The euro was the underdog for the most part during the morning London session. However, the euro got a strong bullish infusion later on when the hawkish ECB minutes were released, so much so that the euro ended up steamrolling all its peers.
Also, it’s worth pointing out the Swissy got to come along for the ride and was the second strongest currency after the euro, despite some risk-taking during the morning London session.
The Loonie, meanwhile, continued to bleed out, even though oil benchmarks printed gains during the session.
- 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
We finally got our hands on the minutes of the ECB’s December huddle late into the session. And, well, we got these rather hawkish bits (emphasis mine):
“Looking ahead, the view was widely shared among members that the Governing Council’s communication would need to evolve gradually, without a change in sequencing, if the economy continued to expand and inflation converged further towards the Governing Council’s aim.”
“The language pertaining to various dimensions of the monetary policy stance and forward guidance could be revisited early in the coming year.”
“It was suggested that the Governing Council’s communication should be adjusted gradually over time to avoid sudden and unwarranted movements in financial conditions.”
Whoa! A possible change in tune and forward guidance early this year? Not only that, this view was “widely shared among [ECB] members.” And also take into account the fact that Draghi and company have been implying that no changes in monetary policy stance and forward guidance are forthcoming until late into the year. No wonder the euro jumped higher across the board!
And sure, the minutes repeated Draghi’s downbeat assessment that:
“[M]easures of underlying inflation had weakened overall and had yet to show convincing signs of a sustained upward trend.”
However, the minutes also had a hawkish tilt because of this bit:
“[T]he steady absorption of economic slack gave grounds for increased confidence that price pressures would gradually take hold.”
Parties to the NAFTA renegotiations will meet again for the sixth round of talks from January 23 to 28. And there are already rumors aplenty.
And we got one when a Reuters report that cited two unnamed Canadian “government sources” was released earlier.
And Reuters quoted one of these sources as saying that:
“The government is increasingly sure about this … it is now planning for Trump to announce a withdrawal.”
The Reuters report also cited a “Mexican government source with knowledge of the talks” as saying that “We have always said that this is a possibility.”
Modest appetite for risk in Europe
The major European equity indices nudged broadly higher during the morning London session after getting hammered yesterday, which implies that risk-taking prevailed.
Market analysts cited upbeat earnings results as the main reason for the prevalence of risk appetite.
However, these same analysts noted that the potential spat between China and the U.S. due to Trump’s planned protectionist measures, as well as yesterday’s bond market sell-off, were the reasons why investors were not too enthusiastic to send the major European equity indices higher.
- The pan-European FTSEurofirst 300 was up by 0.11% to 1,569.84
- Germany’s DAX was up by 0.09% to 13,293.50
- The blue-chip Euro Stoxx 50 was up by 0.16% to 3,613.50
U.S. equity futures actually performed a bit bitter, raking in more gains while signaling that appetite for risk may also carry over into the upcoming U.S. session.
- S&P 500 futures were up by 0.19% to 2,755.75
- Nasdaq futures were up by 0.18% to 6,689.75
Major Market Mover(s):
The euro was a net loser for most of the session, but rapidly clawed its way higher across the board when the ECB minutes were released.
EUR/USD was up by 63 pips (+0.53%) to 1.2003, EUR/GBP was up by 47 pips (+0.54%) to 0.8901, EUR/AUD was up by 88 pips (+0.58%) to 1.5263
The Swissy initially had a hard time during the session, likely because of the risk-on vibes. However, the Swissy later outpaced the Kiwi and took second place when the ECB minutes were released, which is not surprising for regular readers of my weekly recaps since I’ve been pointing out that the Swissy has been dancing in tandem with the euro for almost a year now.
USD/CHF was down by 34 pips (-0.35%) to 0.9775, AUD/CHF was down by 31 pips (-0.40%) to 0.7687, CAD/CHF was down by 37 pips (-0.47%) to 0.7776
The Loonie’s suffering continued into the morning London session. Oil benchmarks actually climbed higher during morning London session, but that didn’t do diddly squat for the Loonie, likely because of lingering worries related to NAFTA.
USD/CAD was up by 16 pips (+0.13%) to 1.2573, EUR/CAD was up by 98 pips (+0.66%) to 1.5090, NZD/CAD was up by 30 pips (+0.33%) to 0.9071
Watch Out For:
- 1:30 pm GMT: Canadian NHPI (0.2% expected, 0.1% previous)
- 1:30 pm GMT: Headline (0.2% expected, 0.4% previous) and core (0.2% expected, 0.3% previous) readings for U.S. PPI
- 1:30 pm GMT: U.S. initial jobless claims (245.0K expected, 250.0K previous)
- 7:00 pm GMT: U.S. Federal budget balance (-$26.5B expected, -$138.5B previous)
- 8:30 pm GMT: New York Fed President William Dudley will speak
- 9:45 pm GMT: Building permits issued in New Zealand (-9.6% previous)