Article Highlights

  • Italian trade balance: €4.20B vs. €3.84B expected, €4.29B previous
  • U.K. CPI m/m: 0.5% vs. 0.3% expected, 0.2% previous
  • U.K. CPI y/y: 1.6% vs. 1.4% expected, 1.2% previous
  • U.K. HPI y/y: 6.7% vs. 6.3% expected, 6.4% previous
  • U.K. PPI input m/m: 1.8% vs. 2.2% expected, -0.6% previous
  • U.K. PPI output m/m: 0.1% vs. 0.3% expected, 0.1% previous
  • Euro Zone ZEW economic sentiment: 23.2 vs. 18.1 previous
  • German ZEW economic sentiment: 16.6 vs. 18.4 expected, 13.8 previous
  • German ZEW current conditions: 77.3 vs. 65.0 expected, 63.5 previous
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The pound got a double boost from a good CPI reading and Theresa May’s speech. The Greenback, meanwhile, continued to slide lower against its peers, although it did beat back the yen in the end.

Major Events/Reports:

U.K. CPI rises – The U.K.’s CPI reading for December came in at 1.6% year-on-year, beating expectations of a 1.4% increase. The December reading is also better than November’s 1.2% increase. Moreover, the reading is a 28-month high and is also much closer to the BOE’s 2.0% target.

Commodities rally hardCommodities were broadly in demand during the morning London session, although based metals were mixed, but mostly down

Precious metals were in really high demand.

  • Gold was down by 1.75% to $1,217.15 per troy ounce
  • Silver was down by 2.05% to $17.108 per troy ounce

Oil benchmarks, meanwhile, were in the green.

  • U.S. crude oil was down by 1.39% to $53.10 per barrel
  • Brent crude oil was down by 1.18% to $56.52 per barrel

As mentioned earlier, base metals were mixed but mostly down.

  • Copper was down by 1.67% to $2.645 per pound
  • Nickel was down by 0.56% to $10,195.00 per dry metric ton
  • Aluminum was up by 1.22% to $1,806.25 per dry metric ton

The broad-based commodities rally was very likely induced by the weaker Greenback. A weaker Greenback means that commodities become relatively cheaper and therefore more attractive to buy. And for reference, the U.S. dollar index was down by 1.04% to 100.47.

Other factors were also likely in play as well. Worries over Trump and Brexit jitters very likely pumped up demand for precious metals. After all, precious metals are considered traditional safe-havens.

With regard to oil, that was partially attributed by market analysts to Saudi Arabia’s statement that it would stick to the OPEC oil cut deal.

As for the mixed and relatively poor performance from base metals, that was likely due to unwinding by speculators after worries about Trump’s planned fiscal stimulus plans emerged.

Another risk-off day in Europe (maybe) – Risk aversion persisted for the second day in Europe, so European equities continued to bleed out. Well, that was the case before Theresa May gave her speech.

  • The pan-European FTSEurofirst 300 was down by 0.56% to 1,426.71
  • The blue-chup Euro Stoxx 50 was down by 0.57% to 3,279.00
  • Germany’s DAX was down by 0.69% to 11,475.50
  • The U.K.’s FTSE 100 was down by 0.30% to 7,305.50

When the session ended while Theresa May was still giving her speech, the major European equities looked more like this.

  • The pan-European FTSEurofirst 300 was up by 0.07% to 1,435.83
  • The blue-chup Euro Stoxx 50 was down by 0.10% to 3,294.50
  • Germany’s DAX was up by 0.05% to 11,560.75
  • The U.K.’s FTSE 100 was down by 0.76% to 7,271.75

European equities generally liked Theresa May’s speech while British equities apparently did not, since the PM’s speech caused the pound to appreciate, and British exporters got dumped as a result.

Anyhow, market analysts note that the earlier slide was due to miners and automaker. So the gloomy mood from earlier therefore appears linked to the slide in base metals. And as discussed earlier, the slide in base metals was linked to worries over Trump’s fiscal stimulus plan. The slump in automakers, meanwhile, was very likely induced by Trump’s threat that he would slap a 35% import tariff on European automakers.

Hmm. Now that I think about it, I guess you can just simply say that the earlier risk-off mood can be attributed to Trump. As for the later recovery in risk sentiment, well, that was obviously due to Theresa May’s speech, although it remains to be seen if the PM’s speech will have enough sticking power.

Trump-induced USD woesMarket analysts have been blaming the Greenback’s slide since the Asian session on a Wall Street Journal article which cites Trump as saying during an interview from last Friday that “Our companies can’t compete with them now because our currency is strong and it’s killing us.” Basically, Trump was talking down the strong Greenback.

And earlier during the morning London session, Anthony Scaramucci, a senior Trump adviser, reiterated Trump’s own comments by saying that “We need to be careful about the rising currency.”

Theresa May’s speech – In her much-awaited speech, British PM Theresa May first started by saying that she wants a “truly global Britain.” She then later said that “It remains overwhelmingly and compellingly in Britain’s interests that the EU should succeed,” adding that the U.K. has “no desire to become more distant to you [The E.U.], our friends and neighbors.”

However, the U.K. seeks “a new and equal partnership – between an independent, self-governing, Global Britain and our friends and allies in the EU.Not partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out.” Still, the U.K.’s “guiding principle must be to ensure that as we leave the European Union no new barriers to living or doing business within our own union are created.”

After that, she discussed her Brexit plans and the most important items are as follows:

  • I can confirm today the government will put the final deal… to a vote in both Houses of Parliament before it comes into force.”
  • I want to be clear – what I am proposing cannot mean membership of the single market.”
  • we seek the greatest possible access to it through a new, bold and ambitious free trade agreement
  • Because we will no longer be members of the single market, we will no longer be required to contribute huge sums to the EU budget. “
  • Some voices are calling for a punitive deal that punishes Britain and discourages other countries from taking the same path. That would be an act of calamitous self-harm for the countries of Europe and it would not be the act of a friend.”

Major Market Movers:

GBP – In a reversal of fortune, the pound was the best performing currency, not just of the morning London session, but of the day (so far) after yesterday’s very poor performance. After stabilizing during the earlier session, the pound got a bullish infusion before Theresa May’s speech, thanks to the U.K.’s impressive CPI reading.

After that, Theresa May’s speech gave the pound another bullish infusion, likely because of “sell the rumor, buy the fact.” You see, the rumor, based on snippets from May’s leaked speech courtesy of The Telegraph, was that the PM would signal a clean break from the E.U. and a so-called “hard” Brexit, which is a Brexit wherein the U.K. is out of the E.U. single market. And that’s what happened here, with May’s confirmation that her proposal “cannot mean membership of the single market.” There may have been genuine demand as well, given that she confirmed that Parliament would be given the vote for a final Brexit deal, which then likely removed uncertainty, not to mention allowing anti-Brexit MPs a chance to butt in.

GBP/USD was up by 201 pips (+1.65%) to 1.2318, GBP/JPY was up by 257 pips (+1.87%) to 139.87, GBP/CHF was up by 149 pips (+1.22%) to 1.2344

USD – Greenback weakness persisted during today’s morning London session. And it as mentioned earlier, the Greenback’s woes are still apparently related to Trump’s talking down of the Greenback. However, the Greenback was not the weakest currency of the session.

EUR/USD was up by 28 pips (+0.27%) to 1.0683, AUD/USD was up by 7 pips (+0.09%) to 0.7537, NZD/USD was up by 9 pips (+0.11%) to 0.7175

JPY – The safe-haven yen had a mixed performance during the session, well, before Theresa May began speaking anyway. But when the British PM began her speech, signs that risk appetite was returning began to show, crushing the safe-haven yen.

USD/JPY was up by 24 pips (+0.22%) to 113.53, CHF/JPY was up by 68 pips (+0.61%) to 113.25, EUR/JPY was up by 58 pips (+0.48%) to 121.28

Watch Out For:

  • 1:30 pm GMT: U.S. Empire State survey (8.5 expected, 9.0 previous)
  • 1:45 pm GMT: New York Fed President William Dudley has a speech
  • 2:30 pm GMT: CB’s U.K. leading index (0.1% previous)
  • 3:00 pm GMT: U.S. Treasury Secretary Jack Lew will speak
  • 3:00 pm GMT: U.S. Fed Governor Lael Brainard is scheduled to speak
  • Dairy auction currently underway (-3.9% previous); auction usually ends at around 2:00 pm GMT

See also:

Asian Session Recap 
U.S. Session Recap

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