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The European currencies (GBP, EUR, CHF) fought for the honor of being the one currency to rule them all during the session. But in the end, there can be only one. And that happened to be the pound.

Meanwhile, the yen had a repeat performance of yesterday’s morning London session because it was the worst-performing currency despite the risk-off vibes during the session.

  • German import prices m/m: -0.1% vs. 0.2% expected, -0.5% previous
  • French consumer spending m/m: 0.5% vs. 0.8% expected, -0.1% previous
  • French preliminary GDP q/q: 0.4% vs. 0.3% expected, same as previous
  • KOF Swiss economic barometer: 101.6 vs. 106.2 expected vs. 106.3 previous
  • Spanish flash CPI y/y: 1.9% vs. 2.1% expected, 2.6% previous
  • Economic confidence in the Euro Zone: 109.2 vs. 110.0 expected, 109.7 previous
  • Euro Zone consumer sentiment: unchanged at -3.3 as expected
  • Euro Zone industrial sentiment: 2.8 vs. 3.1 expected, 2.6 previous
  • German HICP m/m: -0.2% vs. -0.1% expected, 0.0% previous
  • German HICP y/y: 1.4% vs. 1.5% expected, 2.0% previous

Major Events/Reports

Greece Denies Earlier Rumors

Greek Finance Minister Euclid Tsakalotos talked to the press earlier and clarified that earlier rumors about Greece opting out of receiving more bailout money were not true by saying the following:

“Bild has distorted what I said yesterday. I never said that Greece would not repay debt in July. There is no such issue.”

“What I did say is that the disbursement (of bailout money) was not an issue, because all sides agreed that we have kept to our commitments.”

“But the Greek government feels that a disbursement without clarity on debt is not enough to turn the Greek economy around.”

Fed’s Kaplan Speaks

Dallas Fed President and voting FOMC Member Robert Kaplan was interviewed by CNBC earlier today.

And he reiterated that he sees two more rate hikes this year. Kaplan also said that the Fed’s balance sheet should be “substantially less” than it currently is.

But with regard to prospects for growth under Trump’s tax cut plans, he sounded less optimistic when he said the following:

“If it’s tax reform, I think that could be helpful. If it’s a tax cut financed by increasing the deficit, my concern is that may give a short-term bump to GDP growth, but not a sustainable bump to GDP. And over the horizon we’ll have similar growth that we have now, except we’ll have more leverage, we’ll have higher debt to GDP and I think that will be negative for economic growth.”

Kaplan was also not very upbeat on the labor market:

“The problem is labor force growth is very sluggish. And my own judgment and our economists at the Dallas Fed think it’s going to continue to be sluggish the next 10 years because the population is aging and labor force growth therefore is slowing”

ECB Rumors

According to four unnamed sources (one of whom is apparently a Governing Council Member) being cited in an exclusive Reuters report, ECB officials are supposedly “set to take a more benign view of the economy when they meet on June 8 and will even discuss dropping some of their pledges to ramp up stimulus if needed.”

The Reuters report further cited one source as saying that:

“With economic growth clearly shifting into higher gear, rate setters are ready to acknowledge the improvement by dropping a long-standing reference to downside risks in the bank’s post-meeting opening statement, calling risks largely balanced.”

However, Reuters also noted that ECB officials “disagree on how quickly the ECB should change its policy stance, including its guidance, with countries on the currency bloc’s periphery fearing that a sharp shift in its communication could induce self-defeating market turbulence.

As to whether or not the ECB will definitely remove its easing bias, one unnamed source warned that:

“This will be the first time we discuss this so I don’t necessarily expect a decision.”

However, one source also pointed to the open secret that:

“Everybody knows we won’t cut rates, so formally acknowledging that should cause no ripples.”

Anyhow, this is not really that surprising because the ECB’s meeting minutes already hinted at a potential change in tune, perhaps as early as the June ECB meeting (emphasis mine).

“At the forthcoming policy meeting in June, new staff projections, alongside further data and analyses, would become available, putting the Governing Council in a better position to take stock and reassess the sustainability of the recovery and the outlook for inflation”

“Looking ahead, it was suggested that, if the euro area recovery kept up its momentum and progress was made in attaining a sustained adjustment in the path of inflation, due consideration would need to be given to adjusting the present formulation of the Governing Council’s forward guidance.”

Commodities Pummeled

Commodities were suffering during today’s morning London session. And interestingly enough, oil was leading the downhill charge.

Oil benchmarks got hit the hardest.

  • U.S. WTI crude oil was down by 0.72% to $49.44 per barrel
  • Brent crude oil was down by 1.25% to $51.98 per barrel

Base metals were mixed but mostly in the red.

  • Copper was down by 0.66% to $2.549 per pound
  • Zinc was down by 0.26% to $2,635.75 per dry metric ton

The risk-off vibes didn’t really provide enough support for precious metals.

  • Gold was down by 0.35% to $1,263.72 per troy ounce
  • Silver was down by 0.12% to $17.303 per troy ounce

Market analysts pointed to lack of demand from China because of the Dragon Boat Festival as being the main reason for the poor performance in the commodities market, particularly base metals.

As for oil’s slide, market analysts are still blaming that on persistent oversupply worries amid rising U.S. oil output and despite the extension on OPEC’s oil cut deal.

Risk-off Vibes in Europe

The skittishness from yesterday’s morning London session evolved into clear risk aversion during today’s session since European equity indices were clearly in the red.

  • The pan-European FTSEurofirst 300 was down by 0.22% to 1,533.65
  • Germany’s DAX was down by 0.20% to 12,604.00
  • The blue-chip Euro Stoxx 50 was down by 0.47% to 3,561.50

Even U.S. equity futures were feeling the bearish vibes.

  • S&P 500 futures were down by 0.19% to 2,409.25
  • Nasdaq futures were down by 0.11% to 5,786.12

Market analysts are still pinning the blame on political uncertainty in Italy, which has been weighing down on Italian banks.

Major Market Mover(s):

GBP

The pound outperformed during the morning London session, even though there weren’t really any apparent catalyst. And the pound’s broad-based strength was probably not just due to profit-taking, given that most pound pairs have already erased their earlier losses and were already in positive territory for the day (so far).

Anyhow, some market analysts attributed the pound’s strength to speculation that Theresa May’s Conservative Party will win anyway, despite what the polls are indicating.

GBP/USD was up by 54 pips (+0.42%) to 1.2865, GBP/JPY was up by 65 pips (+0.46%) to 142.72, GBP/CAD was up by 55 pips (+0.32%) to 1.7320

EUR & CHF

The euro had a started the session on a strong footing, likely because of profit-taking after Greece denied earlier rumors that it opted out of receiving more bailout money.

The euro then just shrugged off the mostly negative reports during the session before getting a finals bullish boost near the end when the Reuters report came out.

As for the Swissy, it was likely tracking the euro again, although it’s also likely that the Swissy was acting as a safe-haven again since the yen was out of commission during the session (yet again).

EUR/USD was up by 57 pips (+0.52%) to 1.1172, EUR/JPY was up by 68 pips (+0.55%) to 123.97, EUR/CAD was up by 64 pips (+0.42%) to 1.5044

USD/CHF was down by 40 pips (-0.42%) to 0.9755, CAD/CHF was down by 22 pips (-0.31%) to 0.7245, AUD/CHF was down by 17 pips (-0.24%) to 0.7269

JPY

The yen had a repeat performance of yesterday’s morning London session since it was the weakest currency of today’s session despite the risk-off vibes. No clear reason why, but there were headlines related to North Korea earlier, and that may have spooked some yen bulls.

USD/JPY was up by 10 pips (+0.09%) to 110.94, CHF/JPY was up by 50 pips (+0.45%) to 113.70, AUD/JPY was up by 17 pips (+0.22%) to 82.67

Watch Out For:

  • 12:30 pm GMT: Canada’s current account (-$11.4B vs. -$10.7B previous)
  • 12:30 pm GMT: Canada’s RMPI (3.8% expected, -1.6% previous) and IPPI (0.7% expected, 0.8% previous)
  • 12:30 pm GMT: U.S. core PCE price index (0.1% expected, -0.1% previous)
  • 12:30 pm GMT: U.S. personal spending (0.4% expected, 0.0% previous) and personal income (0.4% expected, 0.2% previous)
  • 1:00 pm GMT: S&P Case-Shiller HPI (5.6% expected, 5.9% previous)
  • 2:00 pm GMT: CB’s consumer confidence index (120.1 expected, 120.3 previous)
  • 9:00 pm GMT: RBNZ’s financial stability report