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WTI oil bounced from new low at $52.76 (the lowest since late Oct 2017) on Wednesday, after falling nearly 7% on Tuesday (the biggest one-day fall in Nov). Tuesday's fresh bearish acceleration completed short-lived $54.74/$58.14 correction and signaled continuation of broader downtrend. Oil prices remain under strong pressure on global oversupply concerns and fears on signs of global growth slowdown, which could have negative impact on demand. Adding to negative outlook was rise in output, as the US became top producer with daily output at record 11.5 million bpd, with little help seen so far from talk about output cut by the biggest world oil producers. Today's bounce was inspired by profit-taking, surprise fall of US crude stocks (API report showed draw of 1.5 million barrels after previous week's build of 8.7 million barrels) and statement from US President Trump in which he signaled that the US won't take stronger action against Saudi Arabia over the case of murdered Saudi journalist. However, outlook remains weak as key factors that keep oil price pressured continue to dominate, along with rising uncertainty in oil market due to economic environment as well as political risk. EIA Crude Stocks report is in focus today (2.5 mln bls build f/c vs 10.2 mln bls build last week) which could further boost oil prices on surprise, while release at above forecast would bring oil prices under renewed pressure. Extended recovery needs to stay below falling 10SMA ($56.95) to keep bears intact for fresh downside which could stretch towards psychological $50 support. Only sustained break above 10SMA would provide temporary relief and signal stronger recovery.

Res: 54.83; 55.26; 56.96; 58.14
Sup: 53.38; 52.76; 51.98; 50.26

Markets

Global core bonds edged lower today as risk sentiment improved. This morning, Asian markets initially continued recent slide but most indices paired losses throughout the day. It preluded the improvement of risk sentiment, as European equities are currently reaping gains as well. US markets opened in green too. The Brexit storm eased, at least temporary. Investors’ focus shifted to the European Commission opinion on EMU countries budget proposals. Naturally, Italy was the protagonist. Italian BTP’s opened higher on Italian media reporting that Deputy PM Salvini may be open to revise the 2019 budget. Salvini later specified the budget stays as it is and only little tweaks are possible, causing BTP’s to pair some of it gains. At noon, the European Commission rejected, as expected, the Italian budget and stated that the ‘Excessive Debt Procedure’ (EDP) on Italy is warranted. Italian BTP’s gained on the news in a “sell the rumour, buy the news” practice. US Treasuries edged cautiously lower as risk improved across the board but paired most of the losses after lunch. Disappointing US data (Durable Goods Orders) had little impact on trading. The US yield curve shifts higher with changes around +0.8 bps. German yields also gain modest ground ranging from +0.9 bps (2-yr) to +1.4 bps (10-yr). Spreads over the German 10-yr yield decline with Italy (-11 bps) outperforming. Greece (-4 bps) and Spain (-4 bps) are also performing well.

EUR/USD trading faced conflicting drivers today. Finally the pair held a slightly upward intraday bias. A better global sentiment helped to put a floor for EUR/USD in the 1.1365/1.1380 area this morning. The EU taking first steps for an excessive debt procedure gains Italy weighed on the euro. However, Italian spreads gradually narrowed as investors saw tentative signs that the EU and Italy might look for some common ground as the procedure continues. EUR/USD reversed a temporary dip and tried to extend gains north of 1.14. US durable goods orders disappointed but were of minor importance for USD trading. Interest rate differentials between the US and Germany/EMU also didn’t change much. US markets preparing for the Thanksgiving holiday probably weighed on activity and prevented investors to place big directional bets. EUR/USD hovers in the low 1.14 area. USD/JPY tried to regain the 113 big figure, but struggles to maintain the intraday gains.

Sterling declined against a broadly stronger dollar but stabilized against the euro yesterday. Sterling trading again developed in some kind of wait-and-see pattern today. PM May returned to Brussels trying to make progress in reaching a deal on the future EU/UK relationship. At home she tries to convince hardline Brexiteers that voting down her deal in the end might result in no Brexit at all. However, there was too little concrete news to inspire investors to take GBP positions in one way or another. UK October public finance data were weak, but were also ignored. EUR/GBP is gaining a few ticks in line with EUR/USD, changing hands just north of 0.89. Cable is going nowhere in the in the 1.28 area.

News Headlines

Italy’s retail bond sale proved disappointing as the auction is nearing its end. Private demand has been less than €1bn so far compared to €4bn historically. According to the director-general of Italy’s debt management office the latest bout of volatility in yields is to blame. The auction is also rather ill-timed as the EC formally took the first steps in the “excessive deficit procedure” against Italy today.

US durable goods orders disappointed in October. The headline series declined -4.4% MoM vs. -2.6% expected due to weakness in the transportation category (aircraft). The recovery of core measures (shipments 0.3% MoM as expected) wasn’t convincing either as they are offset by downward revisions of September data.

Daily Pivots: (S1) 1.1411; (P) 1.1438; (R1) 1.1482; More.....

Intraday bias in EUR/USD remains neutral first. Also, overall outlook remains bearish with 1.1499 resistance intact. On the downside, break of 1.1358 minor support should bring retest of 1.1215 low first. Break will resume medium term down trend. However, on the upside, firm break of 1.1499 will indicate near term reversal and turn outlook bullish for 1.1814 resistance again.

In the bigger picture, down trend from 1.2555 medium term top has just resumed and should target 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. On the upside, break of 1.1814 resistance is now needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of strong rebound.

Daily Pivots: (S1) 1.2802; (P) 1.2843; (R1) 1.2891; More...

No change in GBP/USD's outlook. Intraday bias stays neutral first. Also, price actions from 1.2661 are viewed as a consolidation pattern. Break of 1.2692 will bring retest of 1.2661 first. Firm break there will resume the larger down trend from 1.4376. On the upside, sustained break of 4 hour 55 EMA (now at 1.2885) could extend the consolidation with another rise. But even in case of strong rally, upside should be limited by 1.3316 fibonacci level to bring down trend resumption eventually.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA. The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend. And this will be the preferred case as long as 38.2% retracement of 1.4376 to 1.2661 at 1.3316 holds. However, firm break of 1.3316 would bring stronger rebound to 61.8% retracement at 1.3721. And, the eventual depth of the fall from 1.4376, and the chance of hitting 1.1946 low, will depend on the strength of the interim corrective rebound from 1.2661.

Daily Pivots: (S1) 0.9920; (P) 0.9939; (R1) 0.9970; More...

Intraday bias in USD/CHF remains neutral first. Another fall could be seen with 1.0006 minor support intact. Break of 38.2% retracement of 0.9541 to 1.0128 at 0.9904 will target 0.9848 key support level. On the upside, above 1.0006 minor resistance will indicate that the pull back has completed. Intraday bias will be turned back to the upside for retesting 1.0128 high.

In the bigger picture, the pullback from 1.0067 has completed at 0.9541 already. And rise from 0.9186 is likely resuming. Firm break of 1.0067 will pave the way to retest 1.0342 key resistance. We'd be cautious on strong resistance from there to limit upside to bring another medium term fall to extend long term range trading. However, break of 0.9848 near term support will dampen this view and bring deeper decline back to 0.9541 support and possibly below.

The Canadian dollar has steadied in the Wednesday session, after suffering sharp losses on Tuesday. USD/CAD is trading at 1.3292, down 0.07% on the day. On the release front, Canadian Wholesale Sales declined 0.5%, marking its third decline in four releases. In the U.S, core durable goods orders remained pegged at 0.1%, shy of the estimate of 0.4%. Durable goods orders were dismal, with a sharp decline of 4.4%, compared to the estimate of -2.2%. This was the sharpest drop since August 2017. On Thursday, Canada releases corporate profits and the Bank of Canda financial system review.

A sharp fall in technological stocks on Wednesday sent the Canadian dollar reeling. A staggering trillion dollars were wiped off the balance sheets, and investors responded by dumping risk assets like the Canadian currency. USD/CAD jumped 1.03% on Wednesday, as the pair punched above the 1.33 level for the first time since late June. The nagging U.S-China trade dispute has taken a bite out of both economies, and investors are concerned that the conflict will dampen the current economic expansion. Both the Dow Jones and S&P 500 indices gave up their year-to-date gains, and further corrections in global equity markets could mean more headwinds for the wobbly Canadian dollar.

There had been hopes that the U.S might ease up on the rhetoric against China, but those hopes were dashed on Sunday, at an Asian-Pacific summit in Papua New Guinea. The meeting ended in discord, with leaders unable to agree on a final communique. U.S Vice President Mike Pence, who headed the U.S. delegation, was blunt in his remarks, saying that China would have to drastically change its trade practices before the U.S. would remove current tariffs on $250 billion in Chinese goods.

Daily Pivots: (S1) 112.39; (P) 112.61; (R1) 112.97; More..

USD/JPY breached 113.09 resistance briefly but failed to sustain above yet. Intraday bias stays neutral first. Another fall is mildly in favor. On the downside, below 112.30 will resume the fall from 114.20 to 111.37 support. Such decline is seen as the third leg of the consolidation pattern from 114.54. Downside should be contained by 38.2% retracement of 104.62 to 114.54 at 110.75 to bring rebound. On the upside, firm break of 113.03 minor resistance will turn bias back to the upside for 114.54/73 key resistance zone.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.76 support holds. However, decisive break of 109.76 will dampen this bullish view and turns outlook mixed again.

Overall, market sentiments stabilized today as started in Asian session. With the help of rebound in Asian and strengthen Europe, US stocks are set to open higher to pare some of yesterday's steep losses. As a result, New Zealand and Australian Dollar are the strongest ones for today so far, followed by Euro. The common currency is rather resilient today even though European Commission has started step one in preparation for disciplinary action on Italy over its budget. On the other hand, Yen turns weaker, followed by Dollar and then Sterling. The greenback is weighed further down by disappointing US data.

Technically, despite breaching 113.09 minor resistance, USD/JPY quickly retreats. EUR/USD also recovers back above 1.14. For now, there is no sign of a sustainable comeback in Dollar yet. Indeed, AUD/USD is now quietly turning focus back to 0.7314 key resistance. Sustained break there will carry medium term bullish implications.

In Europe, at the time of writing, FTSE is up 1.10%, DAX is up 0.98%, CAC is up 0.56%. German 10 year yield is up 0.0094 at 0.364. Italy 10 year yield is down -0.111 at 3.507. German-Italian spread remains above 310. In Asia, Nikkei close down -0.35%. But Hong Kong HSI, China Shanghai SSE and Singapore Strait Times were all up, by 0.51%, 0.21% and 0.39% respectively. Japan 10 year JGB yield dropped -0.0094 to 0.094, back below 0.1%.

US initial jobless claims rose to 224k, durables dropped -4.4%

Initial jobless claims rose 3k to 224k in the week ended November 17, above expectation of 215k. Four-week moving average of initial claims rose 2k to 218.5k. Continuing claims dropped -2k to 1.668M in the week ended November 10. Four-week moving average of continuing claims rose 7.5k to 1.650M. Headline durable goods orders dropped sharply by -4.4% in October, missed expectation of -2.5%. Ex-transport orders rose just 0.1%, missed expectation of 0.4% too.

Also released today, Canada wholesale sales dropped -0.5% mom in September. UK public sector net borrowing jumped GBP 8B in October. Australia Westpac leading index rose 0.1% mom in October. Japan all industry activity index dropped -0.9% mom.

European Commission: Italy's 2019 budget a serious case of non-compliance, Excessive Deficit Procedure warranted

The European Commission confirms in a statement today the "existence of a particularly serious case of non-compliance" with EU's recommendation in Italy's Draft Budget Plan. The Commission has "carried out a new assessment of the prima facie lack of compliance with the debt criterion The new assessment was necessary because "Italy's fiscal plans for 2019 represent a material change in the relevant factors analysed by the Commission last May."

The Commission also noted that (i) the fact that macroeconomic conditions, despite recently intensified downside risks, cannot be argued to explain Italy's large gaps to compliance with the debt reduction benchmark, given nominal GDP growth above 2% since 2016; (ii) the fact that the government plans imply a marked backtracking on past growth-enhancing structural reforms, in particular the past pension reforms; and above all (iii) the identified risk of significant deviation from the recommended adjustment path towards the medium-term budgetary objective in 2018 and the particularly serious non-compliance for 2019 with the recommendation addressed to Italy by the Council on 13 July 2018, based on both the government plans and the Commission 2018 autumn forecast.

European Commission Vice President Valdis Dombrovskis confirmed debt criterion should be considered as not complied and a "debt-based Excessive Deficit Procedure is thus warranted" for Italy. He emphasized that "Euro area countries are in the same team and should be playing by the same rules." And, "these rules are there to protect us. They provide certainty, stability and mutual trust."

Economics commissioner Pierre Moscovici tweeted that "Today is not yet the opening of an EDP. First the Member States must give their views within two weeks, then the @EU_Commission will have to prepare the procedure, including a new recommendation for Italy to correct its deficit and debt trajectory." Also, "Our door remains open to dialogue with Italy. As we move closer to opening an Excessive Deficit Procedure, it is even more essential that the Italian authorities engage constructively with the @EU_Commission."

Italian Prime Minister Giuseppe Conte insisted that the 2019 budget is "excellent". He's expected to meet European Commission President Jean-Claude Juncker on Saturday. Conte added "during the course of the conversation we will finally have the chance to talk in detail and fully explain this budget."

Italy Istat lowers 2018 and 2019 GDP forecasts

Italy's Istat, National Institute of Statistics, revised down both 2018 and 2019 GDP growth forecasts. For 2018, growth is projected to be at 1.1%, down from May's forecast of 1.4%. For 2019, growth is projected to be at 1.3%. Istat noted that "this projections take into account the less favourable international framework and the expansionary fiscal policies implemented in the 2018 Budget Law."

Istat's forecast for 2019 is notably lower than the coalition government's overly optimistic 1.5%. But it's higher than European Commission's 1.2% and IMF's 1.0%. GDP forecast is a key figure in Italy's draft budget plan.

USTR: China has not fundamentally altered its unfair practices

The US Trade Representative released an update on Section 301 IP investigation on China yesterday. Less than two weeks ahead of the Trump-Xi meeting as sideline of G20 summit in Argentina, USTR is piling more pressure on China for reforms. In short, the report complained that "China has not fundamentally altered its unfair, unreasonable, and market-distorting practices that were the subject of the March 2018 report on our Section 301 investigation."

The report also noted that "despite repeated U.S. engagement efforts and international admonishments of its trade technology transfer policies, China did not respond constructively and failed to take any substantive actions to address U.S. concerns." And, China, "made clear – both in public statements and in government-to-government communications – that it would not change its policies in response to the initial Section 301 action." The report also said "China largely denied there were problems with respect to its policies involving technology transfer and intellectual property".

OECD: Growth peaked, prepare for soft landing, and beware of trade war

OECD said in a report released today that global growth has already peaked and it's now set for a "soft landing". And, the global economy is navigating "rough seas" with "downside risks abound". It also noted that "policy makers will have to steer their economies carefully towards sustainable, albeit slower, GDP growth." The organization also pointed out that "global trade and investment have been slowing on the back of increases in bilateral tariffs while many emerging market economies are experiencing capital outflows and a weakening of their currencies". OECD also warned that " accumulation of risks could create the conditions for a harder-than-expected landing". And the risks include firstly, further trade tensions, secondly, tightening financial conditions and thirdly, a sharp slowdown in China.

For 2019, global growth forecasts was revised down to 3.5% and stay there in 2020. US growth was left unchanged at 2.7% in 2019 and then slow to 2.1% in 2020. Eurozone growth was revised down to 1.8% in 2019 then slow further to 1.6% in 2020. Japan growth would accelerate to 1.0% in 2019, an upward revision, but slow to 0.7% in 2020. China's growth is projected t slow to 6.3% in 2019, downwardly revised, and then further to 6.0% in 2020.

OECD Secretary-General Angel Gurría warned that "trade conflicts and political uncertainty are adding to the difficulties governments face in ensuring that economic growth remains strong, sustainable and inclusive." And, "we urge policy-makers to help restore confidence in the international rules-based trading system and to implement reforms that boost growth and raise living standards – particularly for the most vulnerable."

According to OECD, trade tensions have already shaved between 0.1-0.2% from global GDP this year. If US raise tariffs on all Chinese goods to 25%, world economy growth could fall to just 3.0% in 2020, no more 3.5%. And, growth in the US could drop by -0.8% and by -0.6% in China.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 112.39; (P) 112.61; (R1) 112.97; More..

USD/JPY breached 113.09 resistance briefly but failed to sustain above yet. Intraday bias stays neutral first. Another fall is mildly in favor. On the downside, below 112.30 will resume the fall from 114.20 to 111.37 support. Such decline is seen as the third leg of the consolidation pattern from 114.54. Downside should be contained by 38.2% retracement of 104.62 to 114.54 at 110.75 to bring rebound. On the upside, firm break of 113.03 minor resistance will turn bias back to the upside for 114.54/73 key resistance zone.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.76 support holds. However, decisive break of 109.76 will dampen this bullish view and turns outlook mixed again.

Economic Indicators Update

Initial jobless claims rose 3k to 224k in the week ended November 17, above expectation of 215k. Four-week moving average of initial claims rose 2k to 218.5k.

Continuing claims dropped -2k to 1.668M in the week ended November 10. Four-week moving average of continuing claims rose 7.5k to 1.650M.

Headline durable goods orders dropped sharply by -4.4% in October, missed expectation of -2.5%. Ex-transport orders rose just 0.1%, missed expectation of 0.4% too.

Dollar trades notably lower after the releases.

Risk sentiments stabilized today. The sharp decline in US stocks yesterday triggered initial selling in Asia. But major Asia indices quickly found footing and reversed. Positive mood carried through to European markets. As a result, Yen and Swiss Franc turn softer, and Dollar follows. New Zealand and Australian Dollar rebound.

Euro is so far very resilient even though the European Commission finally declared that disciplinary action is warranted against Italy. It was lifted by rumors that Italian Salvini could compromise on the budget, but it's then quickly denied. The Pound is mixed as UK PM Theresa May is set to meet European Commission President Jean-Claude Juncker on post Brexit political relationship.

For the week, Swiss Franc remains the strongest one, followed by Dollar and then Sterling. Australia, Canadian and New Zealand Dollar are the weakest.

In Europe, at the time of writing:

• FTSE is up 0.83%
• DAX is up 0.72%
• CAC is up 0.35%
• German 10-year yield up 0.016 at 0.371, still way off 0.4
• Italian 10-year yield is down -0.099 at 3.519. German-Italian spread is around 315.

Earlier in Asia:

• Nikkei closed down -0.35% at 21507.54, but
• Hong Kong HSI rose 0.51% to 25971.47
• China Shanghai SSE rose 0.21% to 2651.51
• Singapore Strait Times rose 0.39% to 3038.65
• Japan 10-year JGB yield dropped -0.0094 to 0.094, back below 0.1%