Following the negative sentiment during the Asian session, Europe is waking up to a red start for the stock markets. During the trade session, I expect declines in the banking sector, which was under the most intense pressure in the previous session.
Today, the session remains calm from economic news, with no important reports to turn to traders. The sentiment will be driven mainly by the high interest rates in the US, which remain a major source of uncertainty at the moment (excluding the trade war). The US economy is running at full speed, with unemployment at historically low levels - this may prompt the Fed to further raise interest rates in 2019.
Just how much more yields on government securities and interest rates will be raised is an open question. There is no way to know precisely, but over the last week, the volumes of the broadly traded ETFs linked to the bond market registered a growth in trading volumes. Optional activity is also increased. Not surprising. When risk-free assets such as bonds make a lot of movement, as we have noticed, traders are standing and recording. As 10-year bond yields are considered a benchmark for global debt, higher values mean that debt repayments for a whole range of companies also increase. In this way they have to spend more to finance their debts.
The yen is currently the strongest currency in the G-10, as the market is trying to make sense of the whole situation. EUR / JPY made the biggest move in percentage terms, dropping by 120 pips to 129.49. Technically, this downgrades wiped out all earnings since September and the pair has been unchanged since the beginning of August. What seemed like a potential breakthrough is already completely vaporized.
Indicative levels of opening of European indices
UKX - 7,244 - 14 points decrease
DAX - 11,972 - 5 points down
UKX - 5,313 - 6 points decrease
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