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The Swissy was under pressure, thanks to the risk-friendly vibes in Europe. However, the Swissy was only in third-to-last place since the biggest losers of the session were actually the higher-yielding Aussie and Kiwi.

And the wonky price action doesn’t stop there since the Greenback and the yen were fighting for the top spot. And again, risk-taking was the name of the game in Europe.

The euro’s price action is a bit wonky as well since the euro was broadly lower during the session despite more reports in support of that Italy-related rumor from earlier.

But then again, it’s possible that the euro may be under pressure because of profit-taking. Basically, a “buy the rumor, sell the fact” scenario may have played out.

  • Germany’s banks out on German Unity Day holiday
  • Spanish services PMI: 52.5 vs. 52.9 expected, 52.7 previous
  • Italian services PMI: 53.3 vs. 52.8 expected, 52.6 previous
  • French final services PMI: 54.8 vs. no change from 54.3 expected
  • German final services PMI: 55.9 vs. no change from 56.5 expected
  • Euro Zone final services PMI: unchanged at 54.7 as expected
  • U.K. services PMI: 53.9 vs. 54.0 expected, 54.3 previous
  • Euro Zone retail sales m/m: -0.2% vs. 0.2% expected, -0.6% previous

Major Events/Reports:

Italy really planning to follow E.U. budget rules?

There were rumors earlier (courtesy of Corriere della Sera) that Italy will push through with its planned 2.4% budget deficit in 2019, but would gradually reduce its budget deficit to 2.2% of GDP in 2020, and then 2.0% in 2020.

Well, a Reuters report was released during the session and it appears to support that earlier rumor since the report cited unnamed “government sources” as claiming that:

“[T]he aim is now to reduce the deficit in 2020 and 2021, to no higher than 2.2 percent of GDP and 2 percent respectively, and possibly lower.”

Italy’s Salvini speaks

Italian Deputy Prime Minister (and leader of the euroskeptic League) Matteo Salvini was speaking earlier and added credence to the Reuters report and the earlier Corriere della Sera report since Salvini said that the Italian government’s goal is to reduce both debt and deficit after 2019.

Salvini didn’t provide any specifics, but he at least affirmed that the Italian government does seem to want to play nice with the E.U.

Fed Evans speak

Chicago Fed President Charles Evans (a non-voting FOMC member) was interviewed by Bloomberg late into the session.

And he gave this rather positive assessment of the U.S. economy:

“The U.S. economy is firing on all cylinders. Growth is strong, unemployment is low, and inflation is approaching our 2% symmetric target on a sustained basis.”

He also presented an optimistic outlook on the economy, while also hinting heavily that other FOMC members have the same views:

“Like my colleagues on the FOMC, I expect this good performance to continue over the next few years.”

And when he was asked about a December rate hike, Evans said that: “I am quite comfortable with that, yes.”

But again, do note that Evans is a non-voting FOMC member, so that reply is not particularly meaningful.

However, Evans also shared that the Fed Funds Rate should climb to “a slightly restrictive setting” of around 3.0% to 3.25%.

And if y’all can still recall, the Fed recently dropped the term “accommodative” when characterizing its monetary policy.

Fed Chair Powell tried to downplay this change in language, but Evans is implying here that the change in language may indeed be a sign that the Fed is switching to a more restrictive role in order to prevent the U.S. economy from overheating, which likely means more rate hikes down the road.

U.K. services PMI

The U.K.’s September services PMI report was earlier today and it was also a disappointment since the headline reading dropped from 54.3 to 53.9. It’s only a tick lower compared to the 54.0 consensus, so it wasn’t too disappointing.

Anyhow, Markit noted that the weaker reading was due mainly to new order growth easing slightly. And “a number” of survey respondents “suggested that political uncertainty had weighed on business confidence and been a factor behind tighter budget setting among clients.”

On a happier note, jobs growth in the service sector accelerated, “with the rate of job creation the strongest since February.”

Also, “the overall rate of input price inflation was the fastest for three months and well above the low seen in February.”

But on a slightly more downbeat note (for CPI), “prices charged by service providers increased at only a moderate pace, with the latest rise the slowest for just over one year.”

Risk-taking revived in Europe

Europe enjoyed a bout of risk-taking during the morning London session, sending the major European equity indices broadly higher.

And quite naturally, market analysts were attributing the risk-friendly vibes to the rumor from earlier that Italy plans to pare its budget deficit in 2020 and 2021, which drove up demand for Italian banks and pushed other financial shares higher, improving overall risk sentiment.

  • The pan-European FTSEurofirst 300 was up by 0.56% to 1,506.69
  • The U.K.’s FTSE 100 was up by 0.57% to 7,517.00
  • France’s CAD 40 was up by 0.40% to 5,494.07

U.S. equity futures were also enjoying the risk-friendly vibes.

  • S&P 500 futures were up by 0.23% to 2,935.25
  • Nasdaq futures were up by 0.25% to 7,671.75

Major Market Mover(s):

AUD & NZD

The higher-yielding Aussie and Kiwi were the second biggest loser and THE biggest loser of the session respectively.

They also happen to be the biggest losers of the day (so far), which is rather weird since risk-taking is the dominant sentiment in Europe.

However, a possible reason is that the two are just vulnerable to the Greenback’s strength. I suspect, in particular, that rising U.S. bond yields may be negating the Aussie and Kiwi’s yield advantage and also puts interest rate differentials and monetary policy divergence into play (in favor of the Greenback).

And in the Aussie’s case, the Aussie may have also been tracking gold prices, which were in retreat during the session, thanks to the Greenback’s rise, so it still boils down to the Greenback’s strength after all.

AUD/USD was down by 27 pips (-0.37%) to 0.7148, AUD/JPY was down by 26 pips (-0.33%) to 81.38, AUD/CAD was down by 25 pips (-0.27%) to 0.9175

NZD/USD was down by 25 pips (-0.39%) to 0.6552, NZD/JPY was down by 26 pips (-0.35%) to 74.59, NZD/CAD was down by 25 pips (-0.29%) to 0.8409

USD & JPY

The Greenback reigned supreme during the morning London session, but the safe-haven yen gave the Greenback a good fight.

The Greenback’s strength made sense since U.S. bond yields were on the rise and the Greenback may have also been feeding off the euro’s weakness, but the yen’s strength is a bit weird since risk-taking was the prevailing sentiment in Europe.

Market analysts were also attributing the Greenback’s strength on Fed Evans’ comments. However, the Greenback climbed higher on most pairs from the get-go and a few hours before Evans even got to talk.

EUR/USD was down by 34 pips (-0.30%) to 1.1547, GBP/USD was down by 19 pips (-0.15%) to 1.2981, USD/CHF was up by 34 pips (+0.35%) to 0.9884

USD/JPY was up by 6 pips (+0.05%) to 113.84, EUR/JPY was down by 33 pips (-0.26%) to 131.46, GBP/JPY was down by 14 pips (-0.10%) to 147.79

Watch Out For:

  • 12:15 pm GMT: ADP’s U.S. non-farm employment change (184K expected vs. 163K previous)
  • 1:45 pm GMT: Markit’s final U.S. services PMI (no change from 52.9 expected)
  • 2:00 pm GMT: ISM’s U.S. non-manufacturing PMI (58.0 expected vs. 58.5 previous)
  • 2:30 pm GMT: U.S. crude oil inventories (1.1M expected vs. 1.9M previous)
  • 6:00 pm GMT: U.S. Fed Governor Lael Brainard will be speaking
  • 6:15 pm GMT: Cleveland Fed President Loretta Mester will give a short speech
  • 8:00 pm GMT: U.S. Fed Chair Jerome Powell will speak in a panel discussion