Market Drivers October 23, 2018
Equities down accross the board
German PPI hotter
Nikkei-2.67% Dax -2.25%
Europe and Asia:
EUR GE PPI 0.5% vs. 0.3%
Risk off was the dominant theme in overnight trade with USDJPY taking the brunt of the punishment as the pair slipped to 112.30 from high of 112.78 at yesterday’s NY close.
Both Nikkei and DAX were off by more than -2% and US equity futures indicated a down open of more than -1%. US indices now stand at key support levels with both the Dow and the S&P hovering near the 200 day SMA and the DOW flirting with the psychologically important 25,000 level. A break to the downside would almost surely precipitate further declines in USDJPY with 112.00 figure in view and likely a test of 111.50 before end of the day.
The dollar, which was initially stronger at the start of EU trade gave up its gains as the counterintuitive but now familiar dynamic of selling off into risk-off flows continued into London morning. Cable popped nearly to 1.3000 while EURUSD staved off a run to 1.1450 and tried to push back towards 1.1500.
Although the situation with Italy remains unresolved the rhetoric from both sides has cooled considerably and Brussels and Rome are likely to some sort of a compromise. That, in turn, is likely to keep Mr. Draghi resolutely hawkish at the ECB meeting this Thursday. The ECB is eager to wrap up QE and return to normalizing policy and views the current flare-ups in Italy and the slowdown in trade as minor factors in its broader theme to return to traditional monetary policy. Today’s German PPI data only boosts its case as it showed that wholesale inflation is now running at a steady 3% annual rate and all deflationary pressures have disappeared from the system.
With no data on the docket, today equities will drive the show in FX with dollar likely losing more ground all across the board if stocks breach key levels as the day progresses.