Easing trade tensions and another round of risk-taking kept the Aussie supported. However, the risk-on vibes likely applied some bearish pressure on the safe-haven.
Other than those two, the euro is also worth noting since it encountered sellers after ECB’s Smets gave a speech, so much so that the euro was the second worst-performing currency of the session.
- German final HICP m/m: unchanged at +0.4% as expected
- German final HICP y/y: unchanged at +1.5% as expected
- Chinese new yuan loans: 1,120B vs. 1,326B expected, 839B previous
- Euro Zone trade balance: €21.0B vs. €20.2B expected, same as previous
ECB’s Smets speaks
ECB Executive Board Member Jan Smets gave a speech in Macedonia earlier.
And he said right off the bat that:
“Notwithstanding the economic recovery, central bankers cannot (yet) rest at ease. First, weak inflationary pressures remain a lingering concern. Second, monetary policy normalization itself poses a new challenge which requires our attention.”
How’s that for a dovish opening statement? Other than that, he also echoed the ECB minutes’ message that the ECB’s “overall stance continues to be very accommodative,” despite the removal of the ECB’s easing bias on its QE program.
Smets then explained that the ECB’s “cautious approach” is due to the “multitude of uncertainties that remain present in the economy and that are complicating our understanding of how the economy exactly works.”
And one such uncertainty is “the link between inflation and economic growth.”
True, the Euro Zone economy is growing well enough but inflation has not yet picked up at a convincingly sustainable pace, which makes the ECB “suspect that slack in the euro area is bigger than [ECB officials] thought.”
As such, Smets concluded that “the prudent, persistent and patient monetary policy approach followed by the Governing Council so far is fully justified.”
Some risk-taking to end the week
Another wave of risk-taking permeated across Europe, sending the major European equity indices broadly higher.
And according to market analysts, today’s bout of risk-taking was due to easing trade tensions, mostly positive earnings updates, and the rise in commodity prices this past week. Although a few disappointing earnings updates here and there helped to cap gains.
- The pan-European FTSEurofirst 300 was up by 0.41% to 1,491.37
- Germany’s DAX was up up 0.70% to 12,501.48
- The blue-chip Euro Stoxx 50 was up up 0.52% to 3,461.05
U.S. equity futures were also mildly in the green, which implies that the risk-on vibes may carry over into the upcoming U.S. session.
- S&P 500 futures were up by 0.23% to 2,670.00
- Nasdaq futures were up by 0.12% to 6,678.75
Major Market Mover(s):
The Aussie extended its gains and was the best-performing currency, not just of the morning London session, but of the day (so far) as well.
The Aussie was likely supported by another bout of risk-taking, which was partly attributed to easing trade tensions. However, it’s also possible that European traders were pricing in the large increase in Chinese imports from the earlier session.
AUD/USD was up by 8 pips (+0.10%) to 0.7798, AUD/JPY was up by 14 pips (+0.17%) to 83.97, AUD/NZD was up by 21 pips (+0.20%) to 1.0567
Rising bond yields plus another bout of risk-taking meant bad news for the safe-haven yen. This also means that the yen is still on track to closing out as this week’s biggest loser.
USD/JPY was up by 10 pips (+0.10%) to 107.70, GBP/JPY was up by 20 pips (+0.13%) to 153.54, CHF/JPY was up by 18 pips (+0.17%) to 111.83
The euro had a mixed start but it began encountering sellers and ended up as the second worst-performing currency of the session after ECB Member Smets gave a rather cautious speech.
Other than that, market analysts also blamed a technical breakout on EUR/GBP as supposedly applying bearish pressure on the euro.
EUR/USD was down by 11 pips (-0.10%) to 1.2312, EUR/AUD was down by 27 pips (-0.17%) to 1.5789, EUR/GBP was down by 11 pips (-0.13%) to 0.8635
Watch Out For:
- 2:00 pm GMT: University of Michigan’s Preliminary consumer sentiment (100.6 vs. 101.4 previous)
- 2:00 pm GMT: JOLTS U.S. job openings (6.11M expected vs. 6.31M previous)