The risk-off vibes persisted into the morning London session. And this time, it was the Swissy that was apparently the safe-haven of choice since the Swissy easily dominated its peers.
The Greenback, meanwhile, was weaker across the board, probably because U.S. bond yields took a step back, although it’s also possible that falling U.S. equity futures may have also been making market players jittery.
The Aussie, the Kiwi, the euro, and the pound were likely taking advantage of the Greenback’s weakness. And this is more apparent for the Aussie and Kiwi since risk aversion was the dominant sentiment in Europe. But then again, commodities were broadly higher during the session, which may have lent support to the two comdolls.
However, the spotlight falls on the pound since the pound finished the session in second place after gapping lower across the board at the start of the week.
The yen is also worth noting since it was the second weakest currency of the session, despite falling U.S. bond yields and the risk-off vibes. U.S, bond yields did begin to turn higher near the end of the session, but the yen was already showing weakness before that.
- Swiss PPI m/m: -0.2% vs. 0.3% expected, 0.0% previous
- Swiss PPI y/y: 2.6% vs. 3.1% expected, 3.4% previous
- U.S. retail sales report coming up
- British PM Theresa May will speak later
- Italian Cabinet meeting on the budget later
- New Zealand’s CPI report also later
Abe and Suga speak
Japanese PM Shinzo Abe spoke during an extraordinary cabinet meeting earlier and he confirmed that plans to raise the consumption tax from 8% to 10% will take effect on October 2019 as scheduled.
Abe explained that the additional revenues from the tax hike will be used mainly for social security expenditures.
However, Abe also tried to calm the market by saying that:
“[W]e, based on the lessons we learned from the previous 3 percentage point increase, will do our utmost to minimize a negative impact on the economy by implementing all sorts of policies.”
In a presser after Abe spoke, Chief Cabinet Secretary Yoshihide Suga said that Abe instructed him to ease the negative impact of the planned tax hike since the tax hike from 5% to 8% way back in 2014 triggered a “reactionary fall” in demand that “lasted for a long time.”
British PM will speak later
I’ll just leave this here…
There will be three oral statements in the @HouseofCommons today:
1) Theresa May – Update on EU Exit Negotiations
2) Claire Perry- Green GB Week and Clean Growth
3) Tracey Crouch – Loneliness Strategy
— Leader's Office (@CommonsLeader) October 15, 2018
Commodities broadly higher
Most commodities were in rally mode during the morning London session.
And we can probably thank the Greenback’s overall weakness for that since a weaker U.S. dollar means that globally-traded commodities (priced in USD) become relatively cheaper, especially for market players who hold non-USD currencies.
And for reference, the U.S. dollar index was down by 0.27% to 94.68 for the day by the end of the session. It was in the green earlier.
Aside from Greenback weakness, market analysts also say that oil prices were rising because of political tensions between the U.S. and Saudi Arabia after Trump threatened “severe punishment” if Saudi Arabia had anything to do with the disappearance of a Saudi journalist.
Most base metals were in the green, but their gains were capped, probably because of concerns surrounding China’s growth prospects.
- Copper was up by 0.27% to $2.808 per pound
- Tin was up by 0.18% to $19,152.50 per dry metric ton
Precious metals were in high demand, very likely because of the risk-off vibes. After all, precious metals are considered as traditional safe-havens.
- Gold was up by 1.02% to $1,234.50 per troy ounce
- Silver was up by 0.99% to $14.780 per troy ounce
Oil benchmarks were also well in the green.
- U.S. WTI crude oil is up by 0.62% to $71.78
- Brent crude oil is up by 1.02% to $81.25
Some risk aversion to start the week
Europe is starting the new week with a bout of risk aversion since most of the major European equity indices were in the red.
And market analysts blamed the risk-off vibes on the elevated levels of U.S. bond yields, concerns surrounding China’s growth prospects, jitters over Italy’s budget, and Brexit-related fears.
- The pan-European FTSEurofirst 300 was down by 0.21% to 1,407.13
- Germany’s DAX was still up by 0.18% to 11,545.67 but off the day’s high at 11,587.24
- The blue-chip Euro Stoxx 50 was down by 0.03% to 3,193.65
U.S. equity futures were also down in the dumps.
- S&P 500 futures were down by 0.47% to 2,755.50
- Nasdaq futures were down by 0.78% to 7,116.00
U.S. bonds fall
U.S. bond yields were broadly in retreat during the morning London session, probably because of safe-haven demand for U.S. bonds.
U.S. bond yields are still actually in the green for the day, though. Also, they began turning higher again late into the session. They weren’t able to fully recover from the earlier slide, however.
- U.S. 30-year bond yield down by 0.02% to 3.340%
- U.S. 10-year bond yield down by 0.19% to 3.163%
- U.S. 5-year bond yield down by 0.40% to 3.015%
- U.S. 2-year bond yield down by 0.07% to 2.859%
Major Market Mover(s):
The Swiss was the top-performing currency of the morning London session and is also currently the best-performing currency of the day (so far).
Demand for the Swissy was likely due to the risk-off vibes in Europe, although it’s also possible that market players were switching over from the yen to the Swissy since the yen began to weaken after Abe’s speech.
USD/CHF was down by 33 pips (-0.34%) to 0.9869, EUR/CHF was down by 18 pips (-0.16%) to 1.1429, CAD/CHF was down by 24 pips (-0.32%) to 0.7578
The pound staged a broad-based recovery and was the second top-performing currency after the Swissy.
There weren’t any apparent positive catalysts for the pound’s recovery, but it’s possible that traders were just covering their shorts ahead of British PM Theresa May’s statement later.
Another probable reason is that market players are just trying to close the gaps from earlier.
GBP/USD was up by 47 pips (+0.36%) to 1.3162, GBP/JPY was up by 53 pips (+0.37%) to 147.25, GBP/CAD was up by 64 pips (+0.37%) to 1.7140
The Greenback weakened across the board during the morning London session, probably because U.S. bond yields took a step back, although it’s also possible that falling U.S. equity futures may have also been making market players jittery since market analysts have been partially blaming the slide in U.S. equities as the reason for the Greenback’s weakness last week.
EUR/USD was up by 16 pips (+0.14%) to 1.1580, AUD/USD was up by 14 pips (+0.19%) to 0.7133, NZD/USD was up by 18 pips (+0.27%) to 0.6531
The yen was the second worst-performing currency of the session, even though risk-aversion prevailed and U.S. bond yields retreated.
The yen actually showed strength at first but began to lose steam after Japanese PM Abe’s speech, so Abe appears to be the culprit for the yen’s poor performance during the session.
USD/JPY was down by 2 pips (-0.02%) to 111.84, CHF/JPY was up by 35 pips (+0.31%) to 113.35, EUR/JPY was up by 19 pips (+0.14%) to 129.55
Watch Out For:
- 12:30 pm GMT: Headline (0.6% expected vs. 0.1% previous) and core (0.5% expected vs. 0.3% previous) readings for U.S. retail sales
- 12:30 pm GMT: Empire State manufacturing index (20.0 expected vs. 19.0 previous)
- 2:00 pm GMT: U.S. business inventories (0.5% expected vs. 0.6% previous)
- 2:30 pm GMT: BOC Business outlook survey
- 3:00 pm GMT: Italian Cabinet meeting on the budget
- 9:45 pm GMT: New Zealand’s quarterly CPI (0.7% expected vs. 0.4% previous)