Article Highlights

  • Swiss SECO consumer climate: -15 vs. -12 expected, -14 previous
  • U.K. manufacturing PMI: 49.2 vs. 51.2 expected, 50.7 previous
  • Euro Zone PPI m/m: 0.3% vs. -0.1% expected, -0.7% previous
  • Euro Zone PPI y/y: -4.2% vs. -4.6% expected, -4.2% previous
  • Dairy auction currently underway
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Risk aversion was the name of the game during today’s morning London session, so the safe-havens curb-stomped the higher-yielders, especially the comdolls. The pound, meanwhile, was kicked lower because of a very poor manufacturing PMI reading.

Major Events/Reports:

Poor U.K. manufacturing PMI – Markit’s U.K. manufacturing PMI reading in April came in at 49.2, which is severe disappointment since it was expected to increase from 50.7 to 51.2. Also, this is the first contractionary reading since March 2013 and the lowest reading since February 2013.

Commentary from the U.K. PMI report noted that the “weakening performance of the manufacturing economy was mainly felt in the consumer and investment goods sectors, with both registering declines in production and new work received.”

New export orders also declined for the fourth consecutive month and the same can be said for payroll numbers. In addition, “input costs fell at the slowest pace since June 2015, while the rate of decline in selling prices was only marginal and the weakest in the current eight-month sequence of reduction,” which is bad news for the United Kingdom’s inflation problems.

Base metals crushed – Base metals extended their losses during the morning London session, with copper down by 1.57% to $2.231 per pound while iron ore with 62% content was down by 3.35% to $60.65 per dry metric ton by the end of the session.

The base metals slump was likely because of the the poor Chinese manufacturing PMI reading from earlier, which means less demand for commodities. Market analysts also pointed to higher Chinese iron ore inventory levels as one of the reasons for the large slump in iron ore prices.

Oil drops – Oil benchmarks were in the red during the morning London session, with U.S. crude oil down by 1.36% to $44.17 per barrel and Brent crude oil down by 1.07% to $45.34 per barrel near the end of the session.

Market analysts attributed the retreating oil prices to renewed oversupply jitters due to higher oil output from OPEC members and projections that daily oil output from the North Sea is expected to increase to a four-month high by June.

Gloomy risk sentiment – Risk aversion returned to European markets during today’s morning London session, with the pan-European FTSEurofirst 300 down by 1.57% to 1,321.20 and the DAX down by 1.81% to 9,940.00 near the end of the session.

U.S. equity futures were also dragged lower, with the S&P 500 futures down by 0.71% to 2,059.50 and the Nasdaq futures down by 0.80% to 4,334.12 during the morning London session while the safe-haven gold was slightly up by 0.15% to $1,297.75 per troy ounce.

The downbeat sentiment was very likely due to the slide in base metals since market analysts were pointing out that European mining companies were the main losers.

Major Currency Movers:

CHF – The risk-off environment during the morning London session naturally meant that safe-haven currencies (USD. JPY, CHF) were getting some love from forex traders during the morning London session, with the Swissy getting the most love because it was the top dog of the session. Interestingly enough, the Swissy just shrugged off the poor reading for Switzerland’s SECO consumer climate, as well as SNB Jordan’s comments that the Swissy is “significantly overvalued.”

USD/CHF was down by 36 pips (-0.39%) to 0.9478, EUR/CHF was down by 27 pips (-0.25%) to 1.0976, CAD/CHF was down by 83 pips (-1.10%) to 0.7539

CAD – All the higher-yielding comdolls (CAD, AUD, NZD) were feeling some bearish pressure during the morning London session, thanks to the prevailing risk-off sentiment. Among the comdolls, the Loonie was particularly weak and even ended up being the weakest currency during the session, probably because of the decline in oil prices.

USD/CAD was up by 105 pips (+0.85%) to 1.2584, EUR/CAD was up by 129 pips (+0.90%) to 1.4561, GBP/CAD was up by 22 pips (+0.12%) to 1.8410

EUR – The squeeze on European equities during the morning London session probably sent capital flows towards the lower-yielding euro since the euro was mostly up during the morning London session.

EUR/AUD was up by 64 pips (+0.42%) to 1.5295, EUR/NZD was up by 83 pips (+0.50%) to 1.6560, EUR/GBP was up by 56 pips (+0.72%) to 0.7904

GBP – Pound pairs had a mixed performance at the start of the morning London session, but began to uniformly move lower after Markit released its very disappointing U.K. manufacturing PMI report.

GBP/USD was down by 104 pips (-0.71%) to 1.4629, GBP/JPY was down by 101 pips (-0.66%) to 154.87, GBP/CHF was down by 135 pips (-0.96%) to 1.3883

Watch Out For:

  • 2:00 pm GMT: U.S. IBD consumer optimism (46.5 expected, 46.3 previous)
  • 2:30 pm GMT: Cleveland Fed President Loretta Mester will share his views in a panel discussion
  • 4:30 pm GMT: BOC Governor Stephen Poloz will be joining a panel discussion
  • 8:00 pm GMT: U.S. total vehicle sales (17.3M expected 16.6M previous)
  • Dairy auction currently underway (3.8% previous); auction usually ends at around 2:00 pm GMT

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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