Trading conditions were still relatively tight during the morning London session, likely because traders were hunkering down for the FOMC statement.
The session wasn’t a complete snooze fest, however, since the yen caught a soft bid, likely because of the risk-off vibes in Europe.
The pound, meanwhile, was probably weighed down by Brexit-related concerns since it closed out the session broadly lower.
The euro is also noteworthy since it got a bearish kick when the E.U. released its Autumn 2018 Economic Forecast.
- Swiss jobless rate: steady at 2.5% as expected
- German trade balance: €17.6B vs. €18.2B expected, €18.3B previous
- French trade balance: -€5.7B vs. -€6.1B expected, -€5.7B previous
- FOMC statement later
E.U. economic forecasts
The European Commission released the Autumn 2018 Economic Forecast earlier.
And it revealed that the GDP growth forecast for 2018 was unchanged at 2.1%, but the growth forecast for 2019 was revised lower from 2.0% to 1.9%.
But on a more upbeat note, the projections for 2018 and 2019 HICP were revised higher from 1.7% to 1.8%.
And in his press statement, European Economic Commissioner Pierre Moscovici explained that the downgraded growth forecast for 2019 reflect “Rising global uncertainty, international trade tensions and higher oil prices.”
The upgraded inflation projections, meanwhile, were due to higher oil prices.
Other than that, Moscovici also said that:
“There is a high degree of uncertainty surrounding the forecast and there are many interconnected downside risks.”
Moscovici then specifically mentioned a possible overheating of the U.S. economy, the ongoing trade war between the U.S. and China, Brexit, and “doubts about the quality and sustainability of public finances in highly indebted Member States” as the major downside risks for the Euro Zone economy.
Speaking of “highly indebted Member States,” the European Commission also warned that because of the Italian government’s plans, Italy’s budget deficit is expected to increase by 2.9% in 2019 and then by 3.1% in 2020.
And remember, the Italian government’s deficit target is 2.4% for 2019 and 2020.
Not only that, the European Commission also gave this extensive warning on the outlook for the Italian economy:
“The growth outlook is subject to high uncertainty amid intensified downside risks A prolonged rise in sovereign yields would worsen banks’ funding conditions and further reduce credit supply, while public spending could crowd out private investment. Envisaged policy measures might prove less effective, having a lower impact on growth. Uncertainty about government policies might affect sentiment and domestic demand. Finally, the planned rollback of structural reforms bodes ill for employment and potential growth.”
Earlier during the session, Der Standard released a report claiming that a Brexit deal may be hammered out “in the next few days.”
However, British Foreign Minister Jeremy Hunt quipped that a Brexit deal by next week is “probably pushing it.”
Hunt did try to give off a positive tone, though. And he did that by also saying that Brexit talks are “in the final stage.”
Other than those, a Reuters report also cited an unnamed “government source” as saying that:
“It is unlikely that a cabinet meeting of British Prime Minister Theresa May’s top ministers to discuss Brexit will take place ahead of next week.”
Skittish risk sentiment in Europe
The major European equity indices showed strength at the start and even hit fresh intraday highs.
However, risk aversion quickly set in, sending most of the major European equity indices lower, with many already leaking red by the end of the session.
Market analysts attributed the earlier risk-on vibes to positive results for some banks, which lifted the banking sector and improved overall risk sentiment.
As for the aversion to risk later, some market analysts blamed that on caution ahead of the FOMC statement.
- The pan-European FTSEurofirst 300 was still up by 0.22% to 1,443.09, but off the day’s high at 1,449.43
- Germany’s DAX was already down by 0.18% to 11,558.83
- The blue-chip Euro Stoxx 50 was already down by 0.13% to 3,241.85
Major Market Mover(s):
The pound encountered sellers from the get-go and was the worst-performing currency of the morning London session, probably because of Brexit-related concerns.
The pound did try to jump higher when the Der Standard report was released, only to sink back down when Jeremy Hunt deflated expectations for a Brexit deal by next week.
And more sellers would come to kick the pound lower later on when that Reuters report was released.
GBP/USD was down by 34 pips (-0.26%) to 1.3101, GBP/CAD was down by 45 pips (-0.25%) to 1.7165, GBP/AUD was down by 43 pips (-0.24%) to 1.7962
The yen was nudged higher across the board and, for what it’s worth, was the top-performing currency of the session, likely because of the risk-off vibes in Europe.
USD/JPY was down by 2 pips (-0.02%) to 113.67, GBP/JPY was down by 42 pips (-0.26%) to 148.93, EUR/JPY was down by 22 pips (-0.17%) to 129.79
Watch Out For:
- 1:15 pm GMT: Canadian housing starts (198K expected vs. 189K previous)
- 1:30 pm GMT: Canada’s NHPI (0.1% expected vs. 0.0% previous)
- 1:30 pm GMT: U.S. initial jobless claims (213K expected vs. 214K previous)
- 5:30 pm GMT: SNB Member Andrea Maechler is scheduled to speak
- 7:00 pm GMT: FOMC statement (no change in monetary policy expected); read Forex Gump’s preview