Article / Monday at 11:22 GMT

Mid-session Europe: Fed and ECB worries weigh on markets

Saxo Markets


Foreign exchange


Concerns about the global recovery as well as speculation about European Central Bank and Federal Reserve policies have dragged European indices down this morning.
Bank Of America reports 3Q EPS at $0.41 a share and trading revenue of $3.73 billion vs. an expected $3.25bn.
Eurozone final September CPI (0.4% y/y)and core CPI (0.8% y/y ) were in line with expectations.
In the UK, Pearson Plc tumbled 9.9% after the world’s largest education company reported a drop in sales.
In FX, most majors are trading sideways on both spot and volatility this morning and with relatively little news out we expect this to continue today.

Watchlist (GMT)

  • US October Empire Manufacturing (+1.0% exp.) (1230)
  • US September Industrial Production (+0.2% m/m exp.) (1315)
  • US September Capacity Utilization (75.6% exp.) (1315)

Forex developments

It's a calm session for FX majors as most tendencies of the past week continue to strengthen.
The USD index is consolidating around its 7-month maximums and is traded slightly under the 98 level, with the greenback generally being bid in most of the crosses. EURUSD fell through the key support at 1.10 in the early hours, currently attempting to recover to 1.098. EU harmonised CPI numbers at +0.4% met expectations, sparking more talk of ECB tapering, which is expected to be the key subject at the bank's conference on Thursday.

USDJPY is balancing around its 100-day EMA, failing to breach above 104.5, but supported at 103.5-104 levels. JP industrial production data earlier in a day showed lower than expected m/m growth, which didn’t bring more buyers for JPY.

GBPUSD continues to be softer offered around 1.216 level, with PM Theresa May staying under pressure for her Brexit plan, demanded to be submitted for a vote to parliament.

NZDUSD is outperforming in most of G10 crosses today, attempting to break through 100-day EMA and trading back above 0.712. AUDUSD is finding support above 0.7600 with key resistance seen around 0.763.

FX Options volatilities
 Most majors are trading sideways on both spot and volatility this morning and with relatively little news out we expect this to continue today. During the week we expect volatility slowly to grind lower. Today’s selling interest was generally in 3 month and 6 month tenor, while 2m and 1y were preferred buying tenors.

Fixed income


Eurozone yields kept climbing higher ahead of the ECB meeting this Thursday – expect to to see a lot of questions on QE tapering. Fed members keep talking up the December hike, now priced at 65%. European credit markets unmoved by recent turmoil, sitting 40 bps away from year low. Deutsche Bank stress catching a break, significant risk premium remains as 2025 subordinated USD bonds yield 5.6%.



Concern about the global recovery, as well as speculation about European Central Bank and Federal Reserve policies, have dragged European indices down this morning. The ECB will give its latest update on Thursday, and most economists surveyed by Bloomberg see it extending its bond- buying programme beyond March 2017. However, investors are questioning the reliability of such a programme, especially after bond yields have started to rise, suggesting that inflation is making a comeback. This newsflow is weighing on equity markets.

In Switzerland, Swatch Group AG dropped 1.7% and Cie. Financiere Richemont SA declined 2.2% after surges of more than 10% last week. Nestle SA slid 1.3% on Monday.

In the UK, Pearson Plc tumbled 9.9% after the world’s largest education company reported a sales drop.

In Italy, Banca Popolare di Milano Scarl fell 4.6%, the most in Italy’s FTSE MIB Index, while Banco Popolare SC was little changed after their shareholders approved a merger of the two companies. Financial firms UniCredit SpA and Assicurazioni Generali SpA gained more than 1.8%.

In the US, Tesla Motors could make moves after CEO Elon Musk tweeted that the maker of electric cars has delayed Monday’s product unveiling to Wednesday. “Needs a few more days of refinement,” Musk said in his tweet. Bank of America and Hasbro are among the companies expected to post earnings before the open, while Netflix and IBM are on the docket after the closing bell.

Join our Weekly OptionsLab on Wednesday  to find out more on covered call strategy.

Read more

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.

Asia:      Morning Report APAC:  Yields surge on Yellen's speech

Europe: Morning Markets:  EURUSD at sub-1.10 as dollar flexes

Europe: From the Floor:  Nikkei ready to run? — #SaxoStrats


More fine tuning apparently required. Photo: iStock

— Edited by Clare MacCarthy

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


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