Price action during the morning London session was rather wonky, possibly because of month-end flows.
Having said that, the pound easily steamrolled over its peers to claim the top spot, even though there were no direct catalysts for the pound.
The comdolls, meanwhile, were broadly lower, with the Kiwi getting the worst of it, despite recovering commodity prices and the risk-friendly vibes in Europe.
And while the euro is mixed, it’s noteworthy as well since it didn’t really react to any of the economic reports, including the latest inflation report.
- German retail sales m/m: 0.1% vs. 0.5% expected, -0.3% previous
- French preliminary HICP y/y: 2.5% vs. 2.6% expected, 2.5% previous
- Spanish flash GDP q/q: 0.6% as expected, same as previous
- Credit Suisse economic expectations: -39.1 vs. -30.8 previous
- Euro Zone flash HICP y/y: 2.2% as expected vs. 2.1% previous
- Euro Zone flash core HICP y/y: 1.1% as expected vs. 0.9% previous
- Italian HICP y/y: 1.7% vs. 1.8% expected, 1.5% previous
- Euro Zone jobless rate: steady at 8.1% as expected
October is about to end, so some month-end capital flows are to be expected as hedge funds, mutual funds, pension funds, and other large players rebalance their portfolios and/or prepare to make cash distributions.
And these month-end flows sometimes result in some rather wonky price action, which may be why we’re seeing some wonky price action today.
BOJ’s Kuroda speaks
Earlier today (just before the London session rolled around), BOJ Shogun Kuroda held a presser on the BOJ’s most recent monetary policy announcement.
When Kuroda was asked about the BOJ’s downgraded inflation projections, Kuroda merely said that:
“There’s no change to our general view on the price outlook … The momentum [for hitting the 2% target] is sustained.”
Kuroda was also asked about the ongoing trade war between the U.S. and China, and whether or not Kuroda has seen any evidence of negative spillover into Japan’s economy. And Kuroda replied as follows (emphasis mine):
“Protectionist policies would affect not just the countries involved but global economies through supply chains. There has been some weak data on China’s investment and there could be some effect from the U.S. tariffs. But we expect China’s economy to maintain stable growth, as authorities are taking fiscal and monetary measures.”
“As for the impact on Japan’s economy, it has been limited so far. But companies are saying that it was hard to assess the impact now. If the frictions persist, this could affect business sentiment.“
Other than those, Kuroda was also asked about the BOJ’s yield target for 10-year Japanese government bonds (JGB), and Kuroda reiterated that (emphasis mine):
“We have absolutely no plan to change our zero percent target for 10-year government bond yields. There is also speculation that the BOJ could change the band but we have no such plans now.”
“There could be times ahead where we would need to consider various steps. But for now, we have no pre-set plans in the works to address market function problems… The biggest goal of monetary policy is to achieve 2 percent inflation at the earliest and we would take necessary and sufficient steps for this purpose.”
Euro Zone’s HICP report
It’s the end of the trading month, so the latest batch of inflation reports for the Euro Zone and its member states were released earlier during the session.
And focusing only on the HICP report for the Euro Zone as a whole, that showed that the Euro Zone’s headline HICP rose by 2.2% year-on-year in October, which is in-line with expectations but a tick faster compared to the previous month’s annual pace of +2.1% and is also the strongest reading since December 2012.
More importantly, the reading is well above the ECB’s forecast that headline HICP will increase by 1.7% year-on-year in 2018, as reported in the September Eurosystem/ECB Staff Macroeconomic Projections.
Taking a closer look at the report, HICP less energy, one of the ECB’s preferred measures for core inflation, came in at +1.3% for the third month in a row.
The reading is also meeting the ECB’s forecast that HICP less energy will print a 1.3% annual increase by year-end.
As for HICP less energy and unprocessed food, another of the ECB’s preferred measures for core inflation, that accelerated from 1.1% to 1.3%, which is a couple of ticks above the ECB’s forecast of +1.1% by the end of the year.
Intense risk-taking in Europe
Risk sentiment in Europe switched back to risk-on during today’s morning London session since almost all of the major European equity indices were flying high in positive territory.
And market analysts say that the intense risk-on vibes in Europe were due to mostly positive earnings results.
However, it’s also probable that we’re just seeing some short-covering and/or month-end flows since most of the major European equity indices took a heavy beating in October.
- The pan-European FTSEurofirst 300 was up by 1.38% to 1,417.56
- Germany’s DAX was up by 1.15% to 11,417.65
- The blue-chip Euro Stoxx 50 was up by 1.40% to 3,190.25
U.S. equity futures were also glowing gamma-green, which signals that the risk-friendly vibes may potentially carry over into the upcoming U.S. session.
- Dow 30 futures were up by 0.56% to 24,998.0
- S&P 500 futures were up by 0.65% to 2,702.75
- Nasdaq futures were up by 1.03% to 6,885.75
Major Market Mover(s):
The pound easily trumped all its peers to claim the top spot, not just of the session, but of the day (so far) as well.
There were no direct catalysts for the pound’s strength, but some market analysts suggest that we may be seeing some short-covering and/or preemptive positioning ahead of tomorrow’s BOE statement.
Of course, the pound’s rise may have just been due to month-end flows since ALL GBP pairs have been trending lower since October 12.
GBP/USD was up by 51 pips (+0.40%) to 1.2769, GBP/CAD was up by 75 pips (+0.45%) to 1.6769, GBP/NZD was up by 91 pips (+0.47%) to 1.9502
The Kiwi extended its losses and was the worst-performing currency of the session, even though risk-taking prevailed and commodity prices were in recovery mode.
NZD pairs encountered sellers from the get-go, but began turning higher about halfway through the session. The damage was already done, however, so the Kiwi closed out the session last place.
As to what caused the Kiwi to stumble earlier, there are no apparent catalysts for that, but it’s possible that China-related worries were still weighing down on the Kiwi since the Aussie also took hits at the start of the session.
NZD/USD was down by 5 pips (-0.08%) to 0.6546, NZD/JPY was down by 10 pips (-0.14%) to 74.04, NZD/CHF was down by 4 pips (-0.06%) to 0.6581
Watch Out For:
- 12:15 pm GMT: ADP’s U.S. private non-farm employment change (187K expected vs. 230K previous)
- 12:30 pm GMT: U.S. employment cost index (0.7% expected vs. 0.6% previous)
- 12:30 pm GMT: Canada’s monthly GDP (0.0% expected vs. 0.2% previous)
- 12:30 pm GMT: Canadian RMPI (-0.5% expected vs. -4.6% previous) and IPPI (0.0% expected vs. -0.5% previous)
- 1:45 pm GMT: Chicago PMI (60.0 expected vs. 60.4 previous)
- 2:30 pm GMT: U.S. crude oil inventories (3.6M expected vs. 6.3M previous)
- 5:15 pm GMT: SNB Overlord Thomas Jordan will give a speech
- 8:15 pm GMT: BOC Guv’nah Stephen Poloz and Deputy Guv’nah Carolyn Wilkins will testify before the Senate Standing Committee on Banking, Trade, and Commerce
- 9:30 pm GMT: AIG’s Australian manufacturing index (59.0 previous)