The Greenback was already showing some weakness when the morning London session rolled around. However, that weakness got amplified when U.S. Treasury Secretary Steven Mnuchin said that a weaker dollar is good for U.S. trade.
As for other currencies of note, we have the pound, which was the top-performing currency of the session, likely because of easing Brexit-related jitters. Although the U.K.’s jobs report also showed some positive glimmer, particularly with regard to wage growth.
- French flash manufacturing PMI: 58.1 vs. 58.6 expected, 58.8 previous
- French flash services PMI: 59.3 vs. 58.9 expected, 59.1 previous
- German flash manufacturing PMI: 61.2 vs. 63.0 expected, 63.3 previous
- German flash services PMI: 57.0 vs. 55.5 expected, 55.8 previous
- Euro Zone flash manufacturing PMI: 59.6 vs. 60.3 expected, 60.6 previous
- Euro Zone flash services PMI: 57.6 vs. 56.4 expected, 56.6 previous
- U.K. jobless rate: steady at 4.3% as expected
- U.K. average earning (3m y/y): 2.5% as expected, same as previous
- Claimant count change in the U.K.: 8.6K vs. 2.3K expected, 12.2K previous
Steven Mnuchin speaks (and USD bears listened)
U.S. Treasury Secretary Steven Mnuchin had some press time in Davos earlier. And, well, he caused the Greenback to tank hard across the board when he said the following, as quoted in the Financial Times (emphasis mine):
“The dollar is one of the most liquid markets. Where it is in the short term is not a concern for us at all. A weaker dollar is good for us as it relates to trade and opportunities. Longer term, the strength of the dollar is a reflection of the strength of the US economy and that it is, and will continue to be the primary reserve currency.”
Brexit Secretary Davis speaks
David Davis, the U.K.’s lead Brexit negotiator, was grilled in Parliament earlier during the session.
And he said that:
“It would be unwise to get sucked into a negotiation during the transition period itself which is substantive, major. Why? Because the balance of power in the negotiation alters. The aim then on the part of the commission would be to spin out the negotiation.”
However, Davis also said that the U.K. is A-okay with being subject to the European Court of Justice during the “short” transition phase.
This prompted Brexiteers to lambast Davis’ position as “really rather weak,” as well as accusations that Davis is, in effect, turning the U.K. into the E.U.’s “vassal state.”
Even so, Davis likely eased Brexit-related jitters when he was asked when he expects to hammer out a transition deal with the E.U. and he answered as follows (emphasis mine):
“Oh I would expect it before the end of March. It wasn’t said in terms, but that was pretty much intimated in the Commission’s briefing documents in December.”
U.K. jobs report
The Office for National Statistics (ONS) released the U.K.’s latest jobs report earlier today.
And it revealed that the jobless rate held steady at 4.3% during the three months to November, which is the shared lowest reading on record since comparable records began in 1971.
Sadly, the number of people who claimed unemployment benefits increased by 8.6K in December, exceeding the forecast for a 2.3K increase.
Also average weekly earnings only grew by 2.3% year-on-year, slowing down from the previous month’s +2.4%.
But on a more upbeat note, the three-month average comes in at 2.5% (same as previous), which is within expectations and is the shared highest reading since the three months to December 2016.
In addition, if bonuses are stripped, then regular weekly earnings actually maintained the previous month’s +2.4% annual pace, beating expectations that it would slow to +2.3%.
However, if inflation is taken into account, then real wage growth continues to take hits, with real regular earnings falling by 0.5% year-on-year because of high inflation in the U.K.
This marks the 10th consecutive month of negative real wage growth.
Improving risk sentiment in Europe
The major European equity indices had a wobbly start and then proceeded to plumb new intraday lows, showing that risk aversion was initially the dominant sentiment in Europe.
However, the major European equity indices later came off their lows and some were even already in the green by the end of the morning London session, which implies that risk sentiment was improving.
The earlier risk-off vibes was blamed by market analysts on the slide in tech and utility shares, thanks respectively to negative news related to Apple and French utility company Suez.
As for the later signs of returning risk appetite, there’s no clear reason for that yet.
- The pan-European FTSEurofirst 300 was already up by 0.10% to 1,584.39
- Germany’s DAX was still down by 0.02% to 13,559.50 but off the day’s low at 13,535.50
- The blue-chip Euro Stoxx 50 was still down by 0.05% to 3,667.50 but off the day’s low at 3,662.50
U.S. equity futures were already in the green as well.
- S&P 500 futures were up by 0.26% to 2,846.75
- Nasdaq futures were up by 0.18% to 6,978.00
Major Market Mover(s):
The Greenback was the worst-performing currency of the morning London and is also on course to finishing as the worst-performing currency of the day.
The Greenback was already feeling a bit down before the morning London session. However, that weakness only intensified when the Greenback reeled in pain after U.S. Treasury Secretary Steven Mnuchin said that a weaker dollar is good for U.S. trade.
USD/JPY was down by 43 pips (-0.39%) to 109.52, USD/CAD was down by 73 pips (-0.59%) to 1.2337, USD/CHF was down by 38 pips (-0.40%) to 0.9509
The pound ruled over all during the morning London session. The pound jumped across the board at around 11:00 am GMT, which is two hours after the U.K.’s jobs report was released, so we can’t really point to the U.K.’s jobs report.
Brexit Secretary was speaking at the time, though, and his later comments, particularly the ones about getting a transition deal by March, very likely caused Brexit-related jitters to ease and pushed the pound higher.
GBP/USD was up by 58 pips (+0.44%) to 1.3457, GBP/JPY was up by 67 pips (+0.44%) to 154.96, GBP/CHF was up by 58 pips (+0.43%) to 1.3456
Watch Out For:
- 2:00 pm GMT: U.S. HPI (0.5% expected, same as previous)
- 2:45 pm GMT: Markit’s flash U.S. manufacturing PMI (55.0 expected, 55.1 previous)
- 2:45 pm GMT: Markit’s flash U.S. services PMI (54.5 expected, 53.7 previous)
- 3:00 pm GMT: Existing U.S. home sales (5.70M expected, 5.81M previous)
- 3:30 pm GMT: CB’s Australian leading index (0.3% previous)
- 3:30 pm GMT: U.S. crude oil inventories (-1.0M expected, -6.9M previous)
- 9:45 pm GMT: New Zealand’s quarterly CPI (0.4% expected, 0.5% previous)