London Session Forex Recap – Nov. 17, 2016

  • Italian trade balance: €3.67B vs. €2.85B expected, €2.49B previous
  • U.K. retail sales m/m: 1.9% vs. 0.5% expected, 0.1% previous
  • U.K. retail sales y/y: 7.4% vs. 5.3% expected, 4.1% previous
  • Euro Zone final HICP y/y: unchanged at 0.5% as expected
  • Euro Zone final core HICP y/y: unchanged at 0.8% as expected

Price action was rather choppy, but the surge in U.K. retail sales gave the pound a bullish boost. Other than that, the prevalence of risk aversion likely supported the euro while dampening demand for the higher-yielding Kiwi.

Major Events/Reports:

U.K. retail sales surge – The headline reading for retail sales volume in the U.K. surged by 1.9% month-on-month in October. The increase is substantially larger compared to the consensus reading of +0.5%. Also, this is the biggest month-on-month increase in three months. Even better, the reading for September was revised higher from 0.0% to +0.1%. Year-on-year, retail sales jumped by 7.4%, soundly beating expectations of a 5.3% increase. Moreover, the jump is the biggest since April 2002.

The details of the retail sales report show that the increase in sales volume was broad-based, with all retail store types reporting increases, excepting department stores. However, the surge was due mainly to the 5.1% increase in sales from textiles, clothing, and footwear stores, which accounted for about 12.5% of total sales.

ECB’s Mersch speaks – ECB Executive Board Member Yves Mersch was on the wires earlier, and he said that:

“The size of the purchase program means that will take some time, but a permanent commitment to our bond-buying, for example, would set the wrong incentives for government financing.”

In simpler terms, Mersch favors winding down the ECB’s QE program, contrary to expectations that the ECB would be extending its QE program during the December monetary policy decision. Mersch also said that “It could be that we expect an inflation rate at the 2019 horizon that is very near to our price-stability goal of almost 2 percent.”

ECB meeting minutes – Mersch may have been in favor of winding down the ECB’s QE program, but the minutes of the October ECB meeting revealed that most ECB officials seem to favor extending QE.

“All in all, members widely shared the view that it was imperative to remain fully committed to preserving the very substantial degree of monetary accommodation that was necessary to secure a sustained convergence of inflation towards levels below, but close to, 2% over the medium term.”

To be fair, though, the ECB did say that it was essentially in wait-and-see mode until it gets the latest batch of data, as you can read below (emphasis mine):

Members widely agreed that in December the Governing Council would be in a better position to form a firmer view on the inflation outlook and the progress being made in achieving a sustained adjustment in the path of inflation, with a view to considering the appropriate implications for the monetary policy stance. In December the Governing Council would have the benefit of the latest incoming data, the new Eurosystem staff macroeconomic projections extending through to 2019 and the results of the work of the Eurosystem committees on the options to ensure the smooth implementation of the APP until March 2017, or beyond, if necessary.”

Commodities resurrectedCommodities got rejuvenated during today’s morning London session after yesterday’s bloodbath.

Precious metals were in demand.

  • Gold was up by 0.42% to $1,229.00 per troy ounce
  • Silver was up by 0.51% to $17.103 per troy ounce

Base metals were mixed, but mostly higher.

  • Copper was up by 0.30% to $2.475 per pound
  • Tin was up by 1.12% to $20,152.50 per dry metric ton

Oil benchmarks got a lot of love.

  • U.S. crude oil was up by 1.56% to $46.28 per barrel
  • Brent crude oil was up by 1.67% to $47.41 per barrel

The broad-based recovery was likely due to the slight dip in the Greenback, with the U.S. dollar index down by 0.15% to 100.23 for the day. Although the risk-off mood likely sent safe-haven flows towards precious metals as well. After all, precious metals like gold are considered as traditional safe-havens.

Oil, meanwhile, got an extra boost from renewed speculation that OPEC’s planned production cut would be awesome, some market analysts say. As for base metals, there were no clear catalysts, so market analysts pointed to Greenback weakness.

Slight risk aversion – The major European equity indices had a repeat performance of yesterday’s price action, since they first showed signs of strength at the onset, but were down in the red by the end of the morning London session.

  • The pan-European FTSEurofirst 300 was down by 0.03% to 1,336.18
  • The blue-chip Euro Stoxx 50 was down by 0.15% to 3,024.50
  • Germany’s DAX was down by 0.28% to 10,634.25

Market analysts blamed the risk-off vibes to another day of profit-taking, with banking shares getting the worst of it.

Major Market Movers:

GBP – The pound showed signs of strength when the morning London session rolled around. However, it really got a lot of love when the U.K.’s retail sales report came in significantly better-than-expected.

GBP/USD was up by 24 pips (+0.20%) to 1.2476, GBP/AUD was up by 44 pips (+0.27%) to 1.6706, GBP/NZD was up by 70 pips (+0.40%) to 1.7613

EUR – The euro was the second-strongest during the morning London session, probably because of the risk-off environment.

EUR/USD was up by 5 pips (+0.05%) to 1.0719, EUR/AUD was up by 15 pips (+0.10%) to 1.4352, EUR/NZD was up by 34 pips (+0.23%) to 1.5128

NZD – The risk-off mood dampened demand for the higher-yielding Kiwi, so much so that it ended up as the weakest currency of the session.

NZD/USD was down by 14 pips (-0.21%) to 0.7082, NZD/CAD was down by 19 pips (-0.20%) to 0.9507, NZD/CHF was down by 8 pips (-0.12%) to 0.7096

Watch Out For:

  • 1:30 pm GMT: U.S. initial jobless claims (257K expected, 254K previous)
  • 1:30 pm GMT: U.S. Philadelphia Fed Survey (7.8 expected, 9.7 previous)
  • 1:30 pm GMT: Headline (0.4% expected, 0.3% previous) and core (0.2% expected, 0.1% previous) readings for U.S. CPI
  • 1:30 pm GMT: U.S. building permits (1.19M expected, 1.23M previous)
  • 1:30 pm GMT: U.S. housing starts (1.16M expected, 1.05M previous)
  • 1:50 pm GMT: New York Fed President William Dudley will deliver a short speech
  • 3:00 pm GMT: U.S. Fed Chair Janet Yellen will testify before the Joint Economic Committee
  • 3:30 pm GMT: BOC semi-annual review will be released
  • 5:30 pm GMT: Fed Governor Lael Brainard is scheduled to speak

See also:

Asian Session Recap

U.S. Session Recap

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