The pound extended its recovery from the earlier Asian session, apparently because of Brexit Secretary Raab’s comments.
As for other currencies of note, the euro is also noteworthy since it finished in second place. And the apparent catalyst was Claudio Borghi’s comments.
The yen is also noteworthy since it was the weakest currency of the session, even though risk aversion was the name of the game.
- German IFO business expectations: 101.0 vs. 100.2 expected, 101.3 previous
- German IFO business climate: 103.7 vs. 103.6 expected, 103.9 previous
- U.K. CBI industrial trends: -1 vs. 5 expected, 7 previous
Claudio Borghi, Chief Financial Officer of the League, was interviewed earlier and he said that a budget deficit of 2.5% of GDP will be enough to keep markets calm, provided the budget deficit is couple with a “credible growth policy.”
Other than that, he also said that an “exit from the euro is out of the question.” And that is kind of a big deal since the League, a member of the ruling coalition government, has expressed anti-euro sentiments in the past.
In fact, Borghi has personally expressed some euroskeptic comments himself, so his conciliatory comment likely helped to ease some Italy-related anxiety.
U.K. Brexit Secretary Dominic Raab got some press time earlier. And despite last week’s media blitz against British PM Theresa May for her perceived failure at the Salzburg E.U. summit, Raab reassured listeners when he said that:
“We’ll keep negotiating in good faith, I’m confident we’ll get there.””
And with regard to the E.U.’s “stubborn” tone last week, Raab tried to shrug that off by saying that:
“These blips in the world, they’re blown a little bit out of proportion, but we double down, we don’t throw our toys out the pram, hold our nerve, keep our cool.”
However, Raab also warned that the U.K. is ready for a “no deal” Brexit.
“But at the same we need to be ready for the possibility … that the ambitions that we are bringing to these negotiations to try and get a win-win deal isn’t matched by the other side and it does take two to tango.”
China’s white paper on trade
Chinese state media Xinhua announced earlier that China has released a white paper that explains China’s position on the ongoing (and escalating) trade war with the U.S.
And, well, the white paper appears to confirm earlier rumors that China has cancelled plans for trade talks since the white paper noted that:
“China has kept the door to negotiations open, but negotiations can only happen when there is mutual respect, equality, good faith, and credibility. Negotiations cannot be conducted under the threat of tariffs, or at the cost of China’s rights to development.”
But on a more upbeat note, Xinhua also stated that “China is willing to resume negotiations with the U.S. on a bilateral investment treaty, and launch bilateral free trade agreement negotiations when appropriate.”
Downbeat start in Europe
Europe is starting the new trading week on a gloomy mood since the major European equity indices were broadly in negative territory.
And according to market analysts, the skittish risk sentiment in Europe was due to renewed trade war fears after China cancelled trade talks.
- The pan-European FTSEurofirst 300 was down by 0.21% to 1,502.51
- Germany’s DAX was down by 0.23% to 12,402.07
- The blue-chip Euro Stoxx 50 was down by 0.27% to 3,421.05
U.S. equity futures were also down in the dumps, which implies that the risk-off vibes may spillover into the upcoming U.S. session.
- S&P 500 futures were down by 0.14% to 2,929.75
- Nasdaq futures were down by 0.32% to 7,526.25
Global bond yields rise
Despite the risk-off vibes in European equities market and U.S. equity futures market, global bond yields were broadly on the rise, with Italian bond yields leading the way.
And market analysts were quick to point to Borghi’s comment and expectations that Italy will comply with the E.U.’s budget rules, although they also say that expectations for a Fed rate hike this week helped to push bond yields higher.
- German 10-year bond yield up by 1.95% to 0.470%
- French 10-year bond yield up by 2.32% to 0.798%
- Italian 10-year bond yield up by 2.63% to 2.913%
- U.K. 10-year bond yield up by 1.42% to 1.576%
- U.S. 10-year bond yield up by 0.25% to 3.076%
- Canadian 10-year bond yield up by 0.27% to 2.435%
Major Market Mover(s):
The pound’s recovery appears to be evolving into a full-blown rally, so much so that the pound is not only the best-performing currency of the session, but of the day (so far) as well.
And market analysts are still saying that the pound is getting a lift from short-covering after last week’s slump, although Raab’s comments also apparently helped in pushing the pound higher across the board.
GBP/USD was up by 68 pips (+0.52%) to 1.3150, GBP/JPY was up by 85 pips (+0.58%) to 148.06, GBP/CAD was up by 89 pips (+0.53%) to 1.7016
The euro finished the session in second place and also happens to be the second top-performing currency of the day.
And euro began to attract buyers after Claudio Borghi’s comments. And the better-than-expected readings from IFO also appeared to help propel the euro higher.
EUR/USD was up by 27 pips (+0.23%) to 1.1763, EUR/JPY was up by 35 pips (+0.26%) to 132.45, EUR/CAD was up by 36 pips (+0.24%) to 1.5221
Despite the risk-off vibes, the yen was the biggest loser of the session, likely because yen pairs were taking directional cues from rising global bond yields.
USD/JPY was up by 7 pips (+0.06%) to 112.58, CAD/JPY was up by 6 pips (+0.07%) to 87.02, CHF/JPY was up by 11 pips (+0.09%) to 117.35
Watch Out For:
- 12:30 pm GMT: Canadian wholesales sales (0.4% expected vs. -0.8% previous)
- 1:00 pm GMT: ECB Overlord Draghi will testify before the European Parliament Economic and Monetary Affairs Committee