Analysts at Westpac explained that European sentiment was mostly poor, in line with Asia but with particular attention on Italy.
Key Quotes:
“US markets were partially closed (bonds/rates closed, equities open) for Columbus Day and there were no data releases in the US. Chinese related moves and concerns remained in focus, with the Shanghai Composite closing down -3.7% after the week-long holiday.”
“Currency markets weren’t as quiet as might have been expected given the thin calendar. EUR/USD fell from 1.1520 to 1.1460 – a two-month low. Italian politicians continued to talk tough with both deputy PMs Di Maio and then Salvini stressing that they would not alter their budget proposals. Salvini then accused Brussels/EU of being the real enemy of Europe in an attack on their continued austerity. Consequently Italian government bond yields rose, with 10yr yields up 17 basis points to 3.56% and 2yr yields up 24bps to 1.53%. The Milan bourse fell -2.3% versus Euro Stoxx -1.0%.”
“The Japanese yen was also lively: after quiet trade with Tokyo on holiday, USD/JPY fell as much as 1 yen to just above 112.80. The yen was strongest in the G10 over the day, in line with its safe haven status but it has been less sensitive to risk appetite in recent months.”
“AUD/USD held up well considering the poor risk mood, dipping briefly to another 2 ½ year low at 0.7041 before rebounding to 0.7080. NZD similarly bounced off a two-year low of 0.6425 to 0.6455. AUD/NZD rose further to 1.0975 – a three-week high. CAD and GBP were net little changed, but traded fairly wide ranges as the US dollar made broad gains, then faded.”
“The US treasury market was closed for the US holiday but futures traded, implying a pullback in yields from 3.25% to 3.21%. Fed fund futures yields continued to price the chance of another rate hike in December at 80%.”
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