21 July 2016 at 11:24 GMT
European markets treaded water ahead of the European Central Bank's rate announcement due 1145 GMT, with EURUSD steadying. Markets broadly expect no policy change from Mario Draghi's ECB at this point, but they will be on the lookout for any signs of dovishness that could suggest the ECB will take action in the autumn.
A wave of quarterly earnings reports created brisk interest, though European stock markets traded lower ahead of the ECB announcement, and airline shares took a hit from warnings by Lufhansa and Easyjet on the impact to their businesses of recent terrorist attacks.
- ECB interest rate decision (1145)
- US initial jobless claims (265K exp.) (1230)
- July Phil. Fed business Outlook (1230)
- ECB president Mario Draghi press conference (1230)
- US June existing home sales (5.48m exp.) (1400
EURUSD has been steady ahead of the ECB decision and Mario Draghi’s news conference. USDJPY is the main mover in Europe today, as market reacted to Bank of Japan chief Kuroda’s comments that no helicopter money is needed. USDJPY traded sharply lower through 107.00 and filled bids below the 106.00 figure initially. USDJPY's low came in at 105.43 shortly afterwards, erasing two-day gains. Cable (GBPUSD) is largely unchanged on the day, despite an initial reaction to the release of UK retail sales.
FX Options volatilities
JPY vols very bid, with 1-month USDJPY up 1 vol yesterday evening. The Bank of Japan's July 29 meeting is the key event driving vols higher, with fwd o/n vol for that date at 60 vols now. Turkey vols also rising, with 1-month ATM trading at high end of range looking at a chart post 2008 crisis. EURUSD vols are stable and the market is just waiting for today’s ECB announcement.
Bunds rebound to a price above 166, having touched a new low of 165.80, taking the 10-year yield back into positive territory again. The shorter end of the curve is still dropping and the 2-year German yield is now 10 basis points stronger during the past 10 days (-0,61% versus -0,71%). Although the market expects no new initiatives or events from the ECB today, indications of actions by September will be looked for. Credit is enjoying a strong day despite the softer risk sentiment, and spreads are even tighter on a general basis.
European markets trade lower ahead of the ECB rate decision and despite a positive Asian session. US markets closed higher following a positive day of earnings. In Europe, a number of major companies reported results before the open.
Two warnings in the airline sector have dragged related stocks lower.
Lufhansa and Easyjet warned of the impact to their businesses after recent terrorist attacks and greater political and economic uncertainty. They are down 7.3% and 6.3% respectively.
Norsk Hydro is up over 6% after beating income expectations and raising its forecast for global aluminium demand. The basic resource sector is higher on the back of Hydro's report and a few upgrades.
Swatch profits fell sharply in the first half of 2016 but the company was upbeat for the second half, and the shares are trading up 3.5%. Hermes is also higher on strong quarterly sales.
A number of US companies are reporting quarterly results today, including AT&T, General Motors, PayPal, Starbucks and Visa.
Sales Trading, Copenhagen
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Markets have low expectations for Thursday's ECB meeting, but they'll be looking for signs of dovishness like those displayed by other central banks. Photo: iStock