Article / 10 June 2016 at 11:48 GMT

Mid-session Europe: Risk aversion flows dominate

Saxo Markets


Foreign exchange


Risk aversion flows dominate European equity markets today. Financials and materials are the worst performers of the day with political concerns putting pressure on these sectors.
German May Final CPI was in line with expectations at 0.3% m/m and 0.1% y/y.
German 10-bunds yields approached zero, while Japanese government 10-yr and 20-yr bonds yields dive deeper into negative territory, this is the lowest on record.
French April Industrial and Manufacturing Production data came out above expectations.

Watchlist (GMT)

  •  Canada Net Change in Employment for May (+1.8K exp.) (1230)
  • Canada Unemployment Rate (7.2% exp.) (1230)
  • US Univ. of Michigan Prelim. Confidence (94.0 exp.) (1400)
  • US WASDE Crop report (1600)

Forex developments

EURUSD is hovering around an important level which is 1.1294, this happens to be as we have noted in previous days the Fibo level from drop starting May 3, and the level that started the attack towards highs of 1.1415 area lately on poor NFP last week. With little US news of importance, this area might be the magnet for end of day. First tech resistance of 1.1313 (55-day moving average), and then more decent tech resistance around 1.1356 area.  Downside tech support around 1.1240 (21-day moving average). Closing the week below 1.1294 area could be noticed by USD bulls as a nice confirmation.
GBPUSD resting on 55-day moving average 1.4420. We are approaching weekend where again might start seeing unwinding to avoid any polls released over weekend. Latest Poll from Yougov was June 6 showing 43% Remain/42% Leave. 1.4380 is Fibo level from rally starting in April. We spoke of on Wednesday that medium-term moving averages 21-day and 55-day 1.4519 to 1.4410 respectively in GBPUSD and 0.7746 and 0.7845 in EURGBP could be area where the pair find comfort. They are moving within these ranges. These moving averages are today at 1.4516 /1.4420 for GBPUSD and 0.7742/0.7844 in EURGBP.
USDCAD has the main interest for today, if oil is topping and the employment report is week from Canada could see CAD weaker. Trying to break 1.2740 area around the Fibo level from the wave starting May 4, could be nice for USD bulls if we are closing higher on the day or if we start breaking 1.2766 area in poor employment. Level to look at on downside is 1.3630 area, also a Fibo level.

FX Options volatilities

2w rolls to 24 June now covering EU referendum, which is why vol on that tenor is up dramatically today. We see o/n fwd vol in GBPUSD 107 for 24 June, which will most likely only increase if the polls continue to be as divided up until the referendum date. EURUSD RR shifted more towards EUR puts after the sell off yesterday in spot on back of European Central Bank chief Mario Draghi’s announcement that he would start buying junk bonds. In JPY both vols and RR are trading higher during the last 24 hours.

Fixed income

German 10-year bunds yield approaching zero, while Japanese government 10-year and 20-year bonds yields dive deeper into negative territory, this is their lowest on record.


European markets follow on from a negative Asian session to hit a two week low. Euro Stoxx is currently down 2.1% on above average volumes. Weak oil prices are weighing on the sector. Financials and materials are the worst performers on the day with political concerns putting pressure on these sectors.
Lufthansa is down nearly 5% after their well-regarded CFO steps down to pursue other career options. 
SAS, Swedish Airline, is down 10% after Q2 sales miss expectations.
Tesco is down over 2% having confirmed sale of its controlling stake in Turkish grocery business, Kipa. The sale is considered to be at a large discount to market value. They have separately confirmed the sale of their restaurant chain, Giraffe.
Sainsbury and Home Retail have confirmed that the CEO of Home Retail will step down once the acquisition is completed. It is thought the position will be filled by Sainbury’s CFO. 
Les Echos has reported that the Peugeot family may boost their holding in the carmaker if the French state sells its stake.

#SaxoStrats: Equity Positions
Recent portfolio events

  • Just added a short Remy Cointreau (RCOP:xpar) position (hedged with FRA40.I) as the company did not provide any revenue guidance for the current fiscal year. In our opinion this should not translate into a 20% valuation premium to global peers.

  • In today’s European session our long positions in Eurofins Scientific and STOXX 600 Automobiles & parts (ETF) are suffering more than the averages. Our recent long position in Subsea 7 is holding up well relative to the market.

  • In yesterday’s US session the portfolio’s long position in LinkedIn showed yet another strong session up 2% Momentum seems to be gaining strength in LinkedIn shares ahead of Q2. Our long position in Twitter on the other hand is a disappointment so far as investors are not convinced in the turnaround plan yet from the CEO Jack Dorsey. We will have to wait for the Q2 results before any action will materialise in Twitter shares.

Current positions

 Recently closed positions


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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.

Europe: Morning Markets:   Asian shares wilt as risk-off sets in

Europe: From the Floor: Brexit kicks markets into touch

safe  Safe-have flows prompted by fear of Brexit dominate markets today. Pic: iStock

— Edited by Clare MacCarthy

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


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