19 July 2016 at 11:16 GMT
Today's session sees the forex spotlight on the Antipodean currencies, particularly NZD which is weakening as markets expect further dovish intervention from the central bank. Today's declines came on the back of both these expectations and a new proposal for mortgage lending restrictions released overnight.
In Europe, 10-year German bund yields have moved into the nagative again and we saw a fairly downcast set of results in this morning's ZEW release, although EURUSD is largely flat on the day.
Later, the US session will play host to a suite of big-name blue cip earnings releases while the API oil inventories report may give crude some direction in the near-term.
- US June Housing Starts (1.166m exp., 1230 GMT)
- US June Building Permits (1.150m exp., 1230 GMT)
- US API Oil Inventories (2030 GMT)
NZD was on the move in Asia after the Reserve Bank of New Zealand introduced LVR restrictions with respect to mortgages and market saw an increased likelihood of rate cut at the bank's August meeting.
NZDUSD fell through 0.71 on the news and drifted lower into the European open, touching lows at 0.7007.
EURUSD didn’t perform at all despite an ugly German ZEW data release. Dip buyers still in play keeping the rate above recent range lows at 1.1050/55. UK CPI data came in line month-over-month and a tad higher on an annual basis.
The August Bank of England meeting has expectations for a cut being priced in as we can see Cable trading on defensive mode as of late.
FX Options volatilities
EURUSD historic vols approaching 6% and the three-month tenor is now trading at the lowest levels since February 2015.
The summer season has seen new lows on volatility as decay becomes too expensive; we guess buyers hope to be able to wait until end-August before they start buying.
In JPY options, most trading is spread- and position-restructuring, the curve is slightly lower but still surprisingly high. So a disappointing Bank of Japan outing would definitely result in much lower volatility.
GBP vols also slightly lower but nothing dramatic.
AUD and NZD curve is almost unchanged despite lower spot on both. Risk reversals don’t offer attractive payoffs at present.
Another soft session although government bonds remain largely unchanged with the 10-year German bund yield a few basis points in the negative. Sentiment confirmed by a very ugly ZEW reading, but this is seemingly more down to Brexit than anything else in our view.
Corporate bond spreads are slightly wider, providing a rare opportunity of sufficient liquidity on the offer side; valuations still being stretched, but off the year-low levels.
European indices are trading lower this morning due to weaker commodity prices and company updates. Anglo American, Rio Tinto, Glencore and BHP Billiton are all 3% - 4% lower this morning due to declining metals prices.
Post-Brexit woes are still impacting companies such as Swedish industrial rubber maker Trelleborg.
Shares fell almost 4% due to economic uncertainty despite the company meeting core estimated earnings.
Meanwhile, shares in Softbank fell 10% in the overnight session on the news that it has agreed to pay $32 billion for ARM Holdings; ARM itself was little changed today having rallied 41% yesterday.
Notable US earnings due later include: TD Ameritrade Holding, Goldman Sachs, Johnson & Johnson, Lockheed Martin, and Philip Morris International.
The replay of our Morning Call can be found here
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.
Below zero: German 10-year bund yields are in the negative once again. Photo: iStock
— Edited by Michael McKenna