Price action was pretty choppy during today’s morning London session, probably because there are a lot of top-tier events lined up for the upcoming U.S. session.
Even so, there were a few themes that were playing out. And chief among these was pound weakness, likely because of renewed Brexit-related jitters.
Another noteworthy theme was Aussie domination, which was likely due to the risk-on vibes.
Yet another theme was Swissy demand. Yes! You read that right! The safe-haven Swissy was broadly higher despite the risk-on vibes during the morning London session.
- German import prices m/m: 0.6% vs. 0.4% expected, 0.9% previous
- German import prices y/y: 2.6% vs. 2.5% expected, 3.0% previous
- French consumer confidence: 102.0 vs. 101.0 expected, 100.0 previous
- German GFK consumer climate: 10.7 vs. 10.8 expected, 10.7 previous
- Lots of top-tier events later
The Fox speaks
U.K. Trade Secretary Liam Fox was interviewed by Bloomberg earlier during the session.
And, well, the Fox first said that:
“We believe that we’ve gone far enough to be able to get into this second stage. Remember, we’re almost getting into 2018 and we’re leaving in March 2019. So we need to make progress now because time is getting short.”
The “second stage” the Fox is referring to in his statement is with regard to talks on a post-Brexit trade deal.
And when he was asked about the possibility that trade talks won’t pan out, the Fox surprisingly and noticeably took a tough stance when he said that:
“We could trade on WTO terms with the EU as we do with the U.S. for example at the present time.”
“We want to get it [post-Brexit trade deal], but we are not afraid to not get it.”
BOE’s financial stability report
And according to the FPC, the most recent “stress-test scenario encompasses a wide range of UK macroeconomic risks that could be associated with Brexit.”
And as a result of these tests, “the FPC judges the UK banking system could continue to support the real economy through a disorderly Brexit.”
However, the FPC also warned that:
“[T]he combination of a disorderly Brexit and a severe global recession and stressed misconduct costs could result in more severe conditions than in the stress test.”
As such, the FPC judges that:
“Brexit poses material risks to the provision of financial services to customers in both the United Kingdom and European Union.”
And in the presser after the release of those reports, BOE Guv’nah Carney added to the doom and gloom by saying that:
“In the event of a sharp disorderly Brexit, there will be an economic impact on households, on businesses. There will be lost markets before new markets are found, and there will be some pain associated with that.”
Commodities fall but precious metals resist
Commodities were broadly in the red during the morning London session. However, not all commodities were in negative territory since precious metals were able to cling to their gains. Although it’s worth pointing out that precious metals were off their intraday highs, so they too felt some selling pressure.
The broad-based slide in commodity prices was likely due to the Greenback’s bounce higher since that means that globally-traded commodities that are prices in U.S. dollars become relatively more expensive.
And for reference, the U.S. dollar index was up by 0.15% to 92.99 for the day when the session was about to end.
Aside from that, the extra hard plunge in some base metals was blamed by market analysts on signs of cooling demand from top industrial metals consumer China.
As for the slide in oil prices, market analysts are still blaming that on earlier news about the Keystone pipeline restarting operations, as well as lingering doubts that the November 30 meeting will have a positive outcome for the oil market.
Base metals were hit hard.
- Copper was down by 1.79% to $3.101 per pound
- Nickel was down by 1.92% to $11,365.00 per dry metric ton
Oil benchmarks also got torpedoed and were sinking.
- U.S. WTI crude oil was down by 0.77% to $57.66 per barrel
- Brent crude oil was down by 0.85% to $62.84 per barrel
As mentioned earlier, precious metals were knocked lower but were able to (barely) cling to their gains.
- Gold was up by 0.02% to $1,294.70 per troy ounce
- Silver was up by 0.09% to $17.035 per troy ounce
Appetite for risk in Europe
The major European equity indices opened higher and proceeded to rake in more gains as the session progresses, so risk-taking was clearly the name of the game in Europe.
And according to market analysts, financial shares led the uphill charge, thanks to the BOE FPC’s conclusion in its latest Financial Stability Report that “the UK banking system could continue to support the real economy through a disorderly Brexit.”
- The pan-European FTSEurofirst 300 was up by 0.57% to 1,521.97
- Germany’s DAX was up by 0.38% to 13,049.50
- The blue-chip Euro Stoxx 50 was up by 0.51% to 3,583.50
U.S. equity futures also enjoyed the risk-on vibes in Europe.
- S&P 500 futures were up by 0.11% to 2,604.62
- Nasdaq futures were up by 0.10% to 6,419.38
Major Market Mover(s):
The pound got swamped by sellers after the BOE FPC released its latest Financial Stability Report and Bank Stress Test Results, likely because the BOE’s warning about the negative effects of Brexit renewed Brexit-related jitters.
Fox’s comments also likely weighed on the pound, although that’s not very clear since BOE Guv’nah Carney was also preaching about the dangers of the Brexit apocalypse at the time.
GBP/USD was down by 50 pips (-0.38%) to 1.3272, GBP/NZD was down by 85 pips (-0.44%) to 1.9157, GBP/AUD was down by 83 pips (-0.47%) to 1.7449
The Aussie edged out the Kiwi and the Swissy and came out as the top-performing currency of the morning London session. There were no apparent catalysts but the Aussie likely got a boost from the risk-on vibes. And the same can be said of the Kiwi for that matter.
AUD/USD was up by 8 pips (+0.10%) to 0.7606, AUD/JPY was up by 12 pips (+0.15%) to 84.66, AUD/CAD was up by 26 pips (+0.27%) to 0.9732
The Aussie and the Kiwi fared well during the session because of the risk-on vibes. That’s fine and dandy, but how come the Swissy was resilient as well and even edged out the Kiwi and gave the Aussie a hard time?
Well, there’s no clear reason for that. But if renewed Brexit-related jitters really did send the pound lower, then some of those capital outflows from the pound will likely find their way to the safe-haven Swissy.
Also, there are a lot of top-tier events for the upcoming U.S. session, including Fed Chair nominee Powell’s testimony. And uncertainty around those events likely sent some capital flows towards the Swissy.
USD/CHF was down by 7 pips (-0.08%) to 0.9826, EUR/CHF was down by 16 pips (-0.14%) to 1.1675, GBP/CHF was down by 58 pips (-0.44%) to 1.3044
Watch Out For:
- 1:30 pm GMT: Canada’s RMPI (-0.1% previous) and IPPI (-0.3% previous)
- 1:30 pm GMT: U.S. goods trade balance: (-$65.0B expected, -$64.1B previous) and wholesale inventories (0.5% expected, 0.3% previous)
- 2:00 pm GMT: U.S. HPI (0.6% expected, 0.7% previous)
- 2:15 pm GMT: New York Fed President William Dudley will speak
- 2:45 pm GMT: Fed Chair nominee Jerome Powell will testify before the Senate Committee on Banking, Housing, and Urban Affairs
- 3:00 pm GMT: CB’s U.S. consumer confidence index (123.9 expectred, 125.9 previous)
- 3:00 pm GMT: Richmond Fed manufacturing index (14 expected, 12 previous)
- 3:15 pm GMT: Philadelphia Fed President Patrick Harker has a speech
- 3:30 pm GMT: BOC wil release its semi-annual Financial System Review
- 4:30 pm GMT: BOC Boss-Man Stephen Poloz will speak
- 8:00 pm GMT: RBNZ will release its Financial Stability Report
- 8:45 pm GMT: U.S. Treasury Secretary Steven Mnuchin will speak