U.S. bond yields turned higher during the morning London session, so risk aversion returned and the Greenback regained its mojo, while the Aussie and Kiwi were forced to return their gains and beat a hasty retreat.
Other than those, the euro and the pound are also noteworthy since they tried to fight back against the Greenback. And interestingly enough, both currencies caught a bid at around 9:00 am GMT.
Demand for the pound made some sense since BBC Political Editor Laura Kuenssberg was tweeting some relatively positive Brexit-related stuff at the time and the U.K. is still on course for a stronger Q3 GDP reading, despite the miss in the monthly reading.
As for the euro, well, the euro’s price action is rather wonky since the euro strengthened even though there were no positive catalysts at the time and there was even a Reuters report which claimed that the German government downgraded its growth forecasts for this year and the next.
- French industrial production m/m: 0.3% vs. 0.1% expected, 0.8% previous
- Italian industrial production m/m: 1.7% vs. 0.7% expected, -1.6% previous
- U.K. GDP m/m: 0.0% vs. 0.1% expected, 0.4% previous
- U.K. goods trade balance: -£11.2B vs. -£10.9B expected, -£10.4B previous
- Construction output in the U.K. m/m: -0.7% vs. 0.0% expected, 0.5% previous
- U.K. industrial production m/m: 0.2% vs. 0.1% expected, 0.4% previous
- U.K. manufacturing production m/m: -0.2% vs. 0.1% expected, 0.0% previous
There were a few Brexit-related headlines during the session. And focusing only on the most important ones, first up is a report from The Times, which claimed that a “group of about 30 Labour MPs would be prepared to defy Jeremy Corbyn” and endorse Theresa May’s Brexit plan in order to avoid a “no-deal” Brexit.
Next is this positive comment from Danuta Hubner, the Chair of the European Parliament Constitutional Affairs Committee:
“My feeling is that there is a smaller probability for lack of deal now than we have had for some time.”
And finally, here are a bunch of tweets from BBC Political Editor Laura Kuenssberg:
2. Don't expect any new proposals to emerge from either side, even tho Barnier is making a speech today – both sides all too familiar with their positions, it's about whether the two templates which don't fit in terms of substance can be made somehow to fit
— Laura Kuenssberg (@bbclaurak) October 10, 2018
4. Remember next week is about showing enough progress for a deal, potentially to be done at special summit in November, natural that pressure building, Westminster itself seems strangely out of the loop
— Laura Kuenssberg (@bbclaurak) October 10, 2018
U.K. data dump
The Office for National Statistics (ONS) released a bunch of economic of report for the U.K. during the session.
First up is the U.K.’s Index of Production report, which showed that total industrial production in the U.K. rose by 0.2% month-on-month in August, beating expectations for 0.1% rise, but weaker compared to the previous month’s +0.4%.
But on an upbeat note the previous reading was actually upgraded from +0.1%.
Anyhow, a quick look at the details show that manufacturing output fell by 0.2% month-on-month, which is the main reason why total industrial production in August is weaker compared to July.
Moving on, the next economic report is the U.K.’s August construction output report. And that revealed that construction output contracted by 0.7% month-on-month, which is a bigger decline compared to the -0.4% consensus.
Next up is the U.K.’s August trade report. And that showed that the U.K.’s trade deficit widened from £572 million to £1.27 billion since the 1.1% increase in exports were not enough to offset the 2.4% increase in imports.
And the increase in imports, in turn, was driven by the 3.1% increase in import of goods, which caused the goods trade deficit to widen from £10.4 billion to £11.2 billion, which is worse-than-expected since the market was expecting the goods trade deficit to widen only to £10.9 billion.
And the final economic report that was released during the session was the U.K.’s monthly GDP report.
And unfortunately, that revealed that the U.K’s GDP growth was stagnant in August, contrary to expectations that GDP would expand by 0.1% month-on-month.
However, July’s reading was upgraded from +0.3% to +0.4%, which is good. Also, the U.K.’s Q3 GDP will likely be stronger compared to Q2, provided September’s reading doesn’t print a negative number.
U.S. bond yields rise again
After sliding yesterday, U.S. bond yields were on the rise again today. And some market analysts were suggesting that the rise in U.S. bond yields may have been due to preemptive positioning ahead of U.S. economic data for later.
- U.S. 30-year bond yield up by 0.56% to 3.388%
- U.S. 10-year bond yield up by 0.60% to 3.227%
- U.S. 5-year bond yield up by 0.52% to 3.073%
- U.S. 2-year bond yield up by 0.44% to 2.902%
Risk aversion in Europe
However, risk aversion made its way back into Europe today, sending the major European equity indices lower.
And market analysts say that the risk-off vibes were due to U.S. bond yields turning higher again, as well as concerns surrounding China’s growth prospects, which dented demand for luxury stocks.
- The pan-European FTSEurofirst 300 was down by 0.27% to 1,462.11
- Germany’s DAX was down by 0.56% to 11,909.71
- The blue-chip Euro Stoxx 50 was down by 0.42% to 3,308.65
Major Market Mover(s):
The Greenback trumped its peers during the session, very likely because of the rise in U.S. bond yields and risk-off vibes in Europe.
USD/JPY was up by 12 pips (+0.10%) to 113.19, USD/CHF was up by 9 pips (+0.09%) to 0.9921, USD/CAD was up by 34 pips (+0.27%) to 1.2964
AUD & NZD
One currency’s gain is another currency’s pain. Well, in this case, two currencies were feeling the pain, namely the Aussie and Kiwi.
NZD/USD was down by 20 pips (-0.31%) to 0.6463, NZD/JPY was down by 16 pips (-0.22%) to 73.15, NZD/CHF was down by 14 pips (-0.22%) to 0.6413
AUD/USD was down by 28 pips (-0.40%) to 0.7096, AUD/JPY was down by 24 pips (-0.30%) to 80.31, AUD/CHF was down by 21 pips (-0.31%) to 0.7040
Watch Out For:
- 12:30 pm GMT: Canadian building permits (0.5% expected vs. -0.1% previous)
- 12:30 pm GMT: Headline (0.2% expected vs. -0.1% previous) and core (0.2% expected, -0.1% previous) readings for U.S. PPI
- 2:00 pm GMT: U.S. final wholesale inventories (no change from 0.8% expected)
- 9:45 pm GMT: New Zealand’s FPI (-0.5% previous)