Article Highlights

  • French preliminary HICP m/m: 0.3% vs. 0.5% expected, 0.0% precious
  • French preliminary HICP y/y: 0.8% vs. 0.9% expected, 0.7% precious
  • Swiss manufacturing PMI: 56.0 vs. 56.1 expected, 56.6 previous
  • German jobless rate: steady at 6% as expected
  • German unemployment change: -17K vs. -5K expected, -6K previous
  • U.K. manufacturing PMI: 56.1 vs. 53.2 expected, 53.6 previous
  • German preliminary HICP m/m: 1.0% vs. 0.6% expected, 0.0% previous
  • German preliminary HICP y/y: 1.7% vs. 1.3% expected, 0.7% previous
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Greenback domination was the main theme of today’s morning London session. However, the pound did give the Greenback a hard time, thanks to an unexpected jump in the U.K.’s manufacturing PMI reading.

Major Events/Reports:

U.K. manufacturing PMI surprise – According to Markit’s manufacturing PMI report, the U.K.’s manufacturing PMI reading for December soared from 53.6 to a 30-month high of 56.1. This is a very pleasant surprise, given that the reading was expected to slide lower to 53.2.

According to the details of the PMI report, the higher reading was due to production and new orders growth both being “among the best seen over the past two-and-a-half years.” And the surge in output and new orders growth, in turn, was due to “stronger inflows of new work from both domestic and overseas clients, the latter aided by the boost to competitiveness from the weak sterling exchange rate.” Overseas demand, in particular “was the second-highest since early 2014,” with higher demand coming mainly “from the USA, Europe, China, Middle East, India and other Asian markets.”

With regard to prices, Markit noted that “Rates of inflation for input costs and output charges both remained among the fastest seen during the survey history, albeit both slowing from October’s highs.”

Commodities extend rally – Precious metals were leaking red during the session, but other commodities were busy extending their gains from the earlier session.

Base metals were in high demand.

  • Copper was up by 1.26% to $2.537 per pound
  • Nickel was up by 1.27% to $10,185.00 per dry metric ton

Oil benchmarks, meanwhile, were on a tear.

  • U.S. crude oil was up by 2.33% to $54.97 per barrel
  • Brent crude oil was up by 2.31% to $58.13 per barrel

However, precious metals got slapped lower.

  • Gold was down by 0.25% to $1,148.85 per troy ounce
  • Silver was down by 0.11% to $15.973 per troy ounce

Demand for precious metals, which are considered as traditional safe-havens, was probably weak because of the risk-on mood during the session.

As for the broad-based demand for the other commodities, that was likely due to the prospect of higher demand from China, thanks to China’s higher PMI reading. If you missed my earlier Asian session recap, I noted then that China’s manufacturing PMI reading for December came in at 51.9, which is the best reading since January 2013.

In the case of oil, however, some market analysts also attributed the jump in oil prices to reports that Oman and Kuwait are complying with the OPEC oil cut deal.

Risk-taking in Europe – Risk-taking seems to be the name of the game in Europe during the session, since most of the major equity indices were in the green.

  • The pan-European FTSEurofirst 300 was up by 0.57% to 1,445.07
  • The blue-chip Euro Stoxx 50 was up by 0.40% to 3,316.50
  • Germany’s DAX was up by 0.09% to 11,607.50
  • The U.K.’s FTSE 100 was up by 0.30% to 7,164.00

Even U.S. equity futures joined in on the bullish party:

  • S&P 500 futures were up by 0.64% to 2,250.50
  • Nasdaq futures, meanwhile, were up by 0.70% to 4,897.88

Market analysts attributed the risk-friendly environment to higher demand for banking shares, as well as mining and energy shares. The upbeat risk sentiment therefore seems to be linked to the commodities rally, as well as relief after Italy approved a bailout plan for its banks. Moreover, it likely helped that Italy reported a jump in its manufacturing PMI reading yesterday.

Major Market Movers:

GBP – The pound was mixed at the start. However, the pound later got bought up across the board after Markit released its better-than-expected PMI report. And this bullish boost was enough to propel the pound higher against its peers, with the exception of the Greenback.

GBP/JPY was up by 23 pips (+0.16%) to 145.02, GBP/CHF was up by 61 pips (+0.49%) to 1.2642, GBP/NZD was up by 55 pips (+0.32%) to 1.7743

USD – The Greenback was the best-performing currency of the morning London session. There were no direct catalysts for the Greenback’s strength. However, market analysts say that demand for the Greenback is still due to optimism over Trump’s planned fiscal stimulus.

USD/JPY was up by 32 pips (+0.28%) to 118.16, USD/CHF was up by 63 pips (+0.62%) to 1.0303, USD/CAD was up by 17 pips (+0.12%) to 1.3446

EUR – The prevalence of risk appetite during the session was punishing for the lower-yielding currencies. However, the euro apparently got the brunt of the pain, since it ended up as the worst-performing currency of the session.

EUR/USD was down by 70 pips (-0.67%) to 1.0389, EUR/GBP was down by 46 pips (-0.54%) to 0.8466, EUR/JPY was down by 49 pips (-0.49%) to 122.75

Watch Out For:

  • 2:30 pm GMT: RBC’s Canadian manufacturing PMI (51.5 previous)
  • 2:45 pm GMT: Markit’s final U.S. manufacturing PMI (no revision from 54.2 expected)
  • 3:00 pm GMT: U.S. construction spending (0.5% expected, same as previous)
  • 3:00 pm GMT: ISM’s U.S. manufacturing PMI (53.7 expected, 53.2 previous)
  • Dairy auction currently underway (-0.5% previous); auction usually ends at around 2:00 pm GMT

See also:

Asian Session Recap

U.S. Session Recap

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