Article Highlights

  • French final services PMI: revised lower from 52.6 to 51.6
  • German final services PMI: revised higher from 55.0 to 55.1
  • Euro Zone final services PMI: revised lower from 54.1 to 53.8
  • Euro Zone sentix indicator: 10.0 vs. 14.3 expected, 13.1 previous
  • U.K. services PMI: 55.2 vs. 54.0 expected, 54.5 previous
  • Euro Zone retail trade m/m: 1.1% vs. 0.9% expected, -0.4% previous
  • Euro Zone retail trade y/y: 1.0% vs. 1.7% expected, 1.1% previous
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After dropping hard earlier, the euro staged a broad-based and rapid recovery (and then some) during the morning London session. Returning risk appetite, meanwhile, resulted in the yen getting slapped lower.

Major Events/Reports:

U.K. services PMI jumps – Instead of sliding from 54.5 to 54.0, the U.K.’s services PMI reading jumped to 55.2 in November. The unexpected improvement is great, but it should be noted that November’s reading is also a 10-month high. According to commentary from the PMI report, the improved reading was thanks to new businesses growing “for the fourth successive month, and at the second-fastest rate since January.” More new business then “encouraged service providers to take on more staff in November,” with “The rate of job creation [hitting] the highest since April.”

Ongoing uncertainty “linked to Brexit, the value of sterling and the unexpected result of the US presidential election” continued to weigh on business sentiment however, resulting in the weakest reading since July.

Italian referendum? What’s that? – European equity indices briefly dipped into negative territory when the session opened. However, almost all equity indices rapidly recovered thereafter, and managing to hold onto their gains until the end of the session.

  • The pan-European FTSEurofirst 300 was up by 0.86% to 1,350.65
  • The blue-chip Euro Stoxx 50 was up by 1.23% to 3,056.00
  • Germany’s DAX was up by 1.57% to 10,678.50

U.S. equity futures got resuscitated after also dipping into the red earlier.

  • S&P 500 futures were up by 0.43% to 2,201.50
  • Nasdaq futures were up by 0.54% to 4,763.88

Interestingly enough, banking shares and Italian companies were the main winners, improving overall risk sentiment. Market analysts attributed this weirdness to speculation that there will only be limited turmoil in the wake of the Italian referendum, as well as the improbability of both a snap election by early 2017 and an Italeave.

 Major Market Movers:

EUR – After the earlier drop, the euro regained lost ground (and then some) during today’s morning London session. Market analysts attributed the Italian referendum’s lack of sticking power to limited follow-through selling and profit-taking, given that polls were already pointing to a victory for the “No” camp and because Renzi’s resignation was also widely-expected.

Also, Italian bond yields spiked higher due to the bond-selling, which negates the rumors that the ECB would be stepping in to support Italian bonds. The higher yields on Italian bonds also lowers the chances that the ECB may introduce more expansionary monetary policy in Thursday’s ECB policy decision.

Some market analysts also point to Alexander Van der Bellen’s victory in Austria as a blow to the running narrative of growing populist, right-leaning movements in continental Europe, which has been weighing on the euro recently.

EUR/USD was up by 90 pips (+0.85%) to 1.0693, EUR/NZD was up by 161 pips (+1.08%) to 1.5095, EUR/AUD was up by 121 pips (+0.85%) to 1.4380

JPY – The yen got the brunt of the returning risk-on vibes, ending up as the worst performing currency of the session (and the day so far for that matter).

USD/JPY was up by 40 pips (+0.36%) to 114.31, EUR/JPY was up by 142 pips (+1.18%) to 122.21, GBP/JPY was up by 76 pips (+0.51%) to 145.34

CHF – The safe-haven Swissy advanced against most of its peers, despite the risk-on vibes. Heck, the Swissy even ended up as the second strongest currency after the euro. There were no apparent catalysts for this wonky price action. However, it is highly probable that the Swissy is riding on the euro rally. After all, Switzerland’s main export market is the E.U.’s single market. Easing worries in the E.U. would therefore be good for Switzerland as well.

USD/CHF was down by 43 pips (-0.43%) to 1.0090, NZD/CHF was down by 46 pips (-0.64%) to 0.7164, AUD/CHF was down by 31 pips (-0.42%) to 0.7501

Watch Out For:

  • 1:30 pm GMT: New York Fed President William Dudley has a speech
  • 2:45 pm GMT: Markit’s final U.S. services PMI (upgrade from 54.7 to 54.9 expected)
  • 3:00 pm GMT: ISM’s U.S. non-manufacturing PMI (55.2 expected, 54.8 previous)
  • 7:05 pm GMT: St. Louis Fed President James Bullard is scheduled to speak

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