Macro economics

Analytics on 09/07/2019. Stocks on the defensive, dollar extends the rally

European stocks are trading lower on Tuesday, as a warning from German chemicals giant BASF about the effects of the global trade war dragged down autos and chemicals companies. Shares in BASF slumped almost 6% after a profit warning was announced. Deutsche Bank lost another 4% after a plunge by nearly 5.5% yesterday as the German lender axed 18,000 staff. Apple's drop of more than 2% after a broker downgrade is adding pressure on the tech sector. Also, investors are getting more cautious ahead of Fed’s Powell testimony and FOMC meeting minutes due on Wednesday.

Against this backdrop, the UK’s FTSE 100 declines by 0.12 per cent to 7540, Italy’s FTSE MIB sheds 0.15 per cent to 21,942, France’s CAC 40 loses 0.45 percent to 5,564, while German DAX 30 is 1.07 per cent lower to 12,409. US stock index futures are edging lower as investors await Powell's testimony.

The dollar extends the rally for a third day in a row. As such, EURUSD derailed the 1.12 handle for the first time in three weeks. Apart from strong USD, the selling pressure on the common currency comes from comments by the ECB official Coeure who said the central bank could resume net asset purchases if warranted by circumstances. The trading activity is expected to get more muted ahead of Powell’s testimony, so the pair may settle around the 1.12 level for the time being, with downside risks persist.

Meanwhile, the pound slipped to the weakest level since April 2017 amid firmer dollar and rising Brexit uncertainty. Boris Johnson said Britain should part with the EU on October 31 “come what may”. His hard-nosed remarks reignited concerns over the prospect of a no-deal Brexit. As a result, GBPUSD dipped to the 1.2439 low and remains around the long-term lows. Moreover, the British Retail Consortium’s report showed retail sales fell 1.6% from a year earlier in June while average sales over the last 12 months declined 0.1% - the worst performance since 2012. The pair may target fresh lows this week should the signals from the Fed come not as dovish as expected.

Oil prices are making shallow bullish attempts, treading water around the 200-SMA in the hourly charts. Brent managed to regain the $64 level but still struggles to show a sustainable upside correction as traders continue to express concerns over the slowing global economy. Later today, the API will reveal its weekly report on inventories, with the official EIA data due tomorrow. Also, market participants will focus on the upcoming Chinese data as weak figures could fuel worries about global demand. Technically, Brent remains vulnerable to further losses as long as it stays below the 200-DMA around $66.70.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 1.75 %
Switzerland 3 Month LIBOR Range -0,75 %
United Kingdom Repo Rate 0,75 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 1 %
Australia Cash Rate 0.75 %
Canada Overnight Rate Target 1,75 %
All rates

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