The euro and the pound both had a really bad time during the morning London session.
The latter was dragged down by Italy-related jitters and poor PMI readings, while the latter may have been weakened by Brexit-related concerns and political uncertainty.
The Aussie and the Greenback, meanwhile, were both in demand, with the Greenback ultimately coming out on top.
- French flash manufacturing PMI: 51.2 vs. 52.4 expected, 52.5 previous
- French flash services PMI: 55.6 vs. 54.7 expected, 54.8 previous
- German flash manufacturing PMI: 52.3 vs. 53.4 expected, 53.7 previous
- German flash services PMI: 53.6 vs. 55.5 expected, 55.9 previous
- Euro Zone flash manufacturing PMI: 52.1 vs. 53.0 expected, 53.2 previous
- Euro Zone flash services PMI: 53.3 vs. 54.5 expected, 54.7 previous
- U.K. gross mortgage approvals: 38.5K vs. 39.0K expected vs. 39.2K previous
- British PM Theresa May currently speaking before Parliament
- BOC statement later
Disappointing Euro Zone PMI reports
Markit released the latest batch of PMI reports for Germany, France, and the Euro Zone as a whole. And sadly (for EUR bulls), they all failed to meet expectations.
Focusing only on the PMI reports for the Euro Zone as a whole, the manufacturing PMI reading weakened from 53.2 to a 24-month low of 52.1 in October, which is rather disappointing since the market was only expecting a the reading to tumble slightly to 53.0.
The services PMI reading, meanwhile, slumped from a three-month high of 54.7 to a 24-month low of 53.3, which is a much steeper drop compared to the 54.5 consensus.
And since both manufacturing and services sectors deteriorated, the composite PMI also dropped from 54.1 to a 25-month low of 52.7. That’s a two-year low, yo!
According to Markit, jobs growth “was the second-lowest for just over a year, easing to a 22-month low in manufacturing and three-month low in services.”
Moreover, new orders growth “eased to the slowest since August 2016, weakened by manufacturing orders falling for the first time since November 2014.”
Exports also took hits, since “New export orders for goods decreased for the first time since June 2013.”
And the downbeat vibes don’t end there since Markit also noted that “companies’ expectations of future growth slipped to the lowest for nearly four years, with a near six-year low seen in manufacturing.”
Italy’s Salvini speaks
Italian Deputy PM Matteo Salvini got interviewed earlier. And he was asked about the E.U.’s rejection of Italy’s budget.
And, well, this is what he had to say:
“Italians come first … Italy no longer wants to be a servant to silly rules.”
Salvini did try to tone down his rhetoric, though, by also saying that:
“I don’t want to leave euro or leave the European Union,”
Risk-taking prevails in Europe
After yesterday’s beat-down, most of the major European equity indices were glowing gamma green by the end of the session, which implies that risk appetite was the more prevalent sentiment in Europe.
Market analysts say that the risk-on vibes in Europe were due to positive earnings results for luxury stocks. However, those same market analysts also noted that the Euro Zone’s poor PMI reports and concerns over the tech sector were putting a cap on gains.
- The pan-European FTSEurofirst 300 was up by 0.71% to 1,402.83
- Germany’s DAX was up by 0.37% to 11,316.27
- The blue-chip Euro Stoxx 50 was up by 0.83% 3,168.65
Risk aversion to return?
Europe may be enjoying a bout of risk-taking, but U.S. equity futures were broadly in the red, which signals that risk aversion could potentially return during the upcoming U.S. session.
- S&P 500 futures were down by 0.57% to 2,730.50
- Nasdaq futures were down by 0.66% to 7,093.00
Major Market Mover(s):
The euro was the worst-performing currency of the morning London session and is also currently the biggest loser of the day.
The euro began to encounter sellers when Salvini referred to the E.U.’s budget rules as “silly“.
However, began attacking in force after the Euro Zone’s PMI reports all missed expectations while also painting a rather bleak outlook.
EUR/USD was down by 66 pips (-0.58%) to 1.1393, EUR/AUD was down by 87 pips (-0.55%) to 1.6058, EUR/CAD was down by 81 pips (-0.54%) to 1.4911
The pound got whupped pretty hard and was the second biggest loser of the session.
There were no apparent catalysts, but market analyst were pointing to Brexit-related jitters and political uncertainty ahead of and during Theresa May’s speech before Conservative Party Members.
GBP/USD was down by 64 pips (-0.49%) to 1.2908, GBP/AUD was down by 81 pips (-0.45%) to 1.8193, GBP/CAD was down by 79 pips (-0.46%) to 1.6893
The Greenback was broadly in demand and was the top-performing currency of the morning London session.
There were no apparent catalysts for the Greenback’s strength, but it’s probable that the Greenback may have gotten a lift from rising U.S. bond yields. It’s also probable that the Greenback may have just been feeding off the euro and the pound.
USD/CHF was up by 30 pips (+0.30%) to 0.9979, USD/JPY was up by 24 pips (+0.22%) to 112.72, USD/CAD was up by 7 pips (+0.05%) to 1.3089
The Aussie had a wobbly start, but it was able to attract enough buyers to extend its gains and almost edge out a win against the Greenback during the session, likely because of the risk-friendly vibes and rising gold prices.
AUD/USD was down by 3 pips (-0.05%) to 0.7095, AUD/JPY was up by 13 pips (+0.17%) to 79.98, AUD/CHF was up by 17 pips (+0.25%) to 0.7080
Watch Out For:
- British PM Theresa May currently speaking before Parliament
- 1:00 pm GMT: U.S. HPI (0.3% expected vs. 0.2% previous)
- 1:45 pm GMT: Markit’s flash manufacturing PMI (55.4 vs. 55.6 previous)
- 1:45 pm GMT: Markit’s flash services PMI (54.1 vs. 53.5 previous)
- 2:00 pm GMT: U.S. new home sales (625K expected vs. 629K previous)
- 2:00 pm GMT: BOC monetary policy statement (BOC expected to hike overnight rate from 1.50% to 1.75%); read up on Forex Gump’s write-up
- 2:30 pm GMT: U.S. crude oil inventories (3.6M expected vs. 6.5M previous)
- 3:15 pm GMT: BOC presser with Poloz and Wilkins
- 5:00 pm GMT: Atlanta Fed President Raphael Bostic has a speech
- 5:10 pm GMT: Cleveland Fed President Loretta Mester will speak
- 9:45 pm GMT: New Zealand’s trade balance (-$1,365M expected vs. -$1,484M previous)