Article Highlights

  • German preliminary GDP q/q: 0.4% vs. 0.5% expected, 0.1% previous
  • German preliminary GDP y/y: 1.7% vs. 1.8% expected, 1.7% previous
  • Germany’s final HICP m/m: unchanged at -0.8% as expected
  • Germany’s final HICP y/y: unchanged at 1.9% as expected
  • Swiss CPI m/m: 0.0% vs. -0.2% expected, -0.1% previous
  • Swiss CPI y/y: 0.3% as expected, 0.0% previous
  • U.K. CPI m/m: -0.5% as expected, 0.5% previous
  • U.K. CPI y/y: 1.8% vs. 1.9% expected. 1.6% previous
  • Euro Zone industrial production m/m: -1.6% vs. -1.5% expected, 1.5% previous
  • Euro Zone industrial production y/y: 2.0% vs. 1.7% expected, 3.2% previous
  • Euro Zone flash GDP q/q: 0.4% vs. no change from 0.5% expected
  • Euro Zone flash GDP y/y: 1.7% vs. no vhange from 1.8% expected
  • German ZEW economic sentiment: 10.4 vs. 15.0 expected, 16.6 previous
  • Euro Zone ZEW economic sentiment: 17.1 vs. 22.3 expected, 23.2 previous
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There were lots of economic reports during the morning London session, but price action was very choppy, likely because forex traders were waiting for Fed Head Yellen’s testimony. The pound was on the move, though, since it got dumped when the U.K.’s CPI readings missed expectations.

Major Events/Reports:

Swing and a miss for U.K. CPIThe U.K.’s CPI reading for January came in at 1.8% year-on-year, which is faster than December’s +1.6%. Not only that, January’s reading is the fastest annual rate of increase since June 2014. However, the reading is a tick lower compared to the 1.9% consensus.

Looking at the details of the CPI report, the main reasons for the faster increase in January were the higher costs of transportation (+5.7% vs. +3.7% previous) and the softer fall in the price of food and non-alcoholic beverages (-0.5% vs. -1.1% previous). And the higher cost of transportation, in turn, was due mainly to the 3.4% surge in motor fuels. Most of the other components only had minimal changes are had relatively large changes, but very minimal impact because their assigned weight is relatively low.

The price of food and non-alcoholic beverages, as well as transportation costs, are stripped from the core reading, which is why the core reading held steady at 1.6%. However, this is also a miss from the +1.7% consensus.

Commodities soarCommodities staged a broad-based rally during the morning London session.

Precious metals got some love.

  • Gold was up by 0.71% to $1,234.45 per troy ounce
  • Silver was up by 1.18% to $18.032 per troy ounce

Base metals, meanwhile, were but mostly in positive territory.

  • Copper was up by 0.68% to $2.802 per pound
  • Nickel was up by 1.71% to $10,865.00 per dry metric ton

As for oil benchmarks, they were also climbing higher.

  • U.S. crude oil was up by 0.80% to $53.30 per barrel
  • Brent crude oil was up by 0.90% to $56.09 per barrel

The broad-based commodities rally was very likely due to the weaker Greenback, which made globally traded commodities relatively cheaper. For reference, the U.S. dollar index was down by 0.25% to 100.75 by the end of the session.

Other than that, market analysts also point to optimism on OPEC’s oil cut deal for the rise in oil prices. Demand for precious metals, meanwhile, likely got an extra boost from the returning risk aversion. Precious metals are considered as traditional safe havens after all.

Risk aversion returns – After banished for several days since last week, risk aversion finally struck back. As a result, European equity indices mostly dipped into the red.

  • The pan-European FTSEurofirst 300 was down by 0.17% to 1,457.22
  • The blue chip Euro Stoxx 50 was down by 0.17% to 3,303.50
  • Germany’s DAX was also down by 0.02% to 11,772.00

Even U.S. equity futures felt the effect of the returning risk-off vibes.

  • S&P 500 futures were down by 0.06% to 2,324.75
  • Nasdaq futures were down by 0.02% to 5,258.12

Market analysts blamed the skittishness during the session to poor earnings reports for European financials and the weak performance from the healthcare sector ahead of Yellen’s testimony later, due to European Healthcare’s large exposure to the U.S.

Major Market Movers:

GBP – The pound got kicked lower across the board when the U.K.’s CPI reading for January missed expectations. Market analysts say that the weaker-than-expected increase for the headline reading and the steady core reading both likely reinforced the idea that the BOE won’t be hiking anytime soon, which is why the pound got dumped.

GBP/USD was down by 49 pips (-0.49%) to 1.2479, GBP/AUD was down by 101 pips (-0.62%) to 1.6223, GBP/CAD was down by 99 pips (-0.60%) to 1.6259

USD – Price action on the Greenback was relatively subdued, but it was clearly showing weakness across the board (except to GBP of course). Aside from jitters ahead of Yellen’s testimony, market analysts also point to concerns over the resignation of Michael Flynn, Trump’s national security adviser.

USD/JPY was down by 15 pips (-0.13%) to 113.40, USD/CHF was down by 14 pips (-0.14%) to 1.0038, USD/CAD was down by 27 pips (-0.21%) to 1.3028

Watch Out For:

  • 1:30 pm GMT: Headline (0.3% expected, same as previous) and core (0.2% expected, same as previous) readings for U.S. PPI will be released
  • 3:00 pm GMT: U.S. Fed Head Yellen will testify before the Senate Banking Committee
  • 3:00 pm GMT: U.S. Fed monetary policy report is scheduled for release
  • 6:00 pm GMT: Dallas President Robert Kaplan has a speech

See also:

Asian Session Recap 
U.S. Session Recap

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