Forex news from the European morning session - 15 May 2019
Headlines:
- US MBA mortgage applications w.e. 10 May -0.6% vs +2.7% prior
- UK's Barclay: Brexit talks with Labour have been 'serious' and 'challenging'
- Eurozone Q1 GDP second estimate +0.4% vs +0.4% q/q prelim
- IEA cuts oil demand forecast but sees market tightening on Iran sanctions
- China: If US doesn't want to do business with us, others will fill the gap
- Italy-Germany 10-year bond yields spread stretches to widest gap in three months
- Brexit: If May's deal is said to be voted down again, there will not be a fifth attempt
- Germany Q1 preliminary GDP +0.4% vs +0.4% q/q expected
- US-China trade talks reportedly broke down as China scrapped 30% of draft deal
Markets:
- JPY leads, AUD lags on the day
- European equities lower; E-minis down 0.2%
- US 10-year yields down 2.8 bps to 2.382%
- Gold up 0.1% to $1,298.30
- WTI down 0.9% to $61.20
Markets began the session on slightly more optimistic footing but that quickly gave way as lingering trade tensions and a selloff in Italian bonds prompted a more cautious risk mood in the European morning.
Italian bonds continue to be sold off since overnight trading as Salvini's comments on exceeding the 3% budget deficit limit continue to echo into the new day. That saw the spread between 10-year German and Italian bond yields widen to the most since February and resulted in a fall in Italian bank stocks.
That brought about more cautious risk tones across the region as other major European bourses fell in tandem alongside US equity futures, erasing gains of 0.3% to drop by 0.1% at the start of the session. Meanwhile, Treasury yields were also brought lower and continued to fall in the hours after.
But it isn't fully an Italian story as lingering US-China trade tensions and weak Chinese economic data for April also contributed to the softer mood we're seeing currently ahead of North American trading.
As a result, USD/JPY has been brought lower from 109.60 to a low of 109.27 where it trades just above currently. Meanwhile, AUD/USD continues to stay pressured as the pair fell from 0.6930-35 at the start of the session to lows of 0.6915. The kiwi is also dragged lower on similar reasons as the aussie i.e. poor Chinese data and softer risk mood.
Other major currencies were more steady against the dollar with EUR/USD and GBP/USD notably trading in ~25 pips ranges as both pairs remain little changed on the day. The swissie was a notable gainer in early trades as Italian bonds fell but gave back some of those gains as we approach European midday.
Looking ahead, it's still all about risk sentiment and market participants will now look towards Wall Street for any clues on how to proceed next. Coming up in the next hour there is also the release of Canadian CPI data as well as US retail sales data so keep an eye on that for some possible reaction in markets as well.
