Article Highlights

  • Spanish unemployment change: -48.6K vs. -41.2K expected, -9.4K previous
  • U.K. construction PMI: 52.2 vs. 52.5 expected, 54.5 previous
  • Euro Zone retail trade: 1.5% vs. 1.0% expected, 1.2% previous
  • Canadian and U.S. trade data coming up
  • Second French presidential debate later
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The yen extended its gains during the morning London session, thanks to plunging bond yields and the overall risk-off vibes in Europe. At the same time, the risk-off vibes kicked the poor Aussie even lower for the day. The pound, meanwhile, had some two-way price action.

Major Events/Reports:

Le Pen gains ground – The second French presidential debate is expected to start at around 6:40 pm GMT later today. And ahead of the debate, opinionway released the latest result for its daily poll, which showed that voting intentions favor the anti-EU Marine Le Pen as the victor in the first round of the French elections with 26%. This is an uptick from yesterday’s 25%. Macron, meanwhile, is expected to be her rival for the second round of the elections, with 24%.

For the second round of the elections, Macron is still expected to with 61% versus Le Pen’s 39%. However, the gulf between the two has narrowed from yesterday’s results, with 63% for Macron and 37% for Le Pen.

U.K. construction PMI missed – According to Markit’s latest construction PMI report for the U.K., the construction sector is still expanding but growth lost some momentum, since the PMI reading slid lower from 52.5 to 52.2 in March. The consensus was that it would hold steady at 52.5.

Commentary from Markit noted that the weaker reading was due to “a weaker rise in residential building activity” and “a marginal increase in new work, which contributed to slower employment growth and a slight decline in input buying.”

On a more upbeat note, “construction companies remain relatively upbeat about their near-term growth prospects.” In addition, there was a “a rebound in both commercial and civil engineering activity.”

Risk-off day in Europe – European equity indices had a good start but began feeling bearish pressure along the way. In fact, most of them were already in negative territory by the end of the morning London session.

  • The pan-European FTSEurofirst 300 was down by 0.09% to 1,493.18
  • Germany’s DAX was down by 0.15% to 12,238.50
  • The blue-chip Euro Stoxx 50 was down by 0.24% to 3,468.00

U.S. equity futures were also feeling the heat.

  • S&P 500 futures were down by 0.38% to 2,347.00
  • Nasdaq futures were down by 0.37% to 5,414.25

Market analysts say the early risk-on vibes was due to the commodities rally, which gave mining and energy shares a boost.

The later risk-off vibes, meanwhile, was blamed by market analysts on poor U.S. vehicle sales data from yesterday, which also weighed down on European vehicle manufacturers. Banking shares were also under pressure, mainly because of worries related to Italian banks and bad news for Spain’s Banco Popular.

Bond yields plunge – Another sign of the prevalence of risk aversion was the high demand for bonds, which caused bond yields to plunge.

  • French 10-year bond yield down by 5.96% tp 0.900%
  • German 10-year bond yield down by 13.98% to 0.240%
  • U.K. 10-year bond yield down by 2.54% to 1.036%
  • U.S. 10-year bond yield down by 1.46% to 2.316%
  • Japanese 10-year bond yield down by 3.08% to 0.063

Aside from the general risk aversion in the equities market, market analyst say that the high demand for bonds was due to a lot of risk events, including the French presidential debate later today, the subway explosion in Russia, renewed worries over Italian banks, and the upcoming meeting between Trump and Chinese President Xi Jinping.

Major Market Mover(s):

JPY – The risk-off vibes and plunging bond yields enticed even more yen bulls to charge in during the morning London session. As a result, the yen ended up being the king (or queen if you like) of pips yet again.

USD/JPY 12 was down by pips (-0.11%) to 110.29, AUD/JPY 29 was down by pips (-0.35%) to 83.25, CAD/JPY 30 was down by pips (-0.35%) to 82.02

AUD – Commodities were mostly in the green during the session, but the Aussie was broadly in retreat, likely because of the risk-off vibes and lingering disappointment over the earlier RBA statement, especially the RBA’s worries over the labor market.

AUD/USD 18 was down by pips (-0.23%) to 0.7549, AUD/CHF 19 was down by pips (-0.25%) to 0.7568, AUD/NZD 23 was down by pips (-0.22%) to 1.0815

GBP – The pound plunged across the board before the morning London session even rolled around. There were no apparent catalysts, but some market analysts pointed to Brexit-related jitters and wavering expectations that the BOE would become hawkish soon.

However, it’s also possible that market players were opening preemptive positions on the expectations that the U.K.’s construction PMI would be a miss. After all, the pound did rally instead of sinking when the actual PMI reading was revealed to have missed expectations. The pound later found fresh sellers shortly after the rally, though, and ended the session mixed.

GBP/USD was up by 30 pips (+0.24%) to 1.2466 earlier but closed 3 pips lower (-0.03%) to 1.2432, GBP/JPY was up by 41 pips (+0.30%) to 137.72 earlier but closed 19 pips lower (-0.14%) to 137.12, GBP/AUD was up by 65 pips (+0.40%) to 1.6497 earlier but closed only 36 pips (+0.22%) to 1.6468

Watch Out For:

  • 12:30 pm GMT: Canada’s trade balance ($0.7B expected, $0.8B previous)
  • 12:30 pm GMT: U.S. trade balance (-$46.0B expected, -$48.5B previous)
  • 2:00 pm GMT: U.S. factory orders (1.0% expected, 1.2% previous)
  • 2:30 pm GMT: ECB President Mario Draghi will give a short speech
  • 6:40 pm GMT: French presidential debate
  • 8:30 pm GMT: Federal Reserve Governor Daniel will speak
  • Dairy auction currently underway (+1.7% previous); auction usually ends at around 2:00 pm GMT