Article Highlights

  • French final Q2 GDP q/q: revised to -0.1% vs. unchanged at 0.0% expected
  • French final Q2 GDP y/y: revised to 1.3% vs. unchanged at 1.4% expected
  • German flash manufacturing PMI: 54.3 vs. 53.1 expected, 53.6 previous
  • German flash services PMI: 50.6 vs. 52.1 expected, 51.7 previous
  • French flash manufacturing PMI: 49.5 vs. 48.5 expected, 48.3 previous
  • French flash services PMI: 54.1 vs. 52.0 expected, 52.3 previous
  • Euro Zone flash manufacturing PMI: 52.6 vs. 51.5 expected, 51.7 previous
  • Euro Zone flash services PMI: 52.1 vs. 52.8 expected, 52.8 previous
  • Canada’s CPI and retail sales readings coming up
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Today’s morning London session was rather lively. To be more specific, the return of risk aversion buoyed the yen while rumors about an oil deal gave the Loonie a boost. The pound, meanwhile, got kicked lower.

Major Events/Reports:

Euro Zone PMIMarkit’s preliminary PMI report for the Euro Zone was released earlier during the session.

Looking at the manufacturing PMI reading, it climbed higher to 52.6, which is better than the expected slide from 51.7 to 51.5. And according to commentary from the PMI report, the manufacturing sector ” benefitted from faster growth of both total new orders (three-month high) and new export business. The gain in new export orders was the steepest in two-and-a-half years.”

Moving on, the reading for services PMI was more downbeat since it fell from 52.8 to a 21-month low of 52.1. On an even more downbeat note, commentary from the PMI report noted that the deterioration in the service sector was broad-based across Euro Zone countries.

Additional commentary from Rob Dobson, Markit’s senior economist, noted that “sluggish growth of close to 0.3% over the quarter as a whole.” It therefore “remains clear that the economic upturn is still fragile and failing to achieve any real traction.”

Oil deal rumors – According to three unnamed sources that were interviewed by Reuters, Saudi Arabia has already offered an oil freeze deal to Iran. Saudi Arabia promised in that oil freeze  deal to cut its own oil production levels if Iran agrees to limit its oil output to 3.6 million barrels per day. However, Iran has yet to give its reply, the sources said.

Oil benchmarks reacted very positively to the rumors. U.S. WTI crude oil, for instance, was down by 1.84% to $45.47 before the rumors began to spread. But by the end of the session, it was only down by 0.11% to $46.27 per barrel. Brent blend crude oil, meanwhile, was also in negative territory before the rumors got out, but got catapulted higher and was up by 0.23% to $47.76 per barrel by the end of the session.

Risk-taking fatigue sets in – After four straight days of non-stop risk-taking, risk aversion appears to have finally returned to the European equities market.

  • The pan-European FTSEurofirst 300 was down by 0.79% to 1,358.64
  • The blue-chip Euro Stoxx 50 was down by 0.46% to 3,036.00
  • The U.K.’s FTSE 100 was down 0.10% to 6,904.90
  • The DAX was down by 0.26% to 10,646.00

The risk-off vibes also sent U.S. equity futures modestly lower.

  • S&P 500 futures were down by 0.15% to 2,165.00
  • Nasdaq futures were down by 0.14% to 4,879.38

The signs of aversion to risk and moderate selling during the session was likely due to profit-taking in order to avoid weekend risk.

Major Market Movers:

JPY – The risk-off vibes sent safe-haven flows from riskier assets towards the safe-haven yen, allowing the yen to come out on top against its peers.

CHF/JPY was down by 13 pips (-0.12%) to 103.87, NZD/JPY was down by 22 pips (-0.31%) to 73.20, AUD/JPY was down by 19 pips (-0.25%) to 76.92

CAD – The Loonie was tracking oil prices for the most part. As such, the Loonie started the session on a weak footing before recovering from its earlier losses (and then some) to end up as the second-strongest currency of the session.

USD/CAD was down by 14 pips (-0.11%) to 1.3046, NZD/CAD was down by 33 pips (-0.35%) to 0.9473, GBP/CAD was down by 99 pips (-0.58%) to 1.6923

GBP – Pound pairs sold off when the morning London session rolled around, and almost never looked back. There weren’t any apparent catalysts for the pound’s weakness. However, some analysts are blaming it on British Foreign Secretary Boris Johnson’s statement about starting the negotiations for an actual Brexit “probably in the early part” of 2017 as the catalyst. I’m not too sure about that, though. After all, the pound has been sliding since the Asian session, which was before that piece of news began to circulate.

GBP/USD was down by 64 pips (-0.49%) to 1.2970, GBP/CHF was down by 52 pips (-0.42%) to 1.2589, GBP/JPY was down by 70 pips (-0.54%) to 130.77

Watch Out For:

  • 12:30 pm GMT: Headline (0.1% expected, -0.1% previous) and core (0.5% expected, -0.8% previous) readings for Canadian retail sales
  • 12:30 pm GMT: Headline (0.1% expected, -0.2% previous) and core (0.2% expected, 0.0% previous) readings for Canadian CPI
  • 1:45 pm GMT: Markit’s flash U.S. manufacturing PMI (steady at 52.0 expected)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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