Article Highlights

  • Swiss jobless rate: steady at 3.3% as expected
  • French budget balance: -€61.8B vs. -€65.7B previous
  • Japanese preliminary machine tool orders y/y: -19.6% vs. -19.9% previous
  • German trade balance: €21.7B vs. €23.2B expected, €22.1B previous
  • U.K. industrial production m/m: 0.1% as expected vs. -0.6% previous
  • U.K. industrial production y/y: 1.6% as expected vs. 1.4% previous
  • U.K. manufacturing production m/m: -0.3% vs. -0.2% expected -0.6% previous
  • U.K. manufacturing production y/y: 0.9% vs. 1.3% expected, 1.5% previous
  • U.K. trade balance: -£12.4B vs. -£9.6B expected, -£11.5B previous
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The pound got another round of pounding during the morning London session, thanks to earlier dovish comments from BOE McCafferty and disappointing trade data.

Major Events/Reports:

Positive U.K. production numbers – As expected, industrial production in the U.K. increased by 0.1% month-on-month and by 1.6% year-on-year during the June period. Both the monthly and the annual readings were able to beat their previous readings of -0.6% and +1.4% respectively, which is great.

However, manufacturing output contracts by 0.3% month-on-month, which is worse than the expected 0.2% contraction but better than the 0.6% decline back in May.

Still, total industrial output for all the Q2 months showed a 2.1% increase over the Q1 months. This is unchanged from the preliminary estimate that was plugged into the preliminary Q2 U.K. GDP reading, so no impact to the Q2 GDP reading is expected.

U.K. trade disappoints – Industrial production may not have a negative impact on Q2 GDP, but the U.K.’s wider-than-expected deficit likely will.

The U.K.’s June trade deficit widened from £11.5 billion to £12.4 billion, which is a real downer since it was expected to narrow to £9.6B. The trade deficit in June, the last Q2 month is bigger than the £12.0 billion deficit by the end of Q1, so net trade will likely be a drag and may cause a downward revision to the preliminary GDP estimate.

Another round of risk-taking – Risk appetite stayed around for another round during the morning London session.

  • The pan-European FTSEurofirst 300 was up by 0.32% to 1,349.39.
  • The blue-chip Euro Stoxx 50 was up b y 0.56% to 3,001.00.
  • The U.K.’s FTSE 100 was up by 0.31% to 6,830.30.
  • The DAX was up by 0.78% to 10,513.50.

U.S. equity futures also implied that the risk-on mood may carry over to the upcoming U.S. session

  • The S&P 500 futures index was up by 0.10% to 2,177.75.
  • The Nasdaq futures index was up by 0.13% to 4,785.62.

Market analysts are attributing the persistent risk appetite to expectations of further stimulus and easier financial conditions after BOE MPC Member Ian McCafferty wrote in an op-ed for the Times that:

“If the economy proves to have turned down in line with the initial survey signals, I believe that more easing is likely to be required, but that can easily be delivered in coming months.”

That’s not really new since the BOE spelled out essentially the same thing during the MPC statement, as you can see below.

“If the incoming data prove broadly consistent with the August Inflation Report forecast, a majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of the year.”

Still, McCafferty’s piece apparently reinforced expectations that the BOE will cut further, thereby influencing market sentiment.

Major Currency Movers:

GBP – The pound initially had a bullish boost either from profit-taking by pound shorts or as a reaction to the positive production number. However, the pound later extended its losses, thanks to earlier dovish comments from BOE McCafferty and disappointing trade data.

GBP/USD was up by 4 pips (+0.04%) to 1.2974 with 1.3014 as session high, GBP/NZD was down by 68 pips (-0.38%) to 1.8164 with 1.8262 as session high, GBP/AUD was down by 64 pips (-0.38%) to 1.6927 with 1.7006 as session high

AUD & NZD – Another bout of risk-taking naturally meant demand for the higher-yielding Aussie and the Kiwi at the expense of the lower-yielding safe-haven currencies.

AUD/USD was up by 33 pips (+0.42%) to 0.7664, AUD/CAD was up by 17 pips (+0.17%) to 1.0081, AUD/CHF was up by 38 pips (+0.52%) to 0.7541

NZD/USD was up by 28 pips (+0.41%) to 0.7141, NZD/JPY was up by 21 pips (+0.30%) to 73.04, NZD/CAD was up by 16 pips (+0.18%) to 0.9393

Watch Out For:

  • 12:15 pm GMT: Canadian housing starts (191.0k expected, 218.3K previous)
  • 12:30 pm GMT: U.S. preliminary unit labor costs (1.8% expected, 4.5% previous)
  • 12:30 pm GMT: U.S. preliminary non-farm productivity (0.4% expected, -0.6% previous)
  • 2:00 pm GMT: U.K. NIESR GDP estimate (0.4% expected, 0.6% previous)
  • 2:00 pm GMT: U.S. IBD/TIPP economic optimism (46.2 expected, 45.5 previous)
  • 2:00 pm GMT: U.S. wholesale inventories (0.0% expected, 0.1% previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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