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The euro and the pound were in a race to the bottom during the morning London session.

The euro sustained heavy damage after Italian and Euro Zone GDP reports both surprised to the downside, while the pound’s weakness was blamed largely on Brexit-related uncertainty.

Other than those two, the Aussie is also noteworthy since it continued to edge higher, even though risk aversion returned during the session.

The yen is also worth noting since it failed to attract buyers despite the risk-off vibes, probably because global bond yields were on the rise.

  • French flash Q3 GDP q/q: 0.4% as expected vs. 0.2% previous
  • French consumer spending m/m: -1.7% vs. -0.4% expected, 1.1% previous
  • KOF Swiss economic barometer: 100.1 vs. 100.8 expected, 102.3 previous
  • Spanish flash HICP y/y: 2.3% vs. 2.2% expected, 2.3% previous
  • Euro Zone industrial sentiment: 3.0 vs. 3.9 expected, 4.7 previous
  • Euro Zone consumer confidence: -2.7 as expected, same as previous
  • Italian Q3 GDP q/q: 0.0% vs. 0.2% expected, 0.2% previous
  • Italian Q3 GDP y/y: 0.8% vs. 0.9% expected, 1.2% previous
  • Euro Zone Q3 GDP q/q: 0.2% vs. 0.4% expected, same as previous
  • Euro Zone Q3 GDP y/y: 1.7% vs. 1.9% expected, 2.2% previous
  • CBI’s U.K. realized sales: 5 vs. 27 expected, 23 previous

Major Events/Reports:

Disappointing Euro Zone GDP reports

The latest GDP report for France, Italy, and the Euro Zone as a whole were released earlier during the session. And, well, they were rather disappointing.

Focusing only on the Q3 GDP report for the entire Euro Zone, that revealed that GDP only expanded by 0.2% quarter-on-quarter, missing expectations that it will match the previous quarter’s pace by printing a 0.4% increase. The 0.2% quarterly increase is the weakest since Q2 2014.

If you think that’s bad, then the year-on-year reading is even worse since that came in at 1.7%, which is slower than the +1.9% consensus, marks the fourth consecutive quarter of ever weaker readings, and is the weakest annual reading in eight quarters to boot.

More importantly, the 1.7% reading is well below the ECB’s forecast that GDP for the whole Euro Zone will grow by 2.0% in 2018, as laid out in the September 2018 ECB Staff Macroeconomic Projections.

Risk aversion strikes back

The major European equity indices had a promising start and were broadly in the green. However, selling pressure later swamped the major European equity indices, sending them broadly lower, so much so that most were already in negative territory by the end of the session.

Market analysts attributed the earlier risk-on vibes to risk sentiment spillover from the earlier Asian session, as well as positive earnings reports.

As for the later risk-off vibes, the disappointing GDP reports for Italy and the Euro Zone appear to have been the culprits since sentiment turned sour after those were released.

However, market analysts also blamed disappointing earnings results from Lufthansa and BNP Paribas as poisoning overall risk sentiment.

  • The pan-European FTSEurofirst 300 was down by 0.06% to 1,397.65
  • Germany’s DAX was down by 0.37% to 11,294.02
  • The blue-chip Euro Stoxx 50 was down by 0.22% to 3,147.85

Global bond yields rise

Despite the risk-off vibes in Europe, global bonds yields were on the rise during the morning London session.

  • German 10-year bond yield up by 2.37% to 0.388%
  • French 10-year bond yield up by 2.01% to 0.760%
  • U.K. 10-year bond yield up by 1.21% to 1.418%
  • U.S. 10-year bond yield up by 0.97% to 3.117%
  • Canadian 10-year bond yield up by 0.88% to 2.417%

Major Market Mover(s):

GBP

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

There were no direct catalysts for the pound’s weakness, but market analysts were pointing to Brexit-related uncertainty (without citing a specific catalyst) and/or preemptive positioning ahead of the BOE statement.

GBP/USD was down by 56 pips (-0.44%) to 1.2738, GBP/AUD was down by 82 pips (-0.45%) to 1.7956, GBP/CHF was down by 39 pips (-0.31%) to 1.2773

EUR

The euro closed out the session in second-to-last place. And the direct catalysts for the euro’s slump are the disappointing GDP reports for Italy and the Euro Zone as a whole.

EUR/USD was down by 27 pips (-0.24%) to 1.1346, EUR/AUD was down by 41 pips (-0.26%) to 1.5994, EUR/CHF was down by 15 pips (-0.13%) to 1.1376

AUD

The Aussie’s was nudged broadly higher and was the top-performing currency of the session.

The Aussie’s rise made sense at first since risk-taking initially prevailed in Europe. However, risk aversion made a strong comeback later, but the Aussie just soldiered on.

We can’t really point to gold since most commodities were taking a beating during the session. However, it’s possible that Aussie bulls are still celebrating Trump’s comment from the earlier session that he sees a “great” trade deal with China (while also threatening to slap more tariffs if China won’t play nice).

AUD/USD was up by 4 pips (+0.06%) to 0.7094, AUD/JPY was up by 15 pips (+0.19%) to 80.11, AUD/CHF was up by 10 pips (+0.14%) to 0.7113

JPY

The yen just couldn’t get a break and was the third worst-performing currency of the session, even though risk aversion was the dominant sentiment in Europe.

Bond yields were on the up and up, though, which may have weighed down on JPY pairs.

USD/JPY was up by 20 pips (+0.18%) to 112.93, NZD/JPY was up by 7 pips (+0.10%) to 73.92, CHF/JPY was up by 7 pips (+0.06%) to 112.62

Watch Out For:

  • 1:00 pm GMT: S&P/Case-Shiller U.S. composite HPI (5.85% expected vs. 5.92% previous)
  • 2:00 pm GMT: CB’s U.S. consumer confidence index (136.0 ex[ected vs. 138.4 previous)
  • 7:30 pm GMT: BOC Guv’nah Stephen Poloz and Deputy Guv’nah Carolyn Wilkins will testify before the House of Commons
  • 9:45 pm GMT: New Zealand’s building consents (7.8% previous)