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Today’s morning London session was a rather lively one, with lots of themes playing out.

And the main themes are the euro’s broad-based weakness after a bunch of PMI reports failed to meet expectations, as well as yen strength, likely because of the risk-off vibes.

The pound’s volatile price action is also noteworthy since it spiked higher as a knee-jerk reaction to the BOE statement and minutes, only to quickly sink back down later.

  • French flash manufacturing PMI: 53.6 vs. 55.5 expected, 55.9 previous
  • French flash services PMI: 56.8 vs. 57.0 expected, 57.4 previous
  • German flash manufacturing PMI: 58.4 vs. 59.8 expected, 60.6 previous
  • German flash services PMI: 54.2 vs. 55.0 expected, 55.3 previous
  • Euro Zone flash manufacturing PMI: 56.6 vs. 58.1 expected, 58.6 previous
  • Euro Zone flash services PMI: 55.0 vs. 56.0 expected, 56.2 previous
  • German IFO business climate: 114.7 vs. 114.6 expected, 115.4 previous
  • Euro Zone current account: €37.6B vs. €30.2B expected, €31.0B previous
  • U.K. retail sales m/m: 0.8% vs. 0.4% expected, -0.2% previous
  • BOE Minutes: 7-2 vote to keep the Bank Rate at 0.50% (9-0 vote expected)
  • Ian McCafferty and Michael Saunders voted for a rate hike
  • BOE Minutes: 9-0 vote to maintain stock of government bonds purchased at £435B
  • BOE Minutes: 9-0 vote to maintain stock of corporate bonds purchased at £10B

Major Events/Reports:

MPC decision and minutes

The BOE’s MPC announced their latest monetary policy statement and released the minutes for their latest huddle late into the session. And as usual, below are some of the more important and/or interesting points in, well, bullet points for easier reading:

  • The MPC voted to maintain the BOE’s current monetary policy
  • 7-2 vote to keep the Bank Rate at 0.50%
  • 9-0 vote expected
  • Ian McCafferty and Michael Saunders voted for a rate hike
  • These members noted the widespread evidence that slack was largely used up and that pay growth was picking up, presenting upside risks to inflation in the medium term.”
  • 9-0 vote to maintain stock of government bonds purchased at £435B
  • 9-0 vote to maintain stock of corporate bonds purchased at £10B
  • Data released since the February Report appeared to have few implications for the medium-term outlook and were broadly consistent with the MPC’s views set out in that Report.”
  • As in February, the best collective judgement of the MPC remained that, given the prospect of excess demand over the forecast period, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a more conventional horizon.”
  • There had been few surprises in recent economic data and the February Inflation Report projections, conditioned on a gently rising path of Bank Rate, had appeared broadly on track.”
  • The May forecast round would enable the Committee to undertake a fuller assessment of the underlying momentum in the economy, the degree of slack remaining and the extent of domestic inflationary pressures.”
  • UK GDP growth in 2017 Q4 had been revised down slightly, to 0.4%.”
  • Inflation is expected to ease further in the short term although to remain above the 2% target.
  • A range of measures of domestically generated inflation had picked up slightly further in recent months, although the generally remained below target-consistent levels.”
  • Developments regarding the United Kingdom’s withdrawal from the European Union – and in particular the reaction of households, businesses and asset prices to them – remain the most significant influence on, and source of uncertainty about, the economic outlook.

Euro Zone PMI reports disappoint

Markit released the latest batch of PMI reports for Germany, France, and the Euro Zone as a whole. And, quite unfortunately, they all failed to meet the market’s expectations.

Looking only on the PMI report for the Euro Zone as a whole, manufacturing PMI slumped from 58.6 to 56.6 in February. This is a much harder drop compared to the consensus that the reading will only ease to 58.1.

And did I mention that the reading is a 14-month low?

The Euro Zone’s flash services PMI reading didn’t fare any better since it deriorated from 56.2 to 55.0, which is a five-month low.

According to commentary from Markit, the weakness was broad-based, with weaker growth in employment, production, and new orders. New orders growth in the manufacturing sector, in particular, “showed the smallest monthly increase seen over the past 14 months.”

Markit also noted that output growth in France and Germany, the two largest economies in the Euro Zone, slowed to a seven-month and eight-month low respectively.

U.K. retail sales impress

The U.K. Office for National Statistics (ONS) released the U.K.’s February retail sales report earlier.

And according to the report, retail sales volume in the U.K. rose by 0.8% month-on-month, beating expectations for a 0.4% rise.

This is a solid comeback after the 0.2% decline reported back in January and means that consumer spending will likely have a positive contribution to quarterly GDP growth.

Year-on-year, retail sales volume increased by 1.5%, which is a tick faster than the +1.4% consensus, as well as the same rate of annual increase as in January.

This is a far cry from the 3.3% annual increase that was reported back in February 2017. However, the ONS noted that the annual reading has “stabilised in recent months as we see little movement in the year-on-year growth since November 2017.”

Looking at the details of the report, higher food, non-store, and fuel sales were the main drivers of the monthly increase. However, the ONS was quick to point out that “the underlying three-month picture is one of falling sales, mainly due to strong declines across all main sectors in December.”

Intense risk aversion in Europe

The European equity indices were hit by another wave of intense risk aversion, sending them broadly lower for the second day in a row.

And market analysts say that the risk-off vibes were due mainly to renewed fears of a trade war, given expectations that Trump will be announcing a tariff on Chinese imports later today, not to mention the following statement from the Chinese Commerce Ministry (apparently as a response to Trump):

“China will not sit idly by while legitimate rights and interests are hurt. We must take all necessary measures to firmly defend our rights and interests.”

  • The pan-European FTSEurofirst 300 was down by 0.93% to 1,453.48
  • Germany’s DAX was down by 1.18% to 12,163.49
  • The blue-chip Euro Stoxx 50 was down by 1.23% to 3,357.50

U.S. equity futures were also crushed by all the risk aversion.

  • S&P 500 futures were down by 0.79% to 2,696.75
  • Nasdaq futures were down by 1.27% to 6,796.25

Major Market Mover(s):


The euro was hard-pressed and was the worst-performing currency of the morning London session, apparently because euro bears were enticed to charged in when the latest batch of Euro Zone PMI reports failed to meet expectations.

EUR/USD was down by 50 pips (-0.40%) to 1.2323, EUR/CHF was down by 37 pips (-0.31%) to 1.1676, EUR/JPY was down by 60 pips (-0.46%) to 130.17


The intense risk-off vibes meant that both the yen and the Swissy were in demand. The yen was apparently the safe-haven currency of choice, though, since the yen was the top-performing currency of the morning London session.

USD/JPY was down by 8 pips (-0.07%) to 105.61, AUD/JPY was down by 28 pips (-0.35%) to 81.61, CHF/JPY was down by 16 pips (-0.15%) to 111.47


The pound was mixed ahead of the BOE statement, although bearish pressure was already notable, despite the better-than-expected retail sales report.

However, the pound later jumped higher when the BOE announced its monetary policy statement, apparently as a knee-jerk reaction to the revelation that two BOE members voted for a rate hike, as well as hints of a possible rate hike by May.

Sellers were quick to charge in, though, likely because of profit-taking since rate hike expectations were already priced in. Also, the BOE downgraded its growth forecasts and said that inflation is expected to ease, which implies that future rate hikes would only be gradual. Moreover, the BOE highlighted the risks associated with Brexit once more. And those may have attracted some bears.

GBP/USD was down by 7 pips (-0.05%) to 1.4156 with 1.4216 as session high, GBP/CHF was up by 4 pips (+0.03%) to 1.3411 with 1.3463 as session high, GBP/JPY was down by 18 pips (-0.12%) to 149.51 with 150.17 as session high

Watch Out For:

  • 12:30 pm GMT: U.S. initial jobless claims (225K expected, 226K previous)
  • 1:00 pm GMT: U.S. HPI (0.4% expected, 0.3% previous)
  • 1:45 pm GMT: Markit’s flash manufacturing PMI (55.5 expected, 55.3 previous)
  • 1:45 pm GMT: Markit’s flash services PMI (steady at 55.9 expected)
  • 2:00 pm GMT: CB’s U.S. leading index (0.5% expected, 1.0% previous)
  • 5:00 pm GMT: BOE Deputy Governor David Ramsden is scheduled to speak
  • 6:45 pm GMT: BOC Senior Deputy Governor Carolyn Wilkins will speak