European equities are tentative [Eurostoxx 50 -0.2%] as the region gears up for the FOMC rate decision later today. Sectors are mixed, underperformance is seen in defensive stocks with healthcare, utilities and consumer staples all lower. In terms of movers, STMicroelectronics (+2.5%) and Infineon (+2.3%) shares gained following a broker move at Morgan Stanley and Bernstein respectively. On the flip side, Steinhoff (-7.6%) opened at the foot of the Stoxx 600 after the Co.’s delayed 2018 results posted losses, whilst Belgian retailer Colruyt (-13.6%) plunged on disappointing earnings
DXY – Relatively tight lines being drawn ahead of the FOMC in G10 land, as is often the case, but the Greenback has clawed back some losses against EMs after Tuesday’s euphoria over the US and China reopening lines of communication on the trade front. However, the index is braced for the Fed within a confined 97.683-553 range, and seemingly reluctant to breach chart/psychological resistance or support around 97.639 (61.8% Fib retracement of pull-back from 98.373 ytd peak to recent 96.451 low) and 97.500 respectively in the run up – see the Ransquawk Research Suite for a full preview.
GBP/CHF – Bucking the overall muted trend, Cable has continued its recovery towards 1.2600 after broadly in line with forecast UK CPI and PPI data and ahead of the BoE tomorrow, while Eur/Gbp has also retraced further to test 0.8900 compared to circa 0.8975 before ECB President Draghi’s apparent dovish Sintra revelations. Similarly, the Franc is consolidating back above parity and over 1.1200 vs the single currency as markets tread more cautiously in wake of yesterday’s risk-on session.
EUR/JPY/CAD/AUD/NZD – All narrowly mixed vs the Buck, as noted above, with the Euro licking wounds inflicted by latest dovish ECB vibes and back on the 1.1200 handle where extremely heavy option expiry interest is anchored (5.2 bn 10 pips either side of the big figure). The Yen is also wary of BoJ guidance skewed towards ongoing or even more stimulus, and bound by hefty expiries as 2.95 bn rolls off at the 108.00 strike and 1.3 bn between 108.30-40 vs the 108.25-61 range so far. Elsewhere, the Loonie awaits Canadian CPI data and is holding above 1.3400 with decent expiries from 1.3350-70 (1.2 bn) in close proximity, while the Aussie and Kiwi are both maintaining their recovery momentum over 0.6850 and 0.6500 respectively ahead of RBA Governor Lowe and NZ Q1 GDP, with the former not unduly ruffled by the latest in a growing list of calls for more rate cuts.
EM – The Lira is back on the rack and underperforming amidst the general retracement noted above, and the renewed threat of US sanctions against Turkey has lifted Usd/Try off recent lows to 5.9150+ at one stage. Elsewhere, the Rand has unwound some of its Eskom-related outsize gains despite firmer the forecast SA CPI, with Usd/Zar rebounding through 14.5000.
Bunds, Gilts and US Treasuries have succumbed to a bit more long liquidation, profit taking and/or pre-Fed hedging in case Powell and co confound market expectations and do not yield to mounting external pressure for looser monetary policy. The core 10 year benchmarks all slipped to new intraday lows before finding some underlying bids, at 172.20, 130.19 and 127-08+ respectively and it remains to be seen whether this marks the extent of debt consolidation and rebalancing after yesterday’s pronounced rally and arguably exaggerated moves.
WTI and Brent futures are marginally lower on the day as yesterday’s upbeat sentiment in the complex somewhat wanes ahead of today’s DoE release. Last night’s API numbers showed a slightly narrower-than-forecast draw in crude stocks (-0.81mln vs. Exp. -1.1mln) . Traders will be keeping an eye on the more widely followed DoE numbers for any short term direction (crude stocks expected to draw by 1.077mln barrels), ahead of tonight’s FOMC meeting. On the OPEC front, the oil producers have decided to hold the OPEC meeting on July 1st and the OPEC+ meeting on the 2nd following weeks of indecisiveness. Elsewhere, gold is unwinding some of its risk premium amid President Trump and his Chinese counterpart showed willingness to reignite US-Sino trade talks at the G20, albeit the yellow metal is certain to be swayed by tonight’s Fed meeting and presser. Meanwhile, copper is little changed but holds onto most of its trade-driven gains. Finally, Dalian iron ore futures spiked higher by almost 6% as the base metal followed the broad rally across assets.