Article Highlights

  • German retail sales m/m: 1.8% vs. 0.7% expected, -1.0% previous
  • U.K. Nationwide HPI m/m: -0.3% vs. 0.3% expected, 0.6% previous
  • Consumer spending in France m/m: -0.8% vs. 0.3% expected, 0.6% previous
  • French preliminary HICP m/m: 0.7% as expected vs. 0.2% previous
  • French preliminary HICP y/y: 1.4% as expected, same as previous
  • German unemployment change: -30K vs. -10K expected, -17K previous
  • U.K.'s current account: -£12.1B vs. -£16.3B expected, -£25.7B previous
  • U.K. final GDP q/q: unchanged at 0.7% as expected
  • U.K. final GDP y/y: 1.9% vs. unchanged at 2.0% expected
  • Euro Zone HICP flash estimate y/y: 1.5 vs. 1.8% expected, 2.0% previous
  • Euro Zone core HICP flash estimate y/y: 0.7 vs. 0.8% expected, 0.9% previous
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Price action was a bit choppy during today’s morning London session.

The pound did find some broad-based demand, however, while the Aussie showed weakness against all its peers.

Major Events/Reports:

The EU replies – In a speech earlier, European Council President Donald Tusk delivered the EU’s formal reply to Theresa May’s Brexit letter.

In the speech, Task said that the main duty of the EU “is to minimise the uncertainty and disruption caused by the UK decision to withdraw from the EU for our citizens, businesses and Member States.” Theresa May shared the same sentiment in her Brexit letter.

Tusk also acknowledged and “share the UK’s desire to establish a close partnership … reaching beyond the economy and including security cooperation.”

Even so, the U.K. needs to honor “all financial commitments and liabilities it has taken as a Member State.”

Tusk then ended his speech by saying that “the talks which are about to start will be difficult, complex and sometimes even confrontational.” Although Tusk also softened the impact by promising that the EU “does not and will not pursue a punitive approach.”

EU’s Brexit GuidelinesThe Financial Times and The Telegraph were able to obtain the first version of the EU’s draft guideline for Brexit negotiations. And interestingly enough, the provisions therein were very similar to the the leaked European Parliament resolution obtained by The Guardian back on March 29.

And like the leaked resolution, the draft guideline appears to be giving the U.K. a hard time.

To begin with, the EU demands that negotiations “proceed according to a phased approach giving priority to an orderly withdrawal.”

And according to the EU, the objective of the first phase are as follows:

  • settle the disentanglement of the United Kingdom from the Union and from all the rights and obligations the United Kingdom derives from commitments undertaken as Member State
  • provide as much clarity and legal certainty as possible to citizens, businesses, stakeholders and international partners on the immediate effects of the United Kingdom’s withdrawal from the Union.”

Only after these objectives are met will the EU agree to move to the second phase, which is the future relationship between the U.K. and EU, including a trade deal.

Obviously, this goes against Theresa May’s desire to negotiate a trade deal parallel to the divorce proceedings.

The EU also warned that if a free trade deal is agreed upon, it can’t “amount to participation in the Single Market or parts thereof, as this would undermine its integrity and proper functioning.”

In short, the EU is blatantly telling the U.K. that it can’t hope to recreate being a part of the Single Market via a free trade deal.

In addition, the EU stressed that “there will be no separate negotiations between individual Member States and the United Kingdom.”

In short, no bilateral deals during the divorce proceedings.

Commodities bleeding out (again) – After yesterday’s beat-down, commodities got another beating during today’s morning London session.

Precious metals were down.

  • Gold was down by 0.31% to $1,241.20 per troy ounce
  • Silver was down by 0.68% to $18.082 per troy ounce

Base metals, meanwhile, got a severe pounding.

  • Copper was down by 1.14% to $2.641 per pound
  • Nickel was down by 0.75% to $9,950.00 per dry metric ton

As for oil benchmarks, they also took hits.

  • U.S. crude oil was down by 0.56% to $50.07 per barrel
  • Brent crude oil was down by 0.55% to $52.84 per barrel

Market analysts couldn’t really pinpoint the reason for the broad-based commodities slide.

The U.S. dollar index, meanwhile, was down by 0.11% to 100.34 for the day when the session ended, so we can’t really point to that.

Major Market Mover(s):

GBP – The pound has been retreating across the board since the Asian session.

The pound then weakened some more during the first half of the morning London session before snapping higher across the board during the later half, very likely because of easing uncertainty after Tusk promised that the EU “does not and will not pursue a punitive approach.”

GBP/USD was up by 30 pips (+0.24%) to 1.2487, GBP/CHF was up by 27 pips (+0.22%) to 1.2494, GBP/AUD was up by 56 pips (+0.35%) to 1.6326

AUD – The Aussie is essentially range-bound for the day. For the session, however, it was mostly on the defensive, very likely because of sliding commodity prices.

AUD/USD was down by 9 pips (-0.12%) to 0.7647, AUD/CHF was down by 10 pips (-0.13%) to 0.7652, AUD/JPY was down by 4 pips (-0.16%) to 85.49

Watch Out For:

  • 12:30 pm GMT: Canada’s monthly GDP (0.3% expected, same as previous)
  • 12:30 pm GMT: U.S. personal income (0.4% expected, same as previous) and personal spending (0.2% expected, same as previous)
  • 1:00 pm GMT: New York Fed President William Dudley has a speech
  • 1:45 pm GMT: Chicago PMI (56.9 expected, 57.4 previous)
  • 2:00 pm GMT: Revised University of Michigan consumer sentiment (97.8 expected, 97.6 previous)
  • 2:00 pm GMT: Minneapolis Fed President Neel Kashkari will speak
  • 9:00 pm GMT: BOE Chief Economist Andy Haldane is scheduled to speak