Article Highlights

  • Euro Zone current account: €31.0B vs. €28.7B expected, €36.4B previous
  • U.K. retail sales m/m: -0.3% vs. 1.0% expected, -2.1% previous
  • U.K. retail sales y/y: 1.5% vs. 3.4% expected, 4.1% previous
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Yen domination was the name of the game during today’s morning London session, as global bond yields plunged and European equities retreated. The pound, meanwhile, got a good beating after U.K. retail sales missed big league.

Major Events/Reports:

Poor U.K. retail sales – The U.K.’s retail sales report for the January period was released earlier. And it showed that retail sales volume fell by 0.3% month-on-month. This is really disappointing since the consensus was for a 1.0% expansion.

This is softer fall compared to the previous month’s 2.1% slump, though. However, January’s reading still marks the second month of contraction, which is a poor sign for consumer spending. Also, December’s reading was actually downgraded from -1.9% to -2.1%, which is the sharpest monthly fall since May 2011.

Year-on-year, this translates to a 1.5% increase, missing expectations for a 3.4% increase by a very wide margin. In addition, this is the weakest annual increase since November 2013. So, yeah, really disappointing. And that’s not the end of it, since average store price increased by 0.5% month-on-month and 1.9% year-on-year.

On a slightly more upbeat note, retail sales value was flat month-on-month and printed a 3.4% increase year-on-year. This will likely give the year-on-year reading for GDP a boost. However, the drop in retail sales volume is still a very poor sign for consumer spending.

Le Pen takes more ground – According to the latest poll by opinionway, the anti-EU Front National’s Marine Le Pen is still set to win the first round of the French presidential elections.

What’s surprising, however, is that Le Pen continues to chip away at Emmanuel Macron’s lead in the second round of the French elections, with 60-40 in favor of Macron. This stood at 65-35 in favor of Macros last Friday and 62-38 yesterday.

Commodities retreat – Commodities were broadly in retreat during the morning London session.

Oil benchmarks got weighed down.

  • U.S. crude oil was down by 0.54% to $53.07 per barrel
  • Brent crude oil was down by 0.59% to $55.32 per barrel

Base metals, meanwhile, were leaking red across the board.

  • Copper was down by 0.79% to $2.697 per pound
  • Nickel was down by 0.45% to $10,997.50 per dry metric ton

Precious metals were down, with the exception of gold.

  • Gold was up by 0.13% to $1,243.25 per troy ounce
  • Silver was down by 0.32% to $18.017 per troy ounce

The commodities slide was likely due to the Greenback’s recovery, which made globally-traded commodities relatively more expensive. And for reference, the U.S. dollar index was up by 0.19% to 100.64 for the day when the session ended.

Fitch affirms New Zealand’s “AA” credit rating – According to a press release that was, uh, released by ratings agency Fitch, New Zealand’s Long-Term Foreign-Currency Issuer Default Rating (IDR) of “AA” is affirmed. In addition, Fitch affirmed that the outlook for New Zealand remains “Stable”.

Also according to Fitch, “New Zealand’s ratings are supported by very strong governance standards and prudent fiscal management.” Moreover, “New Zealand’s economic momentum is stronger than Fitch had expected.”

Fitch warned, though, that it “expects GDP growth to slow to 2.9% in 2017 and 2.5% in 2018, as net migration flows start to ease and reconstruction activity in Christchurch reaches its peak.” But on an optimistic note, New Zealand’s “economy would still grow faster than the median of ‘AA’-rated peers.”

Risk aversion to end the week – Europe is set to end the week on a sour note, since European equity indices were bleeding again.

  • The pan-European FTSEurofirst 300 was down by 0.33% to 1,454.97
  • The blue chip Euro Stoxx 50 was down by 0.39% to 3,295.50
  • Germany’s DAX was also down by 0.47% to 11,701.50

Even U.S. equity futures got weighed down by the feelings of doom and gloom in Europe.

  • S&P 500 futures were down by 0.25% to 2,339.75
  • Nasdaq futures were down by 0.13% to 5,293.38

Mining and energy companies were some of the worst losers, so the risk-off mood is likely linked to the commodities crumble. It’s also possible that Le Pen’s performance in the polls weighed European equities down. However, some market analysts also point to uncertainty related to Trump’s tax and trade policies as dampening overall risk appetite.

Bond yields plunge (again) – Another sign of the prevalence of risk aversion was the heavy demand for global bonds, which caused bond yields to drop hard.

  • Japanese 10-year bond yield was down by 3.26% to 0.089%
  • German 10-year bond yield was down by 13.68% to 0.303%
  • U.K. 10-year bond yield was down by 3.25% to 1.222%
  • U.S. 10-year bond yield was down by 1.22% to 2.420%

Major Market Movers:

GBP – The pound had a mixed start but was kicked lower across the board when the U.K.’s retail sales report was released. There was no follow-through selling after the pound’s sharp drop, though, since pound pairs began trading sideways after that.

GBP/USD was down by 61 pips (-0.49%) to 1.2425, GBP/JPY was down by 139 pips (-0.98%) to 140.23, GBP/CHF was down by 55 pips (-0.44%) to 1.2416

JPY – Bonds were in very high demand during the morning London session, causing bond yields to plunge. European equity indices, meanwhile, were in retreat. Risk aversion was therefore clearly the prevalent risk sentiment. And the safe-haven yen apparently enjoyed that, since it was the best-performing currency of the session.

USD/JPY was down by 57 pips (-0.50%) to 12.85, CHF/JPY was down by 62 pips (-0.55%) to 112.93, CAD/JPY was down by 44 pips (-0.51%) to 86.30

AUD – The risk-off vibes may have been great for the yen, but it was completely toxic for the higher-yielding Aussie. Not only that, commodities were also broadly in retreat, which also very likely weighed down on the Aussie. The Kiwi was able to resist the risk-off vibes, though, probably because of Fitch’s press release affirming New Zealand’s “AA” rating.

AUD/USD was down by 27 pips (-0.35%) to 0.7668, AUD/JPY was down by 75 pips (-0.86%) to 86.54, AUD/NZD was down by 43 pips (-0.40%) to 1.0662

Watch Out For:

  • 1:30 pm GMT: Canada’s foreign security purchases ($11.59B expected, $7.24B previous)
  • 3:00 pm GMT: CB’s U.S. leading index (0.5% expected, same as previous)

See also:

Asian Session Recap 
U.S. Session Recap

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