The euro and the Swissy battled for supremacy during the morning London session, with the euro ultimately coming out on top. The pound tried to join the bullish race as well when the U.K.’s CPI report got released. However, the pound quickly got overran by sellers and ended mostly lower.
As for the other currencies, the Greenback and the Loonie were mixed, although the Loonie was beginning to show signs of demand. Meanwhile, the Aussie and the Kiwi were also mixed, but mostly weaker. As for the yen, it was giving back its gains from the earlier Asian session.
- French final CPI m/m: no change from 0.1% as expected
- Italian preliminary GDP q/q: 0.2% as expected, same as previous
- U.K. CPI y/y: 2.7% vs. 2.6% expected, 2.3% previous
- U.K. core CPI y/y: 2.4% vs. 2.2% expected, 1.8% previous
- U.K. RPI y/y: 3.5% vs. 3.4% expected, 3.1% previous
- U.K. HPI y/y: 4.1% vs. 5.4% expected, 5.8% previous
- Euro Zone flash GDP q/q: 0.5% as expected, same as previous
- Euro Zone trade balance: €23.1B vs. €18.8B expected, €18.8B previous
- ZEW German economic sentiment: 20.6 vs. 22.3 expected, 19.5 previous
- ZEW Euro Zone economic sentiment: 35.1 vs. 29.1 expected, 26.3 previous
Positive data for the Euro Zone
A slew of low and mid-tier economic reports for the Euro Zone as a whole were released during the session, and they were all positive.
First up, is the Euro Zone’s Q1 2017 GDP report, which revealed that the Euro Zone economy grew by 0.5% quarter-on-quarter, meeting expectations and matching the previous quarter’s rate of expansion. Year-on-year, this translates to a 1.7% increase, which is just a tick slower than Q4 2016’s 1.8% annual growth rate.
Growth rate per Euro Zone member varied of course, with some reporting an acceleration in growth while some reported slower rates of expansion. Nonetheless, almost all Euro Zone members printed growth, with the sole exception of Greece, which printed a 0.1% quarter-on-quarter contraction. Still, that’s an improvement over Q4 2016’s 1.2% slump.
Moving on, the Euro Zone’s trade report for the March period showed that the Euro Zone’s trade surplus widened from €18.8 billion to €23.1 billion, which is great because the consensus was that the surplus would narrow to €18.3 billion.
This report is actually kinda moot, since the Q1 GDP report was released simultaneously. Still, a positive report nonetheless.
And finally, the ZEW economic sentiment index for the whole of the Euro Zone jumped from 26.3 to 35.1, easily beating the 29.1 consensus. Moreover, this is the best reading since August 2015, which is great news.
U.K. CPI improves
According to the latest CPI report from the ONS, U.K. CPI increased by 0.5% month-on-month in April, beating expectations that CPI will match the 0.4% increase printed in March.
Year-on-year, this translates to a 2.7% increase, also a tick higher than the +2.6% consensus and better than the 2.3% increase reported in March. This is also the biggest rise since September 2013.
However, the annual reading matches the BOE’s upgrades staff forecast in the May Inflation Report, so it’s probably not enough to convince more BOE members to vote for a rate hike.
Slight risk aversion in Europe
Risk aversion seems to be the dominant risk sentiment in Europe. After all, most European equity indices were printing small losses.
- The pan-European FTSEurofirst 300 was down by 0.19% to 1,553.81
- Germany’s DAX was down by 0.08% to 12,796.50
- The blue-chip Euro Stoxx 50 was down by 0.03% to 3,636.50
Market analysts pinned the downbeat mood on poor earnings reports for some European companies.
Major Market Mover(s):
EUR & CHF
The euro and the Swissy outperformed during today’s morning London session, with the euro ultimately coming out on top.
Both currencies began surging right from the get-go, even though were no apparent catalysts for the Swissy and the euro only had low-tier economic reports for individual Euro Zone members, although the euro did get an extra bullish boost when the positive economic reports for the Euro Zone as a whole got released.
I actually noticed that the euro has been showing strength since yesterday’s London session, and I attributed that to euro demand now that profit-taking by euro longs in the wake of Macron’s victory is probably over. And I’m still sticking to my guns, since that provides a reason for the Swissy’s strength as well.
However, some market analysts opted to attribute the euro’s strength on Greenback selling due to Trump-related jitters, which boosted EUR/USD and dragged other euro pairs higher.
EUR/USD was up by 61 pips (+0.55%) to 1.1052, EUR/AUD was up by 101 pips (+0.69%) to 1.4909, EUR/JPY was up by 88 pips (+0.72%) to 125.63
USD/CHF was down by 42 pips (-0.42%) to 0.9909, AUD/CHF was down by 41 pips (-0.55%) to 0.7345, NZD/CHF was down by 46 pips (-0.67%) to 0.6811
The pound had a promising start and then jumped higher when the U.K.’s CPI report was released. However, the bullish rally very quickly ran out of steam and bears used the opportunity to pounce. As to why bears were enticed to attack, that’s likely due to the fact that annual CPI was within the BOE’s forecast, so that’s not likely enough to convince some BOE officials to switch to the hawkish camp. Also, stronger CPI and wage growth that’s unable to keep up would actually be bad for the U.K. economy.
GBP/USD was down by 34 pips (-0.27%) to 1.2874 after reaching a session high of 1.2957, GBP/CAD was down by 39 pips (-0.22%) to 1.7535 after reaching a session high of 1.7651, GBP/JPY was down by 16 pips (-0.11%) to 146.35 after reaching a session high of 147.10
Watch Out For:
- 12:30 pm GMT: U.S. building permits (1.27M expected, same as previous) and housing starts (1.26M expected, 1.22M previous)
- 1:15 pm GMT: U.S. industrial production (0.4% expected, 0.5% previous) and capacity utilization rate (76.3% expected, 76.1% previous)
- 1:30 pm GMT: CB’s U.K. leading index (0.1% previous)
- Dairy auction currently underway (+3.6% previous); auction usually ends at around 2:00 pm GMT