The pound was in a world of hurt during today’s morning London session, thanks to the disappointing U.K. data that were released earlier.
The yen, meanwhile, apparently got a double boost from another bout of risk aversion and the slide in global bond yields.
- Swiss jobless rate: steady at 3.0% as expected
- French industrial production m/m: 0.5% vs. 0.1% expected, -0.3% previous
- Italian industrial production m/m: 1.6% vs. 0.7% expected, 0.2% previous
- U.K. industrial production m/m: -1.3% vs. -0.9% expected, 0.3% previous
- U.K. manufacturing production m/m: 0.3% as expected, 0.2% previous
- Construction output in the U.K. m/m: 1.6% vs. 0.0% expected, 0.1% previous
- U.K. goods trade balance: -£13.6B vs. -£11.6B expected, -£12.5B previous
- Canada’s jobs report coming up; read Forex Gump’s Event Preview
Poor U.K. data
The U.K. released a bunch of economic reports during the course of the session. And sadly for pound bulls, the reports were rather negative overall.
First up is the U.K.’s December industrial production report, which showed that total industrial output in the U.K. fell by 1.3% month-on-month, which is a sharper drop compared to the -0.9% consensus.
The sharp monthly drop translated to a flat year-on-year reading, missing expectations for a soft 0.3% annual rise and marking the first stagnant reading after seven consecutive months of annual growth.
The 24.2% month-on-month and 1.3% year-on-year drop in oil and gas output was the main reason for the slowdown in total industrial production was the main reason for the disappointment in overall industrial output.
Moving on, the U.K.’s December trade report was also a disappointment since that revealed that the U.K.’s trade gap widened by £1.2 billion between November 2017 and December 2017.
Quarter-on-quarter, the U.K.’s trade deficit ballooned by £3.8 billion to £10.8 billion in Q4.
This means that net trade will very likely be a major drag on Q4’s GDP growth.
But on a slightly more upbeat note, the wider deficit in December was largely due to imports surging by 3.0%, which was able to more than offset the decent 0.8% rise in exports.
Quarter-on-quarter, exports rose by 0.2%. It just so happens that imports surged by 2.5%, resulting in a bigger trade deficit.
Commodities suffer some more
Most commodities were hit by another wave of sellers, forcing them to extend yesterday’s losses.
As usual, the Greenback’s relatively strong performance was blamed for the broad-based slide in commodities since a stronger Greenback means that commodities become more expensive to buy for market players who are holding currencies other than USD.
And for reference, the U.S. dollar index was up by 0.13% to 90.31 for the day when the session ended.
Other than Greenback strength, some market analysts also said that the slump in oil prices was due to renewed worries related to higher U.S. oil output.
Base metals were hammered down.
- Copper was down by 0.78% to $3.058 per pound
- Nickel was down by 1.14% to $13,020.00 per dry metric ton
Oil benchmarks were leaking red.
- U.S. WTI crude oil was down by 1.14% to $60.45 per barrel
- Brent crude oil was down by 0.77% to $64.31 per barrel
Even precious metals had a tough time, despite another bout of risk aversion in Europe.
- Gold was down by 0.08% to $1,317.90 per troy ounce
- Silver was down by 0.28% to $16.295 per troy ounce
Risk-off ending in Europe
Europe was racked by another intense bout of risk aversion during today’s morning London session, which apparently caused the major European equities to slump hard yet again.
Market analysts blamed risk sentiment spill over from the earlier Asian session for the risk-off vibes in Europe, as well as the more general theme that investors are supposedly wary of higher expectations that monetary policy will tighten soon, which would result in higher borrowing costs.
- The pan-European FTSEurofirst 300 was down by 1.39% to 1,445.88
- Germany’s DAX was down by 1.59% to 12,065.61
- The blue-chip Euro Stoxx 50 was down by 1.27% to 3,318.50
Global bond yields fall
Another sign of the risk-off vibes in Europe was the broad-based decline in global bond yields, thanks to safe-haven demand for bonds due to the stock market rout, market analysts say.
- German 10-year bond yield down by 4.61% to 0.725%
- French 10-year bond yield down by 2.87% to 0.967%
- U.K. 10-year bond yield down by 3.90% to 1.554%
- U.S. 10-year bond yield down by 1.01% to 2.820%
- Canadian 10-year bond yield down by 0.89% to 2.352%
Major Market Mover(s):
The pound was crushed by a tidal wave of sellers after the U.K.’s disappointing economic reports were released, so much so that the pound is now the worst-performing currency of the day as well.
GBP/USD was down by 167 pips (-1.20%) to 1.3811, GBP/JPY was down by 227 pips (-1.49%) to 150.31, GBP/CHF was down by 161 pips (-1.23%) to 1.2951
The yen had a good run and was the best-performing currency of the session, apparently because of the intense risk aversion in Europe, as well as the slide in global bond yields.
USD/JPY was down by 35 pips (-0.33%) to 108.79, EUR/JPY was down by 80 pips (-0.60%) to 133.26, CAD/JPY was down by 43 pips (-0.51%) to 86.24
Watch Out For:
- 1:30 pm GMT: Canadian net employment change (+10.0K expected, 78.6K previous) and jobless rate (5.8% expected, 5.7% previous); read Forex Gump’s Event Preview
- 3:00 pm GMT: U.S. final wholesale inventories (no change from 0.2% expected)
- 4:45 pm GMT: BOE Deputy Governor Jon Cunliffe is scheduled to speak