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The current mixture of strong macroeconomic signals and what is expected to be a strong showing from today's nonfarm payrolls report is flashing a "green light" to Federal Reserve hawks. Meanwhile, fear of Sunday's Italian vote seems to be fading.
Article / 22 September 2016 at 11:27 GMT

Mid-session Europe: Risky business

Saxo Markets
Denmark

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Foreign exchange

Forex
 
Yesterday saw the US Federal Reserve express with its actions a stunning lack of faith in the US economy (it did, however, pad that out with some hawkish verbiage for the rubes). With that, risky assets came to life and today's session sees a bullish, risk-on approach across the equities space.

This relationship between pallid actual growth and frenzied buying, of course, lies at the root of what spooks many about world markets in 2016, but to sideline oneself over such issues seems dreadfully curmudgeonly given that the Nasdaq has again hit all-time highs.

Meanwhile, Danish shipping firm A.P. Moeller-Maersk AS advanced 1% after saying it will split into two companies, spinning off its oil unit. As for oil itself, it's up on risk sentiment, inventory data and freeze deal speculation.

Watchlist

  • US Initial Jobless Claims (1230 GMT) 
  • US FHFA House Price Index (1300 GMT) 
  • US Bloomberg Economic Expectations and Consumer Comfort (1345 GMT) 
  • US Aug Existing Home Sales (1400 GMT) 
  • EU Consumer Confidence (1400 GMT) 
  • US Leading Index (1400 GMT) 
  • US Weekly EIA Natural Gas Inventories (1430 GMT) 
  • US Kansas City Fed Manufacturing Activity (1500 GMT)
  
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Forex developments

Decent moves in the majority of G10 currencies.
The Fed in pressing a pause button last night and flagging the possible hike in December has brought more uncertainty to the markets.
Most crosses are led by the post-FOMC USD index weakness, which keeps falling second session in a row and looks pointed to test 95-95.06 support levels. Currently bounced to 95.20, losing 0.30% in the day. 

EURUSD taking a 0.45% boost as of now and is traded above 1.1240 levels.

USDJPY has been sharply sold from the 50-day EMA resistance levels at 102.8-6, with key support at 99.6-100 yet unsplit. Current level is 100.80.

GBP is traded above 1.30 again versus the dollar and is currently locked between July-September trendline support and the descending 50-day EMA.

Last but not least, Norges Bank held rates at 0.50% today, as a solid majority expected. Further guidance updated to indicate likely they will keep rate at 0.50% for next few years, versus previous mention of prospects for a rate cut. 

EURNOK seen largely sold from 9.30 to the current 9,11, currently losing more than 1,4%.

FX Options volatilities
 
Vols

Vols
 
Vols have been marked a lot lower across most currencies, as we have now passed the BoJ and FOMC meetings where the actual volatility on both events were pretty subdued versus implied. 

The biggest drop in vol is in USDJPY, where one-month atm is down 2.5 vols since pre-BoJ. One-month EURUSD is down 1 vol trading now at 6.5 vols, the lowest since the all-time lows in 2014. 

We have to move out to the US election and Italian referendum (still not scheduled) as next big events in terms of implied volatility.

Fixed income

Rates
 
Commodities


Commodities

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Equities
Equities
 
European stock markets posted firm gains on Thursday; the Dax 30 jumped 1.2% to 10,562, while the CAC 40 added 1.1% to 4,456 and the FTSE 100 index gained 0.6% to 6,875.

Risk sentiment is on after the US Federal Reserve refrained from raising interest rates and said it needs more evidence of a stronger economy before it tightens policy.

Mining and oil firms were among the biggest gainers, getting a boost from a weaker dollar in the aftermath of the Fed decision released after the European close on Wednesday. BHP Billiton gained 3.8%, Boliden added 4.1%, and Randgold Resources rose 3.5%. Among oil majors, Eni put on 1.3% and Total climbed 1.6%, while BP added 1.5%.

A.P. Moeller-Maersk AS advanced 1% after the Danish company said it is splitting into two companies, spinning off its oil unit. The remainder will focus on transportation and logistics.

Rocket Internet rallied 5.7% after the German tech company said the biggest companies in its portfolio narrowed their combined loss in the first half of the year.

Ericsson rose 1.2% after media reports that the maker of mobile telecoms equipment said it plans to shutter its last manufacturing site in Sweden and cut about 3,000 jobs.

On a more downbeat note, Electricité de France dropped 1.7% after the utility company late Wednesday trimmed its earnings outlook.
In the afternoon, a reading on Eurozone consumer confidence for September is out, while European Central Bank President Mario Draghi will speak in Frankfurt at 3 p.m. local time.

The replay of our Morning Call can be found here.

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.






Risk on The Fed's utter lack of confidence in the US economy has spurred buying of risky assets across the world. Make sense? Then you're a 21st-century investor. Photo: iStock

— Edited by Michael McKenna

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