Article Highlights

  • German preliminary GDP q/q: 0.2% vs. 0.3% expected, 0.4% previous
  • French final CPI m/m: unchanged at 0.0% as expected
  • Italian preliminary GDP q/q: 0.3% vs. 0.2% expected, 0.0% previous
  • U.K. CPI m/m: 0.1% vs. 0.3% expected, 0.2% previous
  • U.K. CPI y/y: 0.9% vs. 1.1% expected, 1.0% previous
  • Euro Zone flash Q3 GDP q/q: 0.3% as expected, same as previous
  • Euro Zone flash Q3 GDP y/y: 1.6% as expected, same as previous
  • Euro Zone trade balance: €24.9B vs. €22.1 expected, €23.4 previous
  • ZEW Euro Zone economic sentiment: 15.8 vs. 14.3 expected, 12.3 previous
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Trading conditions were rather choppy during today’s morning London session, with many pairs trading sideways. The pound was clearly under bearish pressure, though, supposedly because of a leaked memo related to Brexit.

Major Events/Reports:

U.K. CPI missed expectations – According to the U.K. Office for National Statistics (ONS), the U.K.’s CPI increased by 0.1% month-on-month in October. The increase is weaker than both the expected +0.3% pace, as well as the previous month’s +0.2% rate. Year-on-year, the U.K.’s CPI advanced by 0.9%. This is also weaker than the expected +1.1% increase, as well as the previous month’s +1.0% reading.

According to the CPI report:

“The main downward contributors to the change in the [annual] rate were prices for clothing and university tuition fees, which rose by less than they did a year ago, along with falling prices for certain games and toys, overnight hotel stays and non-alcoholic beverages.”

Leaked memo on Brexit – According to a November 7 memo obtained and then leaked by The Times and republished by Reuters, Theresa May’s government is divided on Brexit. And because of the said division, “no common strategy has emerged” in how to approach the negotiating table. Moreover, “it may be 6 months before there is a view on priorities/negotiation strategy as the political situation in the UK and the EU evolves.” not only that, additional civil servants “in the 10-30,000 range” may also be needed to cope with an actual Brexit.

And to add salt to injury, the memo ended with this:

“Industry has 2 unpleasant realisations — first, that the Government’s priority remains its political survival, not the economy — second, that there will be no clear economic-Brexit strategy any time soon because it is being developed on a case-by-case basis as specific decisions are forced on Government.”

A spokesman for Theresa May’s government has come out said that the leaked memo, “has no authority.” Furthermore, pro-Brexit politicians have also referred to the leaked memo with various, uh, colorful terms such “utterly bogus” and “complete nonsense.”

BOE Carney & company testify – BOE Guv’nah Mark Carney and other top BOE officials testified before Parliament’s Treasury Committee earlier, and some interesting things were discussed.

With regard to monetary policy, Carney said that BOE now has a neutral stance and that the BOE is not actively considering expanding its QE program. Specifically, Carney had this to say:

“What we have now is a neutral bias so we’ve got to a position where we think the stance, the unanimous view of members of the MPC is that the stance on monetary policy is appropriate, we’re still in a position of uncertainty there’s reasons why the economy could turn out stronger, inflation higher or the opposite, there’s risks on both sides so rates could go up they could go down – so it’s a neutral bias, we’re about as explicit as that.”

“For the avoidance of doubt, we have a balanced risk assessment, neutral bias to monetary policy we’re not in active consideration of expanding programs. We just took a decision and the view, my personal view and the view of the rest of the MPC, was that the stance of the policy is appropriate.”

Aside from the positive effect on inflation, Carney had this to say with regard to the pound’s fall:

“What we have seen in terms of the direction and scale of the move in sterling has been consistent with an expectation of a reduced degree of openness and a slower pace of growth than has been the reaction of consumers, for example.”

As for Brexit, Carney said that “about 45 percent or so of the businesses” are feeling the impact of Brexit on their business plans. Furthermore, there is usually a transition period after trade deals have been negotiated, and such a transition period usually takes a long time. To quote Carney directly:

“When there’s a trade deal, the shortest transition period I’ve ever seen in a trade deal is two years, which was the Swiss-EU deal on insurance. Normally it’s in the range of four to seven years.”

Skittish risk sentiment in Europe – Most of the major European equity indices opened higher. However, they steadily sank lower as the morning London session progressed, ending the session in the red. There was no clear reason for the returning risk-off vibes, though.

  • The pan-European FTSEurofirst 300 was down by 0.06% to 1,334.63
  • The blue-chip Euro Stoxx 50 was down by 0.38% to 3,033.00
  • Germany’s DAX was down by 0.15% to 10,678.00

Oil rebounds – Oil benchmarks surged higher during today’s morning London session after three straight days of losses.

  • U.S. crude oil was up by 3.58% to $44.87 per barrel
  • Brent crude oil was up by 3.47% to $45.97 per barrel

Market analysts rolled out their #1 go-to reason, which is supposedly renewed optimism on OPEC’s planned oil production cut, although these market analysts also say that reports of an attack on a major Nigerian oil pipeline was a factor.

Major Market Movers:

GBP – The pound tumbled from the get-go and continued doing so during the course of morning London session. Many analysts are blaming the Greenback’s slide to renewed Brexit-related jitters, thanks to the leaked memo I discussed earlier.

GBP/CAD was down by 55 pips (-0.33%) to 1.6804, GBP/NZD was down by 56 pips (-0.32%) to 1.7481, GBP/AUD was down by 87 pips (-0.53%) to 1.6438

USD – The Greenback is still down for the day, but it showed strength during the morning London session. There were no apparent catalysts, but profit-taking and safe-haven demand are likely candidates.

GBP/USD was down by 45 pips (-0.37%) to 1.2429, EUR/USD was down by 7 pips (-0.07%) to 1.07668, USD/JPY was up by 16 pips (+0.15%) to 108.27

CHF – Despite the risk-off vibes during the session, the safe-haven Swissy got no love, which leads me to believe that the SNB may be sneakily weakening the Swissy again.

USD/CHF was up by 23 pips (+0.23%) to 0.9982, EUR/CHF was up by 20 pips (+0.19%) to 1.0751, CAD/CHF was up by 15 pips (+0.21%) to 0.7385

Watch Out For:

  • 1:30 pm GMT: Headline (0.6% expected, same as previous) and core (0.5% expected, same as previous) readings for U.S. retail sales.
  • 1:30 pm GMT: U.S. import price index (0.4% expected, 0.1% previous).
  • 1:30 pm GMT:  U.S. Empire State survey (-2.5 expected, -6.8 previous).
  • 2:05 pm GMT: U.S. Fed Governor Daniel Tarullo has a speech.
  • 3:00 pm GMT: U.S. business inventories (0.2% expected, same as previous).
  • 6:30 pm GMT: U.S. Fed Governor Stanley Fischer is scheduled to speak.
  • Dairy auction currently underway (+11.4% previous); auction usually ends at around 2:00 pm GMT

See also:

Asian Session Recap

U.S. Session Recap

Bonnie and Clyde, peanut butter and jelly, Kanye West and Kanye West. Some things just go well together.

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