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Price action during today’s morning London session was a repeat performance of yesterday’s European session since the pound got dumped (again) while the Swissy outperformed (again).

Things weren’t as wonky as yesterday, though, since the pound got whupped when the U.K.’s inflation report failed to impress. The Swissy, meanwhile, likely got a boost from the risk-off vibes.

  • U.K. CPI m/m: 0.0% vs. 0.2% expected, 0.3% previous
  • U.K. CPI y/y: 2.6% vs. 2.9% expected, same as previous
  • U.K. core CPI y/y: 2.4% vs. 2.6% expected, same as previous=
  • U.K. RPI y/y: 3.5% vs. 3.6% expected, 3.7% previous
  • U.K. HPI y/y: 4.7% vs. 3.0% expected, 5.3% previous
  • U.K. PPI input m/m: -0.4% vs. -0.8% expected, -0.7% previous
  • U.K. PPI output m/m: 0.0% vs. 0.1% expected, same as previous
  • German ZEW economic sentiment: 17.5 vs. 17.8 expected, 18.6 previous
  • Euro Zone ZEW economic sentiment: 35.6 vs. 37.2 expected, 37.7 previous

Major Events/Reports

U.K. CPI disappoints

The Office for National Statistics released the U.K.’s latest CPI report earlier today.

And unfortunately for the U.K. (and the pound), CPI was flat month-on-month in June after four consecutive months of increases, missing expectations for a 0.2% rise in the process.

Four of the 12 CPI components printed falls, three were flat for the month, and five actually printed an increase.

And the monthly reading was flat due mainly to the 1.1% slump in the price of clothing, since that subtracted 0.8% from total CPI and almost single handedly offset the rise in prices from the five other components.

That’s disappointing enough, but the year-on-year reading is even more disappointing since it came in at 2.6%, missing expectations that it would match the previous month’s +2.9% pace.

This is not only a three-month low, but also marks the first time since October 2016 that the year-on-year reading for inflation eased.

As for the details, the weaker rise for the transport component (+6.3% vs. 7.2% previous) and the recreation (+1.9% vs. +4.3% previous) were the main reasons why the year-on-year reading eased

Of the remaining components, three matched the pace of increase in May while five printed faster readings. The remaining two printed slower readings but only had minimal impact on CPI.

Anyhow, most of the sub-components of the transport component is stripped from the core reading. However, the recreational component is not, which is why the core reading took a hit as well (+2.4% vs. match previous 2.6% expected).

Interestingly enough, the headline year-on-year reading is within the BOE’s staff forecast of +2.6%, as laid out in the May Inflation Report. The poor reading is therefore unlikely to deter BOE hawks from supporting or thinking about future hikes.

Risk aversion domination

Risk aversion was clearly the dominant sentiment during today’s morning London session since the major European equity indices were in the red.

Market analysts blamed the risk-off vibes on disappointing reports related to Ericsson and Lufthansa, as well as profit-taking on banking shares due to lowered Fed rate hike expectations after Trump’s healthcare plan failed to gain support yet again.

  • The pan-European FTSEurofirst 300 was down by 0.69% to 1,509.41
  • Germany’s DAX was still down by 0.92% to 12,470.75
  • The blue-chip Euro Stoxx 50 was down by 0.86% to 3,489.50

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

  • S&P 500 futures were down by 0.05% to 2,457.75
  • Nasdaq futures were down by 0.06% to 5,853.25

Major Market Mover(s):

GBP

The pound had a promising start but got a major smack-down when the U.K.’s inflation report was released. Interestingly enough, annual CPI of 2.6% was actually within the BOE’s staff forecast, even though it failed to meet the market’s own expectations.

As such, the CPI miss is probably not enough to deter MPC hawks from continuing to support a rate hike, but the market sure is reacting as if a rate hike is now off the table.

GBP/USD was down by 90 pips (-0.69%) to 1.3007, GBP/CHF was down by 152 pips (-1.21%) to 1.2416, GBP/AUD was down by 144 pips (-0.87%) to 1.6397

CHF

The safe-haven Swissy was the one currency to rule them all during the morning London session, very likely because of the prevalence of risk aversion.

USD/CHF was down by 50 pips (-0.52%) to 0.9545, EUR/CHF was down by 36 pips (-0.33%) to 1.1024, NZD/CHF was down by 30 pips (-0.43%) to 0.7016

Watch Out For:

  • 12:30 pm GMT: U.S. import prices m/m (-0.2% expected, -0.3% previous)
  • 1:30 pm GMT: BOE Gov’nah Mark Carney will speak
  • 2:00 pm GMT: NAHB housing market index (no change from 67 expected)
  • Dairy auction currently underway (-0.4% previous); auction usually ends at around 2:00 pm GMT