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The euro and the pound were battling for the (dis)honor of being the worst-performing currency of the morning London session. Meanwhile, the safe-haven yen was quietly attracting buyers, very likely because of the jitters ahead of the French Presidential elections. Although the fall in bond yields during the session may have been a factor as well.

  • French flash manufacturing PMI: 55.1 vs. 53.2 expected, 53.3 previous
  • French flash services PMI: 57.7 vs. 57.2 expected, 57.5 previous
  • German flash manufacturing PMI: 58.2 vs. 58.1 expected, 58.3 previous
  • German flash services PMI: 54.7 vs. 55.5 expected, 55.6 previous=
  • Euro Zone flash manufacturing PMI: 56.8 vs. 56.1 expected, 56.2 previous
  • Euro Zone flash services PMI: 56.2 vs. 56.0 expected, 56.0 previous
  • U.K. Headline retail sales m/m: -1.8% vs. -0.3% expected vs. 1.7% previous
  • U.K. Headline retail sales y/y: 1.7% vs. 3.4% expected vs. 3.7% previous
  • U.K. Core retail sales m/m: -1.5% vs. -0.5% expected vs. 1.6% previous
  • U.K. Core retail sales y/y: 2.6% vs. 3.8% expected vs. 4.1% previous

Major Events/Reports:

U.K. retail sales miss bigly – According to the latest U.K. retail sales report from the ONS, retail sales volume in the U.K. plunged hard by 1.8% month-on-month in March. This is a much harder drop than the expected 0.3% slide.

Moreover, most store types took hits, which is why the core reading (fuel stores are excluded) also slumped by 1.5% month-on-month.

But on a slightly upbeat note, the previous headline reading was upgraded from +1.4% to +1.7%. Meanwhile, the previous core reading was upgraded from +1.3% to +1.6%.

Year-on-year, retail sales volume increased by 1.7%, which is only half of the expected 3.4% increase and slower than the previous +3.7% to boot.

Many store types reported smaller annual increase in retail sales volume, which is why the core reading also eased from +4.1% to +2.6%, which is way below the +3.8% consensus.

Taking together all the retail sales data for the Q1 months, retail sales plunged by a painful 1.4% quarter-on-quarter between Q4 2016 and Q1 2017. This would obviously put the hurt on Q1 GDP growth.

French election poll updates – Opinionway released its final poll for the French presidential elections earlier today. And it showed that Macron was able to maintain his lead against anti-EU Le Pen, with 23% of voting intentions in favor of Macron and 22% for Le Pen. This means that these two are the most likely to move on to the second round of the French Presidential elections.

However, Fillon is nipping right at their heels, with 21% (20% previous). Meanwhile, voting intentions for Melenchon, the other anti-EU candidate, fell from 19% to 18%.

Meanwhile, a poll conducted by Ipsos Sopra/Steria gave Macron 24%, Le Pen 22% , and 19% each for Melenchon and Fillon.

Euro bulls can’t rest easy, though, since the polls were conducted on or before April 20. The poll results therefore very likely don’t reflect the terrorist attack in Paris yet, since that tragic event will likely give the anti-EU candidates, Le Pen in particular, a boost.

Cautious optimism in Europe – There was signs of moderate risk-taking in Europe, since most European equity indices were printing some gains.

  • The pan-European FTSEurofirst 300 was only up by 0.20 to 1,486.72
  • Germany’s DAX was only up by 0.39% to 12,074.50
  • The blue-chip Euro Stoxx 50 was up by 0.19% to 3,449.50

U.S. equity futures were also well-supported.

  • S&P 500 futures were up by 0.14% to 2,355.25
  • Nasdaq futures were up by 0.20% to 5,453.88

Market analysts say the overall risk-on vibes was due to another round of positive earnings reports. However, those same market analysts say that jitters ahead of the French elections kept a lid on the risk-friendly environment.

Bond yields slide – Despite the signs of risk-taking in the European equity indices, bond were broadly in high demand, causing bond yields to tank.

  • French 10-year bond yield down by 0.47% to 0.854%
  • German 10-year bond yield down by 3.68% to 0.235%
  • U.K. 10-year bond yield down by 2.62% to 1.042%=
  • U.S. 10-year bond yield down by 0.16% to 2.237%
  • Japanese 10-year bond yield down by 6.25% to 0.015%

Major Market Mover(s):

GBP – The pound competed with the euro in a race to the bottom of the heap. And obviously, the pound’s weakness was a reaction to the rather disappoint U.K. retail sales report.

What’s not very obvious, though, is how the pound began to weaken a full 30 minutes before the retail sales report was released. This may just be innocent preemptive positioning by short-term players.

But as I mentioned last month, a Reuters report, which cited its own analysis and a study by the Wall Street Journal and that you can read here, found that the pound has a strange habit of of moving ahead of top-tier economic reports, such as today’s retail sales report. And this weird pattern may be a sign of a possible leak.

I don’t know about you, but moving in the right direction 30 minutes before the poor retail sales report does seem kinda fishy.

GBP/USD was down by 37 pips (-0.29%) to 1.2777, GBP/CHF was down by 21 pips (-0.16%) to 1.2761, GBP/CAD was down by 41 pips (-0.24%) to 1.7212

EUR – PMI reports for the Euro Zone and its top economies were released during the session. And with the exception of the miss in Germany’s services PMI, everything actually managed to beat expectations.

Even so, the euro ended up being one of the weakest currency of the session. There were no apparent catalysts, but given that the French Presidential elections are looming ever closer, it’s highly probable that euro bulls were abandoning ship due to election jitters.

EUR/USD was down by 36 pips (-0.34%) to 1.0690, EUR/CHF was down by 20 pips (-0.20%) to 1.0678, EUR/NZD was down by 20 pips (-0.13%) to 1.5269

JPY – The safe-haven yen was the best-performing currency of the session. There were signs of moderate risk-taking in the European equity markets, but bond yields were falling, and that probably gave the yen a boost. Also, it’s possible that some market players were buying the yen because of uncertainty related to the French elections.

USD/JPY was down by 17 pips (-0.16%) to 109.12, EUR/JPY was down by 56 pips (-0.48%) to 116.67, GBP/JPY was down by 62 pips (-0.45%) to 139.43

Watch Out For:

  • 12:30 pm GMT: Canada’s headline monthly CPI (0.4% expected, 0.2% previous)
  • 1:30 pm GMT: Minneapolis Fed President Neel Kashkari will speak
  • 1:45 pm GMT: Markit’s flash U.S. manufacturing PMI (53.9 expected, 53.3 previous)
  • 1:45 pm GMT: Markit’s flash U.S. services PMI (53.7 expected, 52.8 previous)
  • 2:00 pm GMT: U.S. existing home sales (5.61M expected, 5.48M previous)