The Greenback started the session on a mixed note, but quickly became the main loser, not just of the morning London session, but of the day as well when rumors made the rounds that China may supposedly slow or even stop buying U.S. treasuries.
And interestingly enough, the euro was the main beneficiary of the Greenback’s weakness. Meanwhile, the Loonie also got weighed down when the Greenback took a dive.
- French industrial production m/m: -0.5% vs. -0.4% expected, 1.7% previous
- U.K. industrial production m/m: 0.4% as expected, 0.2% previous
- U.K. manufacturing production m/m: 0.4% vs. 0.3% expected, 0.3% previous
- Construction output in the U.K. m/m: 0.4% vs. 0.8% expected, -1.1% previous
- U.K. goods trade balance: -£12.2b vs. -£10.9B expected, -£10.8B previous
Rumors about China’s U.S. bond purchases
According to a widely-circulated Bloomberg report that cited “people familiar with the matter,” Chinese officials have supposedly “recommended slowing or halting purchases of U.S. Treasuries.”
And according to the Bloomberg report, the reason why this recommendation was made is that (emphasis mine):
“The market for U.S. government bonds is becoming less attractive relative to other assets, and trade tensions with the U.S. may provide a reason to slow or stop buying American debt.”
As highlighted above, the recommendation (if true), is partially driven by politics, likely as a response or a preemptive threat to Trump’s anticipated plan to clamp down on what Trump views as China’s unfair trade practices.
Interestingly enough, the Bloomberg report itself noted that it’s not clear if the recommendation of these unnamed Chinese officials were accepted or not.
Commodities rally further
Commodities staged another broad-based rally, extending their gains from yesterday. And this time, precious metals also got a lift after getting left behind yesterday.
Commodities were actually already raking in gains before the morning London session rolled around. However, their climb picked up the pace when the Greenback tanked hard after rumors that China will slow or stop purchasing U.S. Treasuries began to spread.
And for reference the U.S. dollar index was down by 0.55% to 91.72 for the day when the morning London session ended.
Base metals were well in the green and clearly outperformed.
- Copper was up by 1.37% to $3.260 per pound
- Nickel was up by 2.28% to $12,952.50 per dry metric ton
Oil benchmarks also had another good run.
- U.S. WTI crude oil was up by 1.06% to $63.63 per barrel
- Brent crude oil was up by 0.76% to $69.34 per barrel
Precious metals were also in positive territory after faring poorly yesterday.
- Gold was down by 0.79% to $1,324.10 per troy ounce
- Silver was down by 0.97% to $17.175 per troy ounce
Risk aversion in Europe
Europe was apparently in a gloomy mood today since the major European equity indices registered losses pretty much across the board.
Interestingly enough, the major European equity indices were actually in the green before rumors made the rounds that China plans to slow or stop buying U.S. treasuries.
However, when that rumor hit the wires, the major European equity indices quickly made a U-turn. That rumor was therefore apparently the catalyst for the shift in risk sentiment during the morning London session.
- The pan-European FTSEurofirst 300 was down by 0.46% to 1,565.94
- Germany’s DAX was down by 0.87% to 13,269.50
- The blue-chip Euro Stoxx 50 was down by 0.58% to 3,603.50
U.S. equity futures were also hit, hinting that the aversion to risk may persist into the upcoming U.S. session.
- S&P 500 futures were down by 0.38% to 2,741.75
- Nasdaq futures were down by 0.56% to 6,649.25
Major Market Mover(s):
The Greenback started the morning London session with a mixed performance after showing broad-based weakness during the earlier Asian session.
However, the Greenback got hit by selling pressure later on when rumors hit the wires that China supposedly plans to slow or stop buying U.S. treasuries.
USD/JPY was down by 56 pips (-0.50%) to 111.39, USD/CHF was down by 54 pips (-0.56%) to 0.9772, USD/CAD was down by 15 pips (-0.12%) to 1.2449
The euro outpaced the yen and was the best-performing currency of the morning London session. There were a few economic reports for the Euro Zone that were released during the course of the session, but they barely caused the euro to budge.
Instead, it looks like the euro jumped higher because of that rumor about China’s U.S. bond purchases. As to whether this was due to expectations that weaker demand for U.S. bonds would mean stronger demand for Euro Zone bonds, or just bullish pressure on EUR/USD that then dragged other EUR pairs higher is not yet clear at this point.
EUR/USD was up by 58 pips (+0.49%) to 1.1997, EUR/CAD was up by 68 pips (+0.46%) to 1.4936, EUR/GBP was up by 33 pips (+0.38%) to 0.8869
The Loonie was the second worst-performing currency of the session, even though oil extended its gains.
And oddly enough, the Loonie encountered broad-based selling pressure at around the same time that the Greenback did, which implies that the rumor about China’s bond purchases also affected the Loonie.
And the possible reason for this is that Canada is highly dependent on trade with the U.S. for growth. Weaker capital flows towards the U.S. means slower U.S. economic growth, which also means weaker demand for Canadian exports such as lumber and oil.
GBP/CAD was up by 18 pips (+0.11%) to 1.6842, NZD/CAD was up by 23 pips (+0.27%) to 0.8965, AUD/CAD was up by 16 pips (+0.16%) to 0.9766
Watch Out For:
- 1:30 pm GMT: Canadian building permits (-1.0% expected, 3.5% previous)
- 1:30 pm GMT: U.S. import prices (0.4% expected, 0.7% previous)
- 3:00 pm GMT: U.S. final wholesale inventories (0.7% expected, same as previous)
- 3:30 pm GMT: U.S. crude oil inventories (-3.9M expected, -7.4M previous)