The pound got stomped broadly lower when incoming BOE MPC Member Haskel revealed that he may have some dovish feathers.
The pound was not the weakest currency of the morning London session, though, since the Loonie was a wee bit weaker, even though oil benchmarks were broadly higher.
Signs of returning risk aversion and falling bond yields, meanwhile, allowed the safe-haven yen to win out against the Greenback and claim the top spot.
- U.K. gross mortgage approvals: 39.2K vs. 38.2K expected, 38.3K previous
BOE McCafferty speaks
Outgoing MPC Member Ian McCafferty was speaking earlier. And we warned about the market’s “misperceptions” of the BOE’s QE program, namely that:
“It seems there is a surprisingly widespread belief that QE was ineffective in a macro-economic sense, while introducing serious distortions into the economy in terms of asset bubbles and inequality.”
Given such “misperceptions“, McCafferty stressed his concern that:
“[I]f left unaddressed, that distrust of QE could well limit the MPC’s scope for policy action during the next downturn.”
On a more optimistic note, McCafferty reiterated his hawkish bias when the said the BOE must not “dally” in hiking rates because he thinks that the recent slowdown in inflation will likely decelerate by the end of the year.
Such a hawkish view is not surprising, I suppose. After all, McCafferty did vote for a rate hike during last week’s BOE monetary policy decision.
BOE’s Haskel testifies
Incoming MPC Member Jonathan Haskel testified before the Treasury Select Committee earlier. And for those who don’t know, Haskel is expected to replace McCafferty come September.
Anyhow, Haskel was asked about his views on the path of the Bank Rate and he refrained from giving a definite answer by saying the following:
“I think it would be premature for me to express a view, as I don’t have access to the full array of forecasts and knowledge within the Bank.”
However, Haskel was quick to add that he supports the BOE’s overall hiking bias when he noted that:
“At this stage, I would merely say that given current conditions and current economic data, I agree with the broad direction of travel.”
He did show some of his dovish feathers after that, however, when he disclosed that (emphasis mine):
“I did respond in December 2017 to the FT’s survey of UK economists asking them for their projections this year, 2018. In that survey I forecasted that interest rates would stay low since wage pressure would be weak.”
And before he made the dovish statement above, Haskel already noted that (emphasis mine):
“I would expect that savings rates would fall assuming the outlook for wages and productivity remains subdued. Thus I would predict the outlook for consumer spending in the UK is that it will be similarly subdued.”
So, yeah, Haskel thinks that wages are currently “subdued“. And while he agrees with the BOE’s overall hiking bias, he heavily implied that his hawkish bias is conditional on current economic conditions. So if wage pressure weakens or if the economy deteriorates, it’s implied that Haskel has no problem switching to a more dovish view.
Other than that, Haskel warned that:
“[T]he most significant risks to growth and inflation are Brexit and the future path of productivity growth.”
Oil higher as other commodities fall
Commodities were broadly lower during the morning London. Not all commodities were drowning in a sea of red, though, since oil benchmarks were floating well enough.
And the slide in commodity prices can probably be blamed on the Greenback’s overall strength. And for reference, the U.S. dollar index is up by 0.27% to 94.20 for the day when the session ended.
Although some market analysts also say that the trade spat between the U.S. and China is weighing down on base metals.
As to why oil was resilient, market analysts say that was due to uncertainty in Libya and supply problems over at Canada, which were more than able to offset selling pressure due to OPEC’s decision to increase oil output.
Precious metals were down in the dumps.
- Gold was down by 0.74% to $1,259.50 per troy ounce
- Silver was down by 0.66% to $16.220 per troy ounce
Base metals were also broadly lower.
- Copper was down by 0.12% to $3.006 per pound
- Nickel was down by 1.07% to $14,627.50 per dry metric ton
As mentioned earlier, oil benchmarks were swimming against the bearish tide.
- U.S. WTI crude oil was up by 0.34% to $68.31 per barrel
- Brent crude oil was up by 0.98% to $75.28 per barrel
I’ll just leave this here…
….We are finishing our study of Tariffs on cars from the E.U. in that they have long taken advantage of the U.S. in the form of Trade Barriers and Tariffs. In the end it will all even out – and it won’t take very long!
— Donald J. Trump (@realDonaldTrump) June 26, 2018
Fading appetite for risk in Europe
The major European equity indices opened the trading day by staging a broad-based recovery after yesterday’s painful slide, which is a sign that risk sentiment was improving.
However, selling pressure eventually returned and pulled the major European equity indices off their intraday highs, with some already in the red by the end of the morning London session.
The early risk-on vibes were attributed by market analysts to deal-making activity because of several, positive news on mergers and acquisition. The recovery in trade-related sectors, such as mining, autos, and oil, also helped to improve overall risk sentiment.
As for the later slide, it’s not clear yet, but it’s likely that falling commodity prices dragged mining shares lower, souring overall risk sentiment.
Also, selling pressure appeared to ramp up after Trump’s tweet.
- The pan-European FTSEurofirst 300 was still up by 0.21% to 1,476.35 but off the day’s hight at 1,481.61
- Germany’s DAX was already down by 0.06% to 12,263.16
- The blue-chip Euro Stoxx 50 was up by 0.07% to 3,376.15 but off the day’s hight at 3,389.95
U.S. equity futures were also in the green earlier but closed out the session in the red, which is another proof that risk aversion was making a comeback.
- S&P 500 futures were down by 0.19% to 2,717.00
- Nasdaq futures were down by 0.04% to 7,070.50
Global bond yields fall
Yet another sign that risk aversion was the dominant sentiment was the broad-based fall in bond yields.
- German 10-year bond yield down by 1.23% to 0.320%
- French 10-year bond yield down by 2.11% to 0.721%
- U.K. 10-year bond yield down by 0.93% to 1.280%
- U.S. 10-year bond yield down by 0.14% to 2.871
- Canadian 10-year bond yield down by 1.53% to 2.063%
Major Market Mover(s):
The pound got sold off across the board when incoming BOE MPC Member Haskel testified, likely because market players were none to pleased to learn that outgoing super hawk Ian McCafferty’s replacement has some dovish feathers.
GBP/USD was down by 27 pips (-0.21%) to 1.3243, GBP/JPY was down by 47 pips (-0.33%) to 145.09, GBP/CHF was down by 22 pips (-0.16%) to 1.3094
The pound was weak, but the Loonie was a little bit weaker, allowing the pound to edge out a victory against the Loonie.
Oddly enough, oil prices were on the rise during the session but they didn’t really provide any support to the Loonie.
But then again, the rise in oil prices was attributed to supply problems over in Canada, which is actually bad news for Canada and the Loonie.
USD/CAD was up by 31 pips (+0.24%) to 1.3325, EUR/CAD was up by 18 pips (+0.12%) to 1.5556, AUD/CAD was up by 9 pips (+0.09%) to 0.9855
Falling bond yields and signs that risk aversion is making a comeback allowed the safe-haven yen to win out against the Greenback.
USD/JPY was down by 15 pips (-0.14%) to 109.55, NZD/JPY was down by 26 pips (-0.34%) to 75.21, CAD/JPY was down by 30 pips (-0.37%) to 82.21
The Greenback was outpaced by the yen and had to content itself with second place. As to why the Greenback was bid higher, there’s no clear catalysts for that, but some market analysts say that the Greenback was feeding off weakness on the part of the higher-yielding currencies because of trade tensions.
EUR/USD was down by 20 pips (-0.17%) to 1.1673, NZD/USD was down by 14 pips (-0.20%) to 0.6865, AUD/USD was down by 11 pips (-0.16%) to 0.7395
Watch Out For:
- 1:00 pm GMT: S&P/Case-Shiller Composite HPI (6.80% expected vs. 6.79% previous)
- 2:00 pm GMT: CB’s U.S. consumer confidence (steady at 128.0 expected)
- 2:00 pm GMT: Richmond Fed’s manufacturing index (15 expected vs. 16 previous)
- 5:00 pm GMT: Atlanta Fed President Raphael Bostic has a speech
- 5:45 pm GMT: Dallas Fed President Robert Kaplan is scheduled to speak