Financial Markets Flatline Ahead of ECB and Fed Meetings

The financial markets mostly flat-lined on Tuesday as investors had a limited reaction to fresh U.S. economic data ahead of two key central bank meetings. Traders also digested the impact of the Italian referendum which didn’t change much in the markets on Monday. Traders said that was because the vote was essentially for the prime minister which carried less weight than voting to leave the European Union, for example.

Italian banks could start to face some issues. According to the Financial Times, Italy’s Banca Monte dei Paschi di Siena has been told to prepare for a state bailout on reports that a key investor is reconsidering whether to contribute to a 5 billion Euro capitalization. Its shares fell more than 3.5 percent on Tuesday.

Economic Data

Canada’s trade deficit narrowed dramatically in October. Statistics Canada reported Tuesday that the country’s trade deficit was an estimated $1.1 billion in the month, the smallest in nine months, down from the record $4.4 billion in September. The deficit was smaller than economists’ consensus expectation of $1.7 billion. Traders don’t believe the move was based on an improving economy but rather a single large one-time factor.

In New Zealand, the GDT recorded a 3.5% increase at this week’s auction versus the previous 4.5%.

The EUR/USD traded flat to lower as investors failed to support yesterday’s dramatic turnaround to the upside. Today, German Factor Orders came in at 4.9%, up from the previous -0.3% and better than the 0.6% estimate.

In the U.S., Third-quarter U.S. productivity rose at an annualized rate of 3.1 percent, according to the U.S. Labor Department. Additionally, the U.S. trade deficit widened to $42.6 billion. Finally, Factory Orders rose 2.7 percent, slightly above a 2.6 percent estimate.

U.S. Treasurys

U.S. Treasury yields were mixed on Monday. The benchmark 10-year Note retreated to 2.3896 percent, while the two-year note yield rose to 1.12 percent. Nonetheless, the U.S. Dollar was able to recapture some of its loss from earlier in the week.

Crude Oil

Crude prices retreated on Tuesday as investors lightened up long positions after last week’s steep rally. Brent crude continues to outperform the U.S. WTI contract with the spread between the two, rising to $2.29 a barrel, its highest since August.

Investors are also expressing concerns that the Persian Gulf nations will be left with most of the burden of controlling support. The concern is being raised as Russian output rises ahead of the production cut.