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The morning London session basically just extended the themes from earlier, namely strong demand for the yen and all the comdolls getting squeezed.

  • German WPI m/m: -0.3% vs. 0.2% expected, 0.9% previous
  • Euro Zone final HICP y/y: 1.1% vs. no change from 1.2% expected
  • Euro Zone final core HICP y/y: no change from 1.0% as expected

Major Events/Reports:

BOE’s FPC statement

The BOE’s Financial Policy Committee (FPC) released a statement related to their March 12 meeting.

And according to the FPC, “risks from global vulnerabilities remain material,” citing the “risks stemming from corporate debt in the United States,” as well as the “elevated” financial vulnerabilities in China.

But on a more upbeat note, the FPC noted that “apart from those related to Brexit, domestic risks remain standard overall.”

In fact, the FPC pointed out that there were “some signs of rising domestic risk appetite in recent quarters.”

As for Brexit, the FPC acknowledged that Brexit is still a source of risk. Even so, the FPC judged that “The UK banking system could continue to support the real economy through a disorderly Brexit.”

ECB’s Praet speaks

Peter Praet, the ECB’s chief economist, was interviewed by Reuters earlier.

Praet was asked about ECB Overlord Draghi’s cautious view on inflation and Praet answered by noting that:

“ECB staff estimates that the euro area output gap is closed, and there is already a positive output gap in Germany. But there is little inflation.”

Even so, Praet tried to sound optimistic when he added later that:

“However, we still see improvements in the path of inflation, so the bottom line is not bad at all. It means that the economy may have unexploited potential capacity.”

Still, the lack of pickup in inflation made Praet say that:

“We will proceed at a gradual pace, or a measured pace as Mario Draghi said, in a way that is most appropriate for inflation convergence – taking into account continued uncertainty about the size of the output gap and the responsiveness of wages to slack.”

A little risk-taking to end the week

Europe is apparently ending the trading week on a somewhat upbeat note since the major European equity indices were broadly in the green during the session.

And market analysts say that the risk-on vibes in Europe was due to deal-making activity, although the threat of a trade war supposedly kept a lid on gains.

  • The pan-European FTSEurofirst 300 was up by 0.20% to 1,476.74
  • Germany’s DAX was up by 0.47% to 12,403.73
  • The blue-chip Euro Stoxx 50 was up by 0.35% to 3,429.00

Global bond yields slide some more

Despite signs of risk-taking in the European equities market, bonds were in high demand, pushing global bond yields lower.

Demand for bonds was likely driven by safe-haven flows due to trade war jitters and heightened geopolitical risks. Well, that has been the narrative promoted this week.

Although some market analysts also blamed ECB Praet’s earlier comments about inflation as dragging European bond yields lower.

  • German 10-year bond yield down by 0.72% to 0.571%
  • French 10-year bond yield down by 0.97% to 0.813%
  • U.K. 10-year bond yield down by 1.11% to 1.424%
  • U.S. 10-year bond yield down by 0.18% to 2.819%
  • Canadian 10-year bond yield down by 0.47% to 2.135%

Major Market Mover(s):

JPY

The yen added to its gains and was the one currency to rule them all during the morning London session.

Risk-taking prevailed, at least in the European equities market. However, lingering fears related to a potential trade war and heightened geopolitical risks likely helped to sustain demand for the yen. Well, that and the fact that bond yields were down.

USD/JPY was down by 8 pips (-0.08%) to 105.62, EUR/JPY was down by 27 pips (-0.21%) to 130.22, CAD/JPY was down by 42 pips (-0.50%) to 80.74

Comdolls

The comdolls (NZD, AUD, CAD) were in a race to the bottom during the morning London session, which is also what they did during the earlier Asian session (and for the whole week for that matter).

AUD/USD was down by 30 pips (-0.39%) to 0.7764, AUD/CHF was down by 29 pips (-0.39%) to 0.7372, AUD/JPY was down by 35 pips (-0.43%) to 81.99

NZD/USD was down by 17 pips (-0.23%) to 0.7240, NZD/JPY was down by 21 pips (-0.28%) to 76.47, NZD/CHF was down by 15 pips (-0.22%) to 0.6877

USD/CAD was up by 21 pips (+0.17%) to 1.3089, EUR/CAD was up by 42 pips (+0.26%) to 1.6137, GBP/CAD was up by 70 pips (+0.38%) to 1.8282

Watch Out For:

  • 12:30 pm GMT: Canadian foreign security purchases ($9.11B expected, -$1.97B previous)
  • 12:30 pm GMT: Canadian manufacturing sales (-0.9% expected, -0.3% previous)
  • 12:30 pm GMT: U.S. building permits (1.32M expected, 1.38M previous) and housing starts (1.29M expected, 1.33M previous)
  • 1:15 pm GMT: U.S. capacity utilization rate (77.7% expected, 77.5% previous)
  • 1:15 pm GMT: U.S. industrial production (0.4% expected, -0.1% previous)
  • 1:30 pm GMT: CB’s U.K. leading index (-0.2% previous)
  • 2:00 pm GMT: Preliminary University of Michigan’s consumer sentiment (99.2 expected, 99.7 previous)
  • 2:00 pm GMT: JOLTS U.S. job openings (5.91M expected, 5.81M previous)