Article Highlights

  • French final HICP m/m: unchanged at 0.3% as expected
  • French final HICP y/y: unchanged at 0.8% as expected
  • Euro Zone industrial production m/m: 1.5% vs. 0.6% expected, 0.1% previous
  • Euro Zone industrial production y/y: 3.2% vs. 1.5% expected, 0.8% previous
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Greenback weakness persisted during today’s morning London session. And the Greenback’s slide apparently helped to fuel demand for commodities, which then allowed the comdolls to shrug off the risk-off vibes.

Major Events/Reports:

Commodities charge higher – Commodities were broadly in rally mode during today’s morning London session.

Precious metals got some loving.

  • Gold was down by 0.65% to $1,204.35 per troy ounce
  • Silver was down by 0.59% to $16.928 per troy ounce

Base metals were also well supported.

  • Copper was up by 0.59% to $2.626 per pound
  • Aluminum was down by 1.54% to $1,782.25 per dry metric ton

Oil benchmarks, meanwhile, were performing rather well.

  • U.S. crude oil was up by 1.13% to $52.84 per barrel
  • Brent crude oil was up by 1.27% to $55.80 per barrel

The broad-based commodities rally was very likely due to the Greenback’s relative weakness. For reference, the U.S. dollar index is down by 0.66% to 101.03. Oh, for the newbies out there, globally-traded commodities that are priced in U.S. dollars become relatively cheaper and more attractive to buy whenever the Greenback falls against its peers.

More oil production cuts? – OPEC Secretary-General Mohammad Sanusi Barkindo told reporters earlier that OPEC expects oil inventories to fall by Q2. In addition, Barkindo said that both OPEC members and non-OPEC members were sticking to the oil cut deal. Barkindo then said that OPEC members will assess whether further cuts in oil production are needed this coming May. However, Barkindo was quick to add that it’s too early to say if further cuts are needed.

Saudi Energy Minister Khalid Al-Falih was also interviewed after Barkindo. And what he said was pretty much a rehash of the Secretary-General’s statements. However, the Saudi Energy Minister also said that the oil market is rebalancing “too slowly to [his] liking.” And although he expects that the oil cut deal will accelerate the rebalancing in the oil market, he didn’t say that further cut are unwarranted, simply saying that OPEC members “will consider renewing” the oil cut deal come May.

Moody’s on the Euro Zone – In a press released that was, um, released earlier, credit ratings agency Moody’s announced that “outlook for sovereign creditworthiness in the euro area in 2017 is stable overall.” The press release also noted that “On average, Moody’s expects the euro area to grow by 1.3% in 2017 and 2018, although growth rates will vary from country to country.”

However, Moody’s also warned that “rising political and policy risk in some euro area countries could undermine ongoing reform efforts.” This is within the context of right-leaning, eurosceptic parties gaining ground in continental Europe. Getting back on topic, Moody’s also warned that “Trade growth from outside the euro area is likely to remain weak, and rising protectionist sentiment in many advanced economies, including the US, is likely to place further downward pressure on trade volumes.”

Fitch on the U.S. – Credit ratings agency Fitch also had something to say, but its focus was on the U.S., rather than the E.U. And according to a Fitch official, Uncle Sam’s AAA sovereign credit rating is already under threat because of the very high U.S. government debt levels. However, Trump’s planned $6.2 trillion worth of tax plans may be another threat, since that could cause U.S. government debt to increase by 33% over the course of 10 years.

Another round of risk aversion – Risk sentiment in Europe turned sour yesterday, thanks to Trump’s presser. Today, risk aversion was still the dominant sentiment, since European equity indices were in the red.

  • The pan-European FTSEurofirst 300 was up down 0.26% to 1,439.42
  • The blue-chup Euro Stoxx 50 was down by 0.09% to 3,304.50
  • Germany’s DAX was down by 0.46% to 11,439.42
  • The U.K.’s FTSE 100 was down by 0.10% to 7,283.25

The downbeat mood also weighed down on U.S. equity futures

  • S&P 500 futures were down by 0.26% to 2,264.50
  • Nasdaq futures were down by 0.25% to 5,033.88

Market analysts are still blaming the risk-off mood on Trump, since pharmaceuticals were still the main losers. Oh, if you missed Trump’s presser yesterday, he criticized pharma companies, saying that big pharmaceuticals were “getting away with murder” because of their (in Trump’s view) excessive pricing.

ECB meeting minutes – According to the minutes of the December ECB meeting, the ECB ended up with two proposals for extending its QE program: (1) a six-month extension at a monthly pace of €80 billion, or (2) a nine-month extension at monthly pace of €60 billion. We now know that the second option was adopted, but the minutes revealed that there was some dissension in the ranks. For one, “A few members voiced an initial preference for the first option” because it was closer to market expectations.

Another is that “A few members could not support either of the two options that had been proposed, while welcoming the scaling-down of purchases and other elements of the proposals, in view of their well-known general scepticism regarding the APP and public debt purchases in particular.”

With regard to the economy, the minutes showed that the ECB was pleased with the “moderate” recovery in the Euro Zone. However, “a number of further shocks could materialise in the future.” In addition, “political uncertainty remained high.” Overall, risks to the growth outlook are “judged to remain tilted to the downside, though some members assessed the balance of risks to be more positive.”

As for inflation, headline inflation is expected “to rise significantly in the coming months,” thanks mainly to higher energy prices, as supported by “the projected economic recovery and the ECB’s accommodative monetary policy stance.”

Major Market Movers:

USD – The Greenback continued to fall back during today’s morning London session. There were no direct catalysts, but it’s very likely that the Greenback is still suffering from the fallout of Trump’s presser.

USD/CHF was down by 34 pips (-0.34%) to 1.0063, USD/JPY was down by 27 pips (-0.24%) to 114.02, USD/CAD was down by 46 pips (-0.35%) to 1.3066

AUD – The commodities rally allowed the comdolls to give a good account of themselves during the session. And among the three (NZD, CAD, AUD), the Aussie emerged as the strongest. Although it has to be said that the Aussie was not the best-performing currency of the session.

AUD/USD was up by 29 pips (+0.39%) to 0.7511, AUD/NZD was up by 14 pips (+0.13%) to 1.0550, AUD/JPY was up by 14 pips (+0.16%) to 85.67

EUR – The euro had some decent two-way price action during today’s morning London session. The euro first took a dive across the board. There was no clear reason why, given that low-tier economic reports were net positive and risk aversion was present at the get-go. However, it’s possible that traders were more focused on Moody’s warnings about weak trade growth and heightened political risks in the Euro Zone. Euro pairs later found some support, very likely because of the persistent risk-off vibes. And it then spent the rest of the session by steadily clawing its way higher against its peers to emerge as the one currency to rule them all.

EUR/USD was up by 44 pips (+0.42%) to 1.0674 with 1.0619 as session low, EUR/GBP was up by 15 pips (+0.17%) to 0.8684 with 0.8654 as session low, EUR/JPY was up by 22 pips (+0.19%) to 121.73 with 121.19 as session low

Watch Out For:

  • 1:30 pm GMT: U.S. import price index (0.7% expected, -0.3% previous)
  • 1:30 pm GMT: U.S. initial jobless claims (255K expected, 235K previous)
  • 1:30 pm GMT: Canada’s NHPI (0.3% expected, 0.4% previous)
  • 1:30 pm GMT: Chicago Fed President Charles Evans has a speech
  • 1:30 pm GMT: Philadelphia President Patrick Harker also has a speech
  • 7:00 pm GMT: U.S. Federal budget balance will be released

See also:

Asian Session Recap 
U.S. Session Recap

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