29 July 2016 at 11:43 GMT
Foreign exchange Today's European session opened in the wake of a surprisingly conservative, given the all-out stimulus bonanza expected, policy statement from the Bank of Japan. The JPY tumbled to 102.75 on the news (from a temporary spike north of 105.50) but has since recovered to trade in the 103.20-30 range.
Closer to the Continent, Italy's troubled banks are in focus today as a round of stress tests gauge the situation. Italian banks are burdened with an enormous surfeit of non-performing loans, and Rome is working/debating with Brussels over a potential solution.
While the results may or may not be shocking, they will not – for the first time ever – be made public; could this be a new method of limiting the market's reaction?
Meanwhile, volatility is selling off while both crude and oil are trading in range.
- Canada GDP (1230
- US Q2 GDP Estimate (1230
- US Fed’s Williams to Speak (1330
- US Jul. Chicago PMI (1345
- US University of Michigan Final Sentiment (1400
- US Fed’s Kaplan to Speak Germany Preliminary Jul. (1700
It’s a JPY day, where the focus has been on the futility of the BoJ's July statement and how the September meeting is the new focus, which could keep USDJPY bid at these levels (unless US releases next week disappoint). EURUSD failed to close above its 200-day moving average at 1.1073 yesterday but is heading higher following better CPI figures in the Eurozone. As we approach the end of the week and month it will be interesting to see if it wants to recapture the moving average. Next resistance at 1.1160, or the 55-day moving average.
FX Options volatilities
BoJ slightly disappointing but it left the door open for a move in September again. One-month volatility now trading at 11.3 down from 14.05 yesterday and with the only fiscal event out on August 2, it's holding front-end gamma high (1w 11.5-14.5 now). If we get no inspiration from that, one-month will trade lower towards 9-5-10% during August. We still see some interest to buy 2m trading around 11.9 as the BoJ could move again in September.
EURJPY is also smashed after BoJ, especially looking at the lack of buyers in EURUSD at the moment; no one wants to be long EURJPY options.
EURUSD is still trading in a tight range with a notable lack of inspiration and overall volatility is trading with a soft bias. The lack of action after the BoJ is not supporting volatility buyers in this cross either.
Hard to find any significant buyers at the moment in majors
A cautious tone overall following the non-event BoJ release and ahead of the potentially very crucial bank stress test results to be released later today.
Rumours of a private rescue of Italy’s Monte dei Paschi are lifting sentiment in financials as well as peripheral government bonds. Other sectors have marginally improved as well, although activity and volatility is very low.
European stocks rallied this morning. Arguably the biggest corporate news of the morning came from Barclays, which shot up by 6.7% after posting adjusted pre-tax profit that beat expectations.
Also in the banking sector, UBS was up 2.5% on stronger-than-anticipated earnings while pushing ahead with cost-cutting. Monte dei Paschi in Italy received a proposal from UBS/Passera to help rescue the troubled bank and traded up 7% before reversing the rally after the company said it may reject the proposal.
Also beating earnings estimates were Electicite de France (up 8.6%) and Google parent Alphabet up 3.5% on an earnings beat (posted after last night's New York bell) from growth in cloud-computing and corporate business software.
Also in the US, Amazon was up 1.4% with profits at the top end of expectations.
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.
Italian financials are in focus as the country's famously troubled banks head into
the latest round of stress tests this evening. Photo: iStock
— Edited by Michael McKenna