yields 0.2-1.6bp higher across the curve. Selling of the TYV9 129.00 puts provided the highlight on the flow side. Trump’s discussions of middle class tax cuts over the next year or so, the potential for a meeting with N Korean leader Kim & a reaffirmation of his preference for a “full” deal w/China, but the opening of the potential for an “interim” deal, or at least the consideration of one, did little for mkt.- Aussie bond futs listless, YMZ9 -2.5, XMZ9 -1.75.- JGBs provided some interest on a technically driven move below weekly lows & the 50-DMA, last -52 ticks. Curve steepening continues, 10-Year yields now back to -0.16%. Little to note in terms of headlines, FinMin Aso noted that the country’s econ fundamentals remain solid, while the new EcoMin Nishimura stated that the gov’ts hope “on the BoJ isn’t about additional monetary easing” per RTRS, reiterating it is down to the BoJ to set MonPol. Continued interest in the BoJ sources piece suggesting that “BoJ off’ls see a need to keep a lower limit on JGB yields, with some of them seeing that limit around -0.3%.”

STOCKS: Regional equity markets traded higher during Asia-Pac hours on Friday, with the Nikkei 225 outperforming ahead of an elongated holiday weekend in Japan, aided by USD/JPY stabilising above Y108.00.- Chinese holidays removed the major regional risk driver of recent times, while liquidity was also thinned by South Korean & Taiwanese market closures and headline flow was light at best.- Nikkei +0.9%, Hang Seng +0.2%, ASX 200 unch.- S&P 500 futures +3, DJIA futures +30, NASDAQ 100 +12.

OIL: WTI & Brent have stuck to tight ranges during Asia hours, and both sit around $0.15 below settlement levels. This comes after WTI shed ~$0.65 on Thursday, while Brent lost ~$0.40. The latest IEA monthly report added some pressure to crude on Thursday, even as demand growth exp. were left unch., unlike the recent EIA & OPEC reports, with both of those bodies trimming their respective ’19 demand exp. The IEA noted that “while the relentless stock builds we have seen since early ’18 have halted, this is temporary. Soon, the OPEC+ producers will once again see surging non-OPEC oil production with the implied mkt balance returning to a sig surplus & pressuring the prices. The challenge of mkt management remains a daunting one well into ’20.”- The OPEC+ JMMC meeting was a bit of a damp squib. The Omani Oil Min noted that the ’20 outlook is not very good, while we learnt that Iraqi & Nigerian non-compliance to production cuts was a major point of discussion & perhaps a hindrance to deeper cuts. The Iraqi Oil Min tried to provide some reassurance that his country will provide deeper production cuts in Oct, while Saudi committed to sub-10mn bpd production through year-end.

GOLD: Gold has been limited to a ~$5 range in Asian hours in the wake of the volatility that was observed on Thursday, which was a result of the ECB MonPol decision (and subsequent source report), U.S. CPI & trade war developments/rumours.- Participants looked through Trump’s latest round of comments made during Asian hours, with U.S. Tsy yields range bound and liquidity thinned by several regional holidays.- Spot gold last trades at ~$1,497/oz, $2 or so lower on the day.- The initial technical parameters are defined by support at $1,487.1/$1,484.6, trendline support drawn off the May 30 low/Sep 10 low, with resistance seen at $1528.3, the Sep 6 high.

FOREX: A quiet spell lasted uninterrupted through the Asia-Pacific session. Amid little fresh signals, focus remained on yesterday’s package of monetary stimuli deployed by the ECB, as well as gradual de-escalation in Sino-U.S. trade spat. Elsewhere, U.S. President Trump noted that a tax cut for middle-income Americans will be announced sometime in the next year & mentioned that he wants a full trade deal with China, but would consider an interim accord.- JPY softened a touch as aforesaid trade & ECB developments supported regional equity markets. CAD and NOK slightly faded in sync with crude oil. AUD garnered some strength, but its Antipodean cousin failed to follow suit. Worth highlighting that price action was very tight in the G10 FX space.- Holiday market closures in China, Taiwan and South Korea played a role in limiting activity. USD/CNH slid breaking under yesterday’s low eventually.

Technical Analysis


Z9 Bund was firmer yesterday however for now, the bearish threat remains in place. The recent sell-off follows the confirmation last week of a double top reversal. This continues to weigh and momentum studies remain bearish too. Prices have tested the 173.72, 38.2% retracement with the 50-day EMA at 173.51. This latter level represents a key support. For now the evidence still points to weakness with resistance at 175.34.


EUROSTOXX50 has confirmed a clear break of 3494.66, 76.4% retracement of the Jul 25 – Aug 15 decline. Bullish trend conditions remain in place and yesterday’s move higher reinforces this. Tuesdays doji candle pattern, a bearish signal is no longer a concern and this also highlights the current bullish sentiment. Support to monitor for now is 3479.58, Sep 10 low. While this holds, look for the index to extend the upside towards 3539.94 and 3573.57.

Eurex Futures Market Close

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