Article / 09 September 2016 at 11:51 GMT

Mid-session Europe: ECB disappointment saps market energy

Saxo Markets


Foreign exchange


European indices are trading lower this morning with weak Chinese inflation data, unchanged European Central Bank policy and a 5th nuclear test by North Korea seen as the main drivers.
In data releases, French July Industrial and Manufacturing Production missed estimates. 
Finally, oil stocks moved lower this morning as crude oil trades off its highs although WTI is still set to record a 5% rally this week. 

Watchlist (GMT)

  • Canada August Net Change in Employment (+180K exp.) (1230)
  • Fed’s Rosengren to speak (1145)
  • US July Final Wholesale Inventories (-0.1%) (1400)

Forex developments

Yesterday's European Central Bank meeting was generally felt like a disappointment as the institutions president, Mario Draghi, signalled "no need for further stimulus at the moment". EUR surged initially, but lost steam right afterwards. In today’s session EURUSD trades with a lack of direction below 1.1300. AUDUSD flow have been more interesting so far, with Aussie recording a bearish candle overnight as riskier currencies dipped lower on the back of softer risk appetite and firmer yields across the board. GBPUSD continued to drift lower throughout the day towards 1.3290 ahead of UK trade data which proved to be non event for the pair. Later this afternoon we have the Fed’s Rosengren to present, an Economic Forecast and jobs data out of Canada. 

FX Options volatilities
EURUSD: Vega has traded a touch lower today because of the lack of volatility on the back of the ECB last night, and then an overall lack of realised volatility as we have seen this month. However, in the front end we are seeing interest to buy EUR call for early next week. Same goes for EURAUD, EURNZD and EURCAD.
GBPUSD: After the lack of follow through on the break above 1.33750, we are seeing front end. Risk Reversals moving more in favour of GBP puts.
USDJPY: Vega trading sideways to slightly higher. Constant interest to buy the wings are holding vols at these levels.

Fixed income
Yields continue higher and the 10-year German government yield is slowly approaching positive territory again, which would be the first such since a very brief print in mid-July. The Draghi disappointment is clearly a concern for markets overall, and credit is also starting to give in, albeit marginally, having otherwise been resilient for a long time. Primary market supply, which continues to be strong, could be another factor adding downwards pressure to secondary trading ahead of the weekend.



European indices trade lower this morning with weak Chinese inflation data, unchanged ECB policy and a 5th nuclear test by North Korea seen as the main drivers.
The healthcare sector is the current worst performer today as analysts at JP Morgan cut Novo Nordisk from overweight to neutral. The stock fell 1.8%
Burberry fell 3% on slowing Chinese inflation data as the luxury goods maker generates almost 15% of its revenue from the Chinese market.

Mining companies exposed to China had mixed results on the data with Fresnillo and Antofagasta falling and BHP Billiton rising. 
Oil stocks moved lower this morning as crude oil trades off its highs although WTI is still set to record a 5% rally this week.
Banking stocks however are positive with Deutsche Bank and SocGen leading the way.
US equity index futures continue today’s softer theme and US earning are expected to be released today by Brady Corp, Mattress Firm Holding and Kroger Co.

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Mid-session Europe is part of TradingFloor's stable of commentary running through from the US close, through Asia to the European session. Click below to keep abreast of all the developments as they happen.

US:        US Market Wrap: Dollar rises and oil soars

Asia:      Morning Report APAC: Oil prices surge on inventory surprise

oil Oil surged, then slipped, as traders mulled over the news. Pic: iStock

— Edited by Clare MacCarthy

The Global sales Trading desk is a multi-asset team providing customised trading solutions


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