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The almighty U.S. dollar steamrolled its way to the top spot, apparently because of safe-haven demand. However, the Greenback’s reign was short-lived since the yen eventually outpaced the Greenback and finished the session in first place. The Greenback is still in the lead for the day (so far), though.

The higher-yielding Aussie and Kiwi, meanwhile, were the biggest victims of the risk-off vibes in Europe, with the Kiwi getting the worst of it.

However, the Loonie got a rather strong bearish kick very late into the session, so much so that the Loonie ended up being a bigger loser than the Aussie and even almost lost out to the Kiwi as well.

  • Spanish unemployment change: 47.0K vs. 35.2K expected, -27.1K previous
  • Swiss CPI m/m: 0.0% as expected vs. -0.2% previous
  • Swiss CPI y/y: steady at 1.2% as expected
  • U.K. construction PMI: 52.9 vs. 54.9 expected, 55.8 previous
  • Euro Zone PPI m/m: 0.4% vs. 0.3% expected, 0.4% previous
  • Euro Zone PPI y/y: 4.0% vs. 3.9% expected, 3.6% previous
  • BOE Guv’nah Carney and company will soon testify at the Inflation Report Hearings; you can watch it live here

Major Events/Reports:

U.K. construction PMI

The U.K.’s latest construction PMI report was released earlier. And unfortunately, that was a disappointment as well since the headline reading came in at 52.9, which is a three-month low. The market was only expecting a slide from 55.8 to 54.9.

A quick read of the report reveals that the details were not too pretty.

For one, the weakness was broad-based since “all three broad categories of activity recording a loss of momentum since the previous month.” And civil engineering construction, in particular, “decreased for the first time in five months.”

Another is that the “latest data indicated that input price inflation edged down to its lowest since July 2016,” which may translate to weaker CPI down the road.

Yet another is that there was “a slowdown in new business growth from July’s 14-month peak.” And according to survey respondents, “Brexit-related uncertainty continued to hold back investment spending.”

But on a somewhat optimistic note, jobs growth in the construction sector “held close to the two-and-and-a-half year peak seen in July” despite weaker construction output.

Lowe speaks

RBA Guv’nah Philip Lowe gave a speech late into the session. And, well, he dove straight into monetary policy at the start of his speech while saying that interest rates ain’t budging anytime soon when he noted that (emphasis mine):

“As you have probably already heard, the Board left the cash rate unchanged at 1.5 per cent at its meeting this morning. I doubt that this decision surprised anybody. The cash rate has been at 1.5 per cent for more than two years now and the Board expects it to remain there for a while yet.”

Lowe also reiterated the RBA’s hiking bias when he recited the RBA’s mantra that:

“[Y]ou could expect the next move in interest rates to be up, not down. This would be a sign that overall economic conditions are returning to normal and would take place against the backdrop of stronger growth in household income.”

But as usual, Lowe was quick to add that a rate hike is not forthcoming when he said that (emphasis mine):

[A]ny move still seems some way off, given the gradual nature of the progress expected on unemployment and inflation.”

Other than that, Lowe also expressed satisfaction that the Aussie has depreciated against the Greenback, saying that (emphasis mine):

“The United States is most advanced in the process of monetary policy normalisation. This has led to a broad-based appreciation of the US dollar this year. As a consequence, the Australian dollar has depreciated. If sustained, this could be expected to improve the outlook for both inflation and growth.”

Lowe also expressed some concern about escalating trade tensions, noting that “As a country that has benefited greatly from an open rules-based international system, Australia has a strong interest in this not happening.”

Overall, nothing really too surprising.

Oil defies commodities rout

After yesterday’s rally, most commodities beat a hasty retreat during the session. Not all commodities were in the red, however, since oil benchmarks were clearly well in the green.

It’s likely safe to attribute the commodities rout to the Greenback’s strength since the U.S. dollar index was up by 0.48% to 95.52 for the day when the session ended. In fact, market analysts were blaming the slide in base metal prices on the Greenback’s strength.

As to why oil didn’t seem to mind the Greenback’s strength too much, market analysts are still attributing that to supply disruptions since tropical storm Gordon has already forced two oil rigs to suspend operations and evacuate personnel from the Gulf of Mexico.

Base metals were down and out for the count.

  • Copper was down by 2.38% to $2.608 per pound
  • Nickel was down by 1.82% to $12,562.50 per dry metric ton

Precious metals were also in the red despite the risk-off vibes in Europe.

  • Gold was down by 0.54% to $1,200.20 per troy ounce
  • Silver was down by 1.95% to $14.275 per troy ounce

As mentioned earlier, oil benchmarks were swimming against the bearish tide.

  • U.S. WTI crude oil is up by 2.08% to $71.25
  • Brent crude oil is up by 1.77% to $79.53

Europe gripped by risk aversion

The price action of the major European equity indices was a mirror image of yesterday’s price action in that the major European equity indices had a promising start before eventually succumbing to selling pressure, with most already in the red by the end of the session.

And according to market analysts, risk aversion prevailed mainly because of concerns that the U.S. may escalate the ongoing trade war with China by imposing additional tariffs on Chinese goods once the public comment period expires on Thursday.

Disappointing news for British advertising giant WPP and Telecom Italia were also cited for the downbeat vibes since the telecoms sector was the biggest loser of the session.

And to that I’d add the commodities rout since the basic materials sector was the second worst-performing sector, thanks mainly to the poor performance of mining shares.

  • The pan-European FTSEurofirst 300 was down by 0.64% to 1,486.28
  • Germany’s DAX was down by 0.97% to 12,226.51
  • The blue-chip Euro Stoxx 50 was down by 0.92% to 3,363.55

Major Market Mover(s):

USD

The Greenback dominated its peers and was the initially the one currency to rule them all during the morning London session. I wrote “initially” because the yen managed to usurp the Greenback at the end.

Anyhow, there were no direct catalysts for the Greenback’s strength, but market analysts were saying that the Greenback likely benefited from safe-haven flows (mainly at the expense of emerging market currencies) due to lingering trade war fears.

EUR/USD was down by 19 pips (-0.17%) to 1.1558, GBP/USD was down by 15 pips (-0.12%) to 1.2830, AUD/USD was down by 22 pips (-0.32%) to 0.7181

JPY

The yen also got a piece of the safe-haven action but was initially on the defensive against the Greenback. The yen did eventually overpower the Greenback, however. Although it’s worth pointing out that the Greenback is still the best-performing currency of the day (so far).

USD/JPY was down by 13 pips (-0.12%) to 111.24, EUR/JPY was down by 35 pips (-0.27%) to 128.59, AUD/JPY was down by 33 pips (-0.41%) to 79.90

NZD

The higher-yielding Aussie and Kiwi were both under bearish pressure during the session, thanks to the risk-off vibes, the commodities rout, and the Greenback’s strength.

And between the two, it was the Kiwi that was feeling the worst of it.

NZD/USD was down by 30 pips (-0.45%) to 0.6551, NZD/JPY was down by 40 pips (-0.54%) to 72.90, NZD/CHF was down by 14 pips (-0.22%) to 0.6379

CAD

The Loonie was initially headed for a mixed finish but was rushed by sellers very late into the session (despite rising oil prices) and finished the session in second-to-last place after the Kiwi. Heck, the Loonie even almost lost out to the Kiwi as well.

There was no apparent reason for the influx of sellers, but some market analysts were blaming the Loonie’s slide on some tweets from Trump over the weekend, namely these:

USD/CAD was up by 52 pips (+0.40%) to 1.3165, EUR/CAD was up by 37 pips (+0.24%) to 1.5217, GBP/CAD was up by 53 pips (+0.31%) to 1.6895

Watch Out For:

  • 12:15 pm GMT: BOE Guv’nah Carney and company will testify at the Inflation Report Hearings in Parliament; you can watch it live here
  • 1:30 pm GMT: Markit’s Canadian manufacturing PMI (56.9 previous)
  • 1:45 pm GMT: Markit’s final U.S. manufacturing PMI (no change from 54.5 expected)
  • 2:00 pm GMT: ISM’s U.S. manufacturing PMI (57.6 expected, 58.1 previous)
  • 2:00 pm GMT: U.S. construction spending (0.5% expected vs. -1.1% previous)
  • Dairy auction currently underway (-3.6% previous); auction usually ends at around 2:00 pm GMT