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The euro was the biggest loser of the morning London session, thanks to growing Italy-related concerns after E.U. Economic Commissioner Moscovici warned Italy to reduce its “explosive” budget deficit target.

The euro wasn’t the only currency that was on the receiving end of a beat-down, though, since the pound also got a good thrashing.

And as odd as it sounds, the Loonie was able to overpower the safe-haven yen to claim the top spot, even though there were no apparent catalysts for the Loonie’s strength and oil prices were retreating to boot.

  • French consumer spending m/m: 0.8% vs. 0.3% expected, 0.1% previous
  • French preliminary HICP y/y: 2.5% vs. 2.6% expected, same as previous
  • KOF Swiss economic barometer: 102.2 vs. 100.0 expected, 98.9 previous
  • Spanish flash HICP y/y: 2.2% vs. 2.3% expected, 2.2% previous
  • German unemployment change: -23K vs. -9K expected, -10K previous
  • U.K. current account: -£20.3B vs. -£19.4B expected, -£15.7B previous
  • U.K. final GDP q/q: unchanged at 0.4% as expected
  • Italian HICP y/y: 1.6% vs. 1.7% expected, 1.6% previous
  • Euro Zone flash HICP y/y: 2.1% as expected vs. 2.0% previous
  • Euro Zone flash core HICP y/y: 0.9% vs. 1.1% expected, 1.0% previous

Major Events/Reports:

Moscovici speaks (about Italy’s budget)

European Economic and Financial Affairs Commissioner Pierre Moscovici was speaking earlier and he hit out at Italy’s decision to have a budget deficit that’s 2.4% of GDP, saying that:

“We have no interest in a crisis between the Commission and Italy, it is in nobody’s interest because Italy is a an important euro zone country … But we don’t have any interest either that Italy does not respect the rules and does not reduce its debt, which remains explosive.”

Moscovici also said that the E.U. may impose sanctions against Italy if it doesn’t reduce its deficit target, but Moscovici also said that he’s not too keen to penalize Italy.

Euro Zone’s HICP report

It’s the end of the trading month, so a bunch of inflation reports for the Euro Zone and its member states were released earlier.

And focusing only on the HICP report for the Euro Zone as a whole, that showed that the Euro Zone’s headline HICP rose by 2.1% year-on-year in September, which is in-line with expectations but a tick faster compared to the previous month’s annual pace of +2.0%.

The reading is also well above the ECB’s forecast that headline HICP will increase by 1.7% year-on-year in 2018, as reported in the September Eurosystem/ECB Staff Macroeconomic Projections.

Other than that, HICP less energy, one of the ECB’s preferred measures for core inflation, came in at +1.3%, maintaining the previous month’s annual pace.

The reading is also meeting the ECB’s forecast that HICP less energy will print a 1.3% annual increase by year-end.

As for HICP less energy and unprocessed food, another of the ECB’s preferred measures for core inflation, that decelerated even further from +1.2% to +1.1%.

Despite the weaker reading, it’s still meeting the ECB’s forecast of +1.1% by the end of the year.

Disappointing U.K. data

The U.K. released a couple of economic reports during the morning London session. And they were generally viewed in a negative light.

First up is the final estimate for Q2 U.K. GDP growth, which was unchanged at +0.4% quarter-on-quarter. However, the year-on-year reading was revised lower from +1.3% to +1.2%, contrary to expectations that it would remain unchanged.

Looking at the details of the GDP report, the downgraded annual reading was due mainly to the downgrade in mining and quarrying output (-1.1% vs. +0.3% originally), as well as the downgrade in construction output (+0.4% vs. +0.8% originally).

Using the expenditure approach, the weaker annual reading was mainly due to the downgraded reading for business investment (-0.2% vs. +0.8% previous).

Moving on, the U.K.’s balance of payment report also failed to impress since that revealed that the U.K.’s account deficit widened from £15.7 billion to £20.3 billion in Q2. The market was only expecting it to widen to £19.4 billion.

Gloomy ending in Europe

Europe is closing out the week on a downbeat note since almost all of the major European equity indices were bleeding out.

And quite naturally, market analysts blamed the risk-off vibes on Italy-related jitters after the Italian government defied the E.U. by opting for a budget deficit that’s 2.5% of GDP.

  • The pan-European FTSEurofirst 300 was down by 1.02% to 1,500.39
  • Germany’s DAX was down by 1.62% to 12,235.34
  • The blue-chip Euro Stoxx 50 was down by 1.70% to 3,390.55

U.S. equity futures were also feeling the pain, so the risk-off vibes may carry over into the upcoming U.S. session.

  • S&P 500 futures were up by 0.29% to 2,911.50
  • Nasdaq futures were up by 0.38% to 7,628.00

Major Market Mover(s):

EUR

The euro was the biggest loser of the session and is also the worst-performing currency of the day (so far).

And the apparent catalysts for the euro’s weakness is Moscovici’s warning that Italy should reduce its budget deficit target, which caused Italy-related concerns to flare up.

EUR/USD was down by 45 pips (-0.39%) to 1.1580, EUR/JPY was down by 50 pips (-0.38%) to 131.35, EUR/CHF was down by 44 pips (-0.39%) to 1.1311

GBP

The pound was the second biggest loser of the session. And market analysts were blaming the pound’s slide mainly on the U.K.’s GDP report.

The pound was sliding a couple of hours before the GDP report was released, though, and those same market analysts suggested that the pound may also be under pressure because of profit-taking ahead of next week’s Conservative Party conference.

GBP/USD was down by 27 pips (-0.21%) to 1.3041, GBP/JPY was down by 28 pips (-0.19%) to 147.94, GBP/CHF was down by 24 pips (-0.19%) to 1.2741

CAD

Whether it was preemptive positioning ahead of Canada’s GDP report or lingering hopes that Canada will be able to hammer out a trade deal with the U.S., the Loonie somehow managed to overpower the safe-haven yen to claim the top spot of the session.

USD/CAD was down by 12 pips (-0.09%) to 1.3016, EUR/CAD was down by 77 pips (-0.51%) to 1.5069, GBP/CAD was down by 55 pips (-0.33%) to 1.6971

Watch Out For:

  • 12:30 pm GMT: U.S. personal income (0.4% expected vs. 0.3% previous) and personal spending (0.3% expected vs. 0.4% previous)
  • 12:30 pm GMT: U.S. core PCE price index (0.1% expected vs. 0.2% previous)
  • 12:30 pm GMT: Canada’s monthly GDP growth (0.1% expected vs. 0.0% previous)
  • 12:30 pm GMT: Canada’s RMPI (0.8% expected vs. 0.7% previous) and IPPI (0.6% expected vs. -0.2% previous)
  • 1:20 pm GMT: BOE Deputy Governor David Ramsden has a speech
  • 1:45 pm GMT: Chicago PMI (62.0 expected vs. 63.6 previous)
  • 2:00 pm GMT: Revised University of Michigan’s consumer sentiment (100.6 expected vs. 100.8 previous)