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There were plenty of themes that were playing out during today’s morning London session, with pound weakness and yen domination being the most notable ones.

However, there were also a few wonky themes, namely Swissy weakness and Kiwi strength despite the prevalence of risk aversion in Europe.

  • U.K. services PMI: 52.8 vs. 53.5 expected, 51.7 previous
  • Euro Zone flash HICP estimate y/y: 1.2% vs. 1.3% expected, same as previous
  • Euro Zone flash core HICP estimate y/y: 0.7% vs. 0.9% expected, 1.0% previous

Major Events/Reports:

U.K. services PMI

Markit released the latest U.K. services PMI report earlier. And unfortunately, the headline reading for April came in at 52.8, missing expectations that it would come in at 53.5.

But on a more upbeat note, the reading for April is still above the 50.0 neutral mark and is an improvement over the 51.7 printed back in March.

Even so, April’s reading is still the second weakest reading since September 2016.

Moreover, commentary from Markit was not too upbeat.

As for specifics, Markit blamed the poor reading in March to poor weather. However, the poor reading in April was blamed on “subdued consumer willingness-to-spend,” as well as “concerns about the domestic economic outlook.”

And these led to the “second-weakest rise in new business since August 2016.” Not only that, Markit also found that “The rate of service sector employment growth moderated to its weakest since March 2017.”

And with regard to inflationary pressure, “the overall rate of input price inflation eased since March and remained softer than at any time in 2017.”

Worse (for CPI), “the latest rise in average prices charged by service sector firms was the joint slowest since July 2017.”

Euro Zone HICP

The flash estimate for the Euro Zone’s April HICP came in at 1.2% year-on-year. This is a bit disappointing since the consensus was that it would maintain last month’s annual pace of 1.3%.

It’s also moving away from the ECB’s forecast that headline HICP will increase by 1.4% year-on-year in 2018, as laid out in the March Eurosystem/ECB Staff Macroeconomic Projections.

Moreover, HICP less energy, one of the ECB’s preferred measures for core inflation, eased from 1.3% to 1.1%. This is also moving away from the ECB’s forecast that HICP less energy will print a 1.2% annual increase by the end of the year.

As for HICP less energy and unprocessed food, another of the ECB’s preferred measures for core inflation, that also weakened from 1.3% to 1.1%. But on a more upbeat note, the reading is within the ECB’s 2018 forecast of +1.1%.

Downbeat day in Europe

Europe was apparently in a sour mood during today’s morning London session since the major European equity indices were broadly in negative territory.

And market analysts were blaming the gloomy mood on disappointing earnings reports for European companies, as well as lingering worries related to trade.

  • The pan-European FTSEurofirst 300 was down by 0.20% to 1,516.30
  • Germany’s DAX was down by 0.26% to 12,768.70
  • The blue-chip Euro Stoxx 50 down by 0.35% to 3,544.35

Oil slips as other commodities rise

Commodity prices were mostly higher for the day. Oil prices got left behind, though. In fact, they went in the opposite direction.

Demand for commodities was likely stoked by the Greenback’s recent weakness. And for reference, the U.S. dollar index was down by 0.30% to 92.31 for the day by the end of the session.

Other than that, market analyst say that base metals were in demand because of cautious optimism that the U.S. and China can work something out as trade talks begin.

As for the slide in oil prices, market analysts blamed that on higher U.S. oil inventories and production.

Base metals were widely in demand.

  • Copper was up by 1.12% to $3.103 per pound
  • Nickel was up by 0.84% to $14,060.00 per dry metric ton

Precious metals were also in demand.

  • Gold was up by 0.60% to $1,313.40 per troy ounce
  • Silver was up by 0.92% to $16.525 per troy ounce

Oil benchmarks were in negative territory.

  • U.S. WTI crude oil was down by 0.07% to $67.88 per barrel
  • Brent crude oil was down by 0.58% to $72.94 per barrel

Global bond yields fall

Global bond yields were broadly lower during the session (and for the day for that matter). The risk-off vibes and uncertainty surrounding trade talks between the U.S. and China may have spurred safe-haven demand for the bonds, which could have pulled bond yields lower.

However, European bond yields also took hits after the disappointing Euro Zone HICP report was released.

  • German 10-year bond yield down by 5.52% to 0.548%
  • French 10-year bond yield down by 3.42% to 0.548%
  • U.K. 10-year bond yield down by 3.02% to 1.414%
  • U.S. 10-year bond yield down by 0.93% to 2.936%
  • Canadian 10-year bond yield down by 1.52% to 2.327%

Major Market Mover(s):

GBP

The pound was hit by a wave of selling pressure after the U.K.’s services PMI report failed to impress. The pound wasn’t the worst-performing currency of the session, though.

GBP/AUD was down by 46 pips (-0.26%) to 1.8045, GBP/JPY was down by 54 pips (-0.37%) to 148.55, GBP/NZD was down by 77 pips (-0.40%) to 1.9318

CHF

As mentioned earlier, the pound wasn’t the worst-performing currency of the session since that (dis)honor belongs to the Swissy, which is rather wonky since risk aversion was the prevalent sentiment in Europe.

It gets even wonkier once you consider that there’s some uncertainty related to trade talks between the U.S. and China, which should have boosted the Swissy.

Is the SNB sneakily weakening the Swissy again? Other than SNB meddling in order to dissuade safe-haven demand for the Swissy, there isn’t really anything else.

USD/CHF was up by 14 pips (+0.14%) to 0.9972, EUR/CHF was up by 12 pips (+0.10%) to 1.1957, AUD/CHF was up by 22 pips (+0.30%) to 0.7516

NZD

The Kiwi extended its gains from the earlier Asian session, even though risk aversion was the dominant sentiment in Europe.

In fact, the Kiwi managed to edge out a win against the safe-haven yen to emerge as the one currency to rule them all during the morning London session. The Kiwi also overpowered the Aussie and is now the best-performing currency of the day (so far).

As to what sustained the Kiwi’s strength, it’s not yet very clear. However, the most likely reasons are the commodities rally, the Greenback’s recent weakness, and the Kiwi’s yield advantage due to the slide in global bond yields.

NZD/USD was up by 22 pips (+0.32%) to 0.7039, NZD/CHF was up by 30 pips (+0.44%) to 0.7020, NZD/CAD was up by 19 pips (+0.21%) to 0.9036

JPY

The yen barely lost out to the Kiwi and had to content itself with second place.

Still, the yen had a good run. And yen bulls can probably thank the risk-off vibes and slide in global bond yields for that.

USD/JPY was down by 44 pips (-0.41%) to 109.21, EUR/JPY was down by 46 pips (-0.35%) to 130.96, CHF/JPY was down by 48 pips (-0.44%) to 109.53

Watch Out For:

  • 12:30 pm GMT: Canada’s trade balance (-$2.3B expected vs. -$2.7B previous)
  • 12:30 pm GMT: Preliminary U.S. non-farm productivity (0.9% expected vs. 0.0% previous) and U.S. unit labor costs (3.0% expected vs. 2.5% previous)
  • 12:30 pm GMT: U.S. trade balance (-$50.0B expected vs. 0-$57.6B previous)
  • 12:30 pm GMT: U.S. initial jobless claims (225K expected, 209K previous)
  • 1:45 pm GMT: Markit’s final U.S. services PMI (no change from 54.4 expected)
  • 2:00 pm GMT: ISM’s non-manufacturing PMI (58.0 expected vs. 58.8 previous)
  • 2:00 pm GMT: U.S. factory orders (1.4% expected vs. 1.2% previous)
  • 4:00 pm GMT: SNB Boss-Man Thomas Jordan will give a speech