London Session Forex Recap – Nov. 16, 2016

  • U.K. jobless rate: 4.8% vs. steady at 4.9% expected
  • U.K. claimant count change: 9.8K vs. 2.0K expected, 5.6K previous
  • U.K. average earning index (no bonus): 2.4% as expected vs. 2.3% previous
  • U.K. average earning index (w/ bonus): 2.3% vs. 2.4% expected, 2.3% previous
  • Swiss ZEW economic expectations: 8.9 vs. 5.2 previous

Risk aversion made a comeback during the morning London, so the yen and the Greenback were in demand while the higher-yielding Aussie and Kiwi got the boot.

Major Events/Reports:

U.K. jobs report – The most recent jobs report shows that the U.K.’s jobless rate ticked lower to 4.8% during the three months to September. This is great news because that’s the lowest reading since the three months to September 2005.

On a more downbeat note, average earning increased by 2.3%, which is the same pace as the previous period, but lower than the expected 2.4% increase. The slower increase was apparently due to smaller bonuses. If bonuses are stripped, then wages grew by 2.4%, which is within expectations and faster than the previous period’s +2.3%.

Another disappointment was the 9.8K increase in the number of people that were applying for unemployment-related benefits in October, since that’s much more than the expected 1.9K increase. Moreover, the previous month’s number of claimants was revised much higher from 0.7K to 5.6K.

SNB’s Jordan and Zurbruegg speak – SNB Chairman Thomas Jordan said during his annual meeting with the Swiss government that the Swiss franc is still “significantly overvalued” and that the SNB is ready as always to intervene in order to weaken the Swissy.

In a separate event in London, SNB Vice Chairman Fritz Zurbruegg said something similar. Specifically, he said that “Since last January, our monetary policy framework is based on two elements. The first is negative interest rates … and the second element, which is important to underscore, is a willingness to intervene on foreign exchange markets as necessary.” Zurbruegg then added that “we have proved in the past that we will do what is necessary to fulfill that.”

Fed Bullard speaks – In a London speech from earlier, St. Louis Fed President James Bullard said that “There were a lot of predictions that if the election went the way of Republicans and President-elect Donald Trump, then there would be great deal of volatility, but that has not materialized so far.”

As such, a “single policy-rate increase, possibly in December, may be sufficient to move monetary policy to a neutral setting.” Bullard also later said that “You’d have to have to have a surprise, I think, at this point” in order to stop a December rate increase.

Commodities carnage – Commodities were in high demand during the earlier Asian session. However, sentiment turned and commodities ended up broadly lower during the morning London session.

Precious metals were in the red, despite the risk-off mood.

  • Gold was down by 0.18% to $1,222.35 per troy ounce
  • Silver was down by 0.73% to $16.918 per troy ounce

Base metals were broadly in retreat.

  • Copper was down by 1.01% to $2.480 per pound
  • Nickel was down by 0.90% to $11,265.00 per dry metric ton

Oil benchmarks also got whupped.

  • U.S. crude oil was down by 1.62% to $45.07 per barrel
  • Brent crude oil was down by 1.43% to $46.28 per barrel

The Greenback’s recent strength is the likely reason for the broad-based commodities rout, with the U.S. dollar index up by 0.24% to 100.44 for the day (so far). For the newbies out there, globally-traded commodities are generally priced in Greenbacks, so a stronger U.S. dollar makes commodities relatively more expensive.

Anyhow, there were also individual reports for each commodity. Oil, for instance, was also weighed down by expectations of a buildup in U.S. oil inventories, according to some market analysts.

Risk aversion domination – The major European equity indices showed signs of strength earlier, but abruptly turned tail, ending up in negative territory by the end of the morning London session.

  • The pan-European FTSEurofirst 300 was down by 0.18% to 1,336.95
  • The blue-chip Euro Stoxx 50 was down by 0.63% to 3,033.00
  • Germany’s DAX was down by 0.58% to 10,673.00
  • The U.K.’s FTSE 100 was down by 0.66% to 6,749.00

U.S. equity futures were also under bearish pressure.

  • S&P 500 futures were down by 0.33% to 2,172.00
  • Nasdaq futures were down by 0.37% to 4,748.38

Market analysts pointed out that commodities gave mining and oil companies a boost earlier. The sudden return of risk aversion was therefore likely due to the plunge in commodities during the course of the session, as I already discussed earlier.

Major Market Movers:

USD & JPY – The Greenback and the Japanese yen (and the Swissy to a lesser extent), got a lot of love during the morning London session, likely because of the prevalence of risk aversion and the two currencies’ status as safe-havens. And in the case of the Greenback, hawkish rhetoric from Bullard likely provided extra lift.

USD/CAD was up by 36 pips (+0.27%) to 1.3480, USD/CHF was up by 19 pips (+0.19%) to 1.0041, USD/JPY was up by 12 pips (+0.11%) to 109.56

CHF/JPY was down by 10 pips (-0.10%) to 109.08, CAD/JPY was down by 15 pips (-0.18%) to 81.25, GBP/JPY was down by 37 pips (-0.27%) to 136.15

AUD & NZD – The risk-off environment and the broad-based commodities retreat did not bode well for the Aussie and the Kiwi, which are both higher-yielding comdolls.

AUD/USD was down by 55 pips (-0.74%) to 0.7469, AUD/JPY was down by 53 pips (-0.65%) to 81.82, AUD/CHF was down by 42 pips (-0.57%) to 0.7499

NZD/USD was down by 30 pips (-0.42%) to 0.7051, NZD/JPY was down by 27 pips (-0.36%) to 77.24, NZD/CHF was down by 19 pips (-0.26%) to 0.7080

Watch Out For:

  • 1:30 pm GMT: Headline (0.3% expected, same as previous) and core (0.2% expected, same as previous) readings for U.S. PPI
  • 1:30 pm GMT: Canadian manufacturing sales (0.1% expected, 0.9% previous)
  • 2:00 pm GMT: BOE Deputy Governor Jon Cunliffe has a speech
  • 2:15 pm GMT: U.S. capacity utilization (75.5% expected, 75.4% previous)
  • 2:15 pm GMT: U.S. industrial production (0.2% expected, 0.1% previous)
  • 2:30 pm GMT: U.K. CB leading index (0.0% previous)
  • 3:00 pm GMT: U.S. NAHB builders survey (63 expected, same as previous)
  • 3:30 pm GMT: U.S. crude oil inventories (0.4M expected, 2.4M previous)
  • 5:05 pm GMT: BOC Deputy Governor Timothy Lane will speak

See also:

Asian Session Recap

U.S. Session Recap

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