Article / 01 March 2016 at 12:55 GMT

Mid-session Europe: Mild recovery in risk tone lifts stocks

Saxo Markets
Denmark

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FX Chart
 
Markets are getting a tentative risk-on start to the month, with Europe's major bourses gaining, oil trading up on the day, and bunds taking a breather

China cuts banks' reserve requirement ratio post-G20 and effective March 1, and markets are digesting new lows in manufacturing & mon-manufacturing PMIs from China Europe.


Watchlist

  • Canada Dec GDP (1330)
  • US Feb Markit US manufacturing (1445)
  • US Feb ISM manufacturing (1500)


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Forex developments

EURUSD: This pair has been in tight 1.0855–1.0885 range for the last 24 hours. Dealers indicate low liquidity and little selling interest. Data from the EU was mixed and most of the focus is still on fixed income, where we see a correction from the highs in Bunds. The pair remains under pressure, we haven’t seen any correction to the long-dated moving averages yet. It’s likely that this situation will persist till the ECB meeting on March 10, as we don’t see any new data on inflation that might act as a game-changer, and, together with lack of confidence that was visible for the last year or so, it might anchor the pair.

USDJPY: The yen weakened and took off from the key level of 112, now trades above 113, and this level is likely to work as a support for a while as we saw several unsuccessful attempts to push through 112. Obviously some support was gained from China where the Shanghai composite posted some gains and almost covered losses from the beginning of the week. It’s likely that we will see more weakening if equities rally in the US session.

GBPUSD: Strong rally in sterling today. The pair breached 1.40 with a possible target at 1.4050 as the next resistance available. Earlier today, weaker-than-expected PMI manufacturing figures sent the pair towards the 1,3915 area.


FX Options volatilities
 
FX options table
 
EURUSD Very quiet session, and the general agenda is “risk-on” and vols sold off in both the front and back end. 1M lost ~0,4 vols, while overnight remains unchanged.

GBPUSD  The situation is very much the same as EURUSD. Some colour was added by the spot move and 1M went 0,75% vols lower to compensate for the skew.

USDJPY Vols in JPY crosses are hit hard with, for instance, AUDJPY etc down 0,5-1 %-point in the back end. A significant portion of that can be attributed to the spot being higher and CN market looking stronger. 


Fixed income

Fixed income table
 

















Bunds take a break from their record expedition, but the 10-year remains above the 166 handle.
Corporate bonds rally steeply however, and the Xover credit spread breaks below 400 basis points for the first time since February 2. Glencore the most prominent market mover following its earnings beat this morning, and its bonds are generally trading a couple of points higher. The 2023 USD bonds are currently offered at 79 with an 8% yield to maturity, a jump of 3 full points on the day.


Commodities table

Commodities table-Continued
 

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Equities

Equity indices
 















European markets start the new month in positive territory, aided by a rival bid from the Intercontinental Exchange for the London Stock Exchange which saw its shares surge 8%. 

The major European bourses are all up between 0.5% and 1.5% despite mixed corporate earnings releases.

Barclays dipped 9% as it posted worse-than-expected full-year results and announced that it would cut its 2016/2017 full-year dividend.

Equipment rental company Ashtead fell 16% on a “lower outlook”,  despite releasing better third-quarter results year-on-year.

Insurers Swiss Life and Direct Line both trade about 2.5% higher on positive earnings with Swiss Life increasing its dividend.

Higher metal and oil prices help the mining sector be the top performer this morning. Anglo, Rio and BHP Billiton are all up between 2.5% and 4.5%. Shares in Glencore, however, were down as much as 6% as the company posted a 32% drop in 2015 core profit due to “tumbling” raw-material prices. 

US futures sustain the positive tone, with Wall Street expected to open up at least 0.75% at this stage. US earnings of note today include Medtronic, JD.com and Dollar Tree Stores. 

Latest and still open trades on #SaxoStrats

SaxoStrats table

SaxoStrats table-Continued
 

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.

US:        US Market Wrap: US dollar ends month on an up note

Asia:      Morning Report APAC: China shares fall, yuan rises

Europe: Morning Markets: Lack of spring as March begins

Europe: From the Floor: Chinese signals for world markets




— Edited by John Acher

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

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