US stock markets

A lack of liquidity is the main characteristic of today’s session, with Japan on holiday and the U.S. bond market on a break. China’s central bank moved on Sunday to support the economy by slashing the level of cash that banks must hold as reserves, as a measure to help the economy, with the drag from an escalating trade dispute with the United States. In Europe the markets are focusing on Brexit and Italy headlines.

The European Commission is not happy with Italy’s budget deficit plans as they breach what the EU asked the country to do in July. Meanwhile, Rome made it clear on Saturday that it would “not retreat” from its spending plans. As a result, the Italian yields could rise, dragging the EUR/USD below 1.15 levels.

Brexit optimism and weaker-than-expected non-farm payrolls, put a bid under the GBP on Friday. The bullish sentiment extended over the weekend, with the EU’s Juncker saying no-deal is not an option and Tusk saying a deal is possible by the end of 2018.

USD/JPY inched ahead to 113.90 after topping out at 114.55 last week, the highest since November last year. The pair will likely pick up a bid in Europe if the stocks respond positively to China’s rate cut. Further, the prospects of an above-forecast US inflation reading are high, courtesy of the oil price rally to four-year highs. Hence, there is little scope for a deeper pullback in the treasury yields and the USD/JPY.

U.S. WTI oil futures are trading lower early Monday after a U.S. government official said the Trump administration was considering granting waivers to its sanctions against Iran’s crude exports which are scheduled to begin on November 4. Additionally, a report that Saudi Arabia stands ready to replace any potential shortfall from Iran also weighed on prices. For weeks, crude oil has been underpinned and driven higher by U.S. sanctions set to target Iran’s crude oil exports during the first week in November, and the Trump administration has been leaning on governments and global companies to cut their imports to zero.

Gold is losing altitude in Asia, as the People’s Bank of China (PBOC) said on Sunday that would cut the amount of cash that banks must hold as the reserve to lower financing costs and spur growth in the world’s second-biggest economy. Interest rate cuts usually put a bid under gold, however it seems that the PBOC’s decision to cut rates for the fourth time in 2018, wasn’t well received by gold markets.