Article Highlights

  • Credit Suisse economic expectations: 19.4 vs. 18.5 previous
  • German IFO business climate: 111.0 vs. 109.6 expected, 109.9 previous
  • German IFO current conditions: 118.4 vs. 116.6 expected, 116.9 previous
  • U.K. 2nd estimate for Q4 GDP growth q/q: 0.7% vs. unchanged at 0.6% expected
  • U.K. 2nd estimate for Q4 GDP growth y/y: 2.0% vs. unchanged at 2.2% expected
  • U.K. Q4 business investment q/q: -1.0% vs. 0.0% expected, 0.4% previous
  • U.K. Q4 business investment y/y: -0.9% vs. 0.2% expected, -2.2% previous
  • Euro Zone final HICP y/y: unchanged at 0.9% as expected
  • Euro Zone final core HICP y/y: unchanged at 1.8% as expected
  • FOMC meeting minutes will be released later
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Plenty of action in today’s morning London session, with the pound slammed by poor data, the Aussie weighed down by crumbling commodity prices, and lower bond yields, as well as safe-haven flows, fueling demand for the yen.

Major Events/Reports:

2nd estimate for Q4 U.K. GDP – The U.K.’s Q4 GDP growth was revised higher from a 0.6% quarter-on-quarter increase to +0.7%, thanks to manufacturing output being higher than originally estimated.

Year-on-year, however, GDP growth was revised lower from +2.2% to +2.0%, thanks to the 0.9% slide in business investment. This is softer than the previous quarter’s 2.2% slump. However, the consensus was that business investment would rise softly by 0.2% in Q4. Moreover, Q4’s slide marks the fourth consecutive quarter of declines in business investment.

Quarter-on-quarter, business investment dropped by 1.0%. This is the first drop in five quarters and the hardest drop in five quarter. This obviously does not bode well for the U.K. going forward.

Commodities feel the pain – Commodities were mostly leaking red during the morning London session.

Oil benchmarks were sinking.

  • U.S. crude oil was down by 0.52% to $54.05 per barrel
  • Brent crude oil was down by 0.46% to $56.40 per barrel

Base metals were down hard.

  • Copper was down by 1.07% to $2.716 per pound
  • Nickel was down by 0.55% to $10,772.50 per dry metric ton

Not even the risk-off vibes could stoke demand for precious metals.

  • Gold was down by 0.02% to $1,238.75 per troy ounce
  • Silver was down by 0.16% to $17.973 per troy ounce

The broad-based rout was likely due to the Greenback’s rise. And for reference, the U.S. dollar index was up by 0.17% to 101.61 when the session ended. However, some market analysts also pointed to profit-taking on some commodities, just in case the FOMC meeting minutes deliver a surprise later.

Risk aversion returns – It initially looked like risk appetite was gonna stick around for yet another day. However, it soon became clear that risk aversion was now the dominant sentiment, as the major European equity indices began to leak red one after the other.

  • The pan-European FTSEurofirst 300 was down by 0.12% to 1,470.12
  • The blue chip Euro Stoxx 50 was down by 0.25% to 3,330.00
  • Germany’s DAX was was still up by 0.05% to 11,973.50 when the session ended, but way off from the session high of 12,031.75

U.S. equity futures were also weighed down by the returning risk-off vibes.

  • S&P 500 futures were down by 0.17% to 2,356.00
  • Nasdaq Futures were down by 0.07% to 5,340.13

Market analysts attribute the early risk-taking to positive earnings reports. As for the later turnaround in risk sentiment, that was likely due to the commodities slide, since energy and mining shares were the main losers.

Bond yields fall – Another sign of the prevalence of risk aversion was the fall in bond yields during the session.

  • Japanese 10-year bond yields were down by 1.18% to 0.084%
  • German 10-year bond yields were down by 14.75% to 0.260%
  • U.K. 10-year bond yields were down by 2.75% to 1.203%
  • U.S. 10-year bond yields were down by 0.66% to 2.413%

Major Market Movers:

JPY – Falling bond yields and safe-haven demand were apparently go-signals for yen bulls to start buying up the yen.

USD/JPY was down by 35 pips (-0.31%) to 113.04, EUR/JPY was down by 31 pips (-0.26%) to 118.48, CHF/JPY was down by 34 pips (-0.30%) to 111.70

GBP – The pound got dumped across the board when the U.K. released the second estimate of its GDP report. And market analysts blamed the pound’s broad-based fall particularly on the disappointing slide in business investment.

GBP/USD was down by 37 pips (-0.30%) to 1.2448, GBP/JPY was down by 87 pips (-0.61%) to 140.72, GBP/CHF was down by 38 pips (-0.30%) to 1.2598

AUD – The risk-off vibes and the commodities rout likely weighed most heavily on the higher-yielding Aussie, since it was the second weakest currency after the pound.

AUD/USD was down by 18 pips (-0.23%) to 0.7677, AUD/JPY was down by 46 pips (-0.53%) to 86.79, AUD/NZD was down by 21 pips (-0.20%) to 1.0719

Watch Out For:

  • 1:30 pm GMT: Headline (0.0% expected, 0.2% previous) and core (0.6% expected, 0.1% previous) readings for Canadian retail sales; read up on Forex Gump’s write-up for that here
  • 2:00 pm GMT: CB’s Chinese leading index (0.8% expected)
  • 3:00 pm GMT: U.S. existing home sales (5.54M expected, 5.49M previous)
  • 6:00 pm GMT: U.S. Fed Governor Jerome Powell will give a speech
  • 7:00 pm GMT: FOMC meeting minutes will be released
  • 8:00 pm GMT: BOE Deputy Governor Nemat Shafik will deliver a speech

See also:

Asian Session Recap 
U.S. Session Recap

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