The spotlight was on the pound during the session since Theresa May is expected to have a cabinet meeting later to sign off on a Brexit deal.
And thanks to Brexit-related news, the pound slumped then pulled back up during the course of the morning London session, but closed out the session on a mostly weaker note.
The pound wasn’t the weakest currency of the session, though, since that dishonor goes to the Swissy.
Yes, the Swissy was weaker than the Aussie and the Kiwi, even though risk aversion was the dominant sentiment in Europe.
The top-performing currency of the session, meanwhile, was the Loonie. And CAD bulls can probably thank the recovery in oil prices for that.
- German preliminary GDP q/q: -0.2% vs. -0.1% expected, 0.5% previous
- French final HICP y/y: unchanged at 2.5% as expected
- Spanish HICP y/y: 2.3% as expected, same as previous
- U.K. CPI m/m: 0.1% vs. 0.2% expected, 0.1% previous
- U.K. CPI y/y: 2.4% vs. 2.5% expected, 2.4% previous
- Core U.K. CPI y/y: 1.9% as expected, same as previous
- HPI in the U.K. y/y: 3.5% vs. 3.3% expected, 3.1% previous
- U.K. PPI input m/m: 0.8% vs. 0.6% expected, 1.4% previous
- U.K. PPI output m/m: 0.3% vs. 0.2% expected, 0.4% previous
- Euro Zone flash GDP q/q: 0.2% as expected, same as previous
- Euro Zone flash GDP y/y: 1.7% as expected, same as previous
- Industrial production in the Euro Zone m/m: -0.3% vs. -0.4% expected, 1.0% previous
U.K. CPI report
The U.K.’s latest CPI report was finally released earlier during the session. And sadly, the report revealed that headline CPI only increased by 0.1% month-on-month in October, missing expectations for a 0.2% monthly increase.
Year-on-year, CPI matched the previous month’s 2.4% increase, but this is also a bit disappointing since the market was expecting a stronger 2.5% annual increase.
Worse, the 2.4% reading is also below the BOE’s own forecast that CPI will increase by 2.5% year-on-year in October, as laid out in the BOE’s November 2018 Inflation Report.
A closer look at the details of CPI report also shows that what appears to be an underlying weakness since only 7 of the 12 CPI components printed weaker annual readings, while only 5 printed stronger readings.
But even though more CPI components printed weaker readings, the 1.9% surge in communication costs (+0.9% previous) and higher utilities cost were able to offset the weakness from the other CPI components.
OPEC to cut oil supply next year?
According to three unnamed “sources familiar with the issue” cited in a Reuters report, OPEC members and their partners were concerned about the growing oil supply and falling oil prices.
And another oil cut deal was supposedly discussed as a possible option.
The report then went on to quote one of the unnamed sources as saying that:
“I believe a cut of 1.4 million bpd is more reasonable than above it or below it.”
Oil benchmarks were already recovering slightly, but that report apparently accelerated the recovery.
- U.S. WTI crude oil is now up by 0.86% to $56.17
- Brent crude oil is now up by 1.31% to $66.33
Pre-meeting Brexit updates
Theresa May’s cabinet would meet later today to approve or reject the text of a draft Brexit deal. And naturally, there were lots of Brexit-related headlines again.
As usual, we’ll focus only on the most interesting and/or market-moving Brexit news.
And first up (and the apparent cause of GBP’s slide) is Democratic Unionist Party (DUP) MP Jeffrey Donaldson’s comments during a BBC interview.
The DUP is allied with Theresa May’s Conservative Party’s minority government, but Donaldson expressed dissatisfaction with the deal during the interview and implied that the DUP won’t support Theresa May when he said that:
“From what we have seen and heard we do not believe this deal is the best deal.”
“This deal has the potential to lead to the break-up of the United Kingdom and that is not something we can support.””
And more bad news came from Steven Swinford, Deputy Political Editor at The Telegraph.
Hearing Geoffrey Cox, the Attorney General, has raised significant concerns about customs backstop review mechanism
He's warned that from a legal perspective it will be very difficult to enforce & therefore to get out of
His advice will be critical in how today plays out
— Steven Swinford (@Steven_Swinford) November 14, 2018
Fortunately, Christopher Hope, Chief Political Correspondent at The Daily Telegraph, revived hopes when he tweeted the following, which appears to contradict what Donaldson said earlier.
As at 11am today the DUP's MPs have not seen the deal, nor been briefed on it. Their best hope is to see it tomorrow morning, nearly two days after RTE first disclosed it. One MP says: "She [the PM] must take people for fools." #BrexitDeal
— Christopher Hope (@christopherhope) November 14, 2018
Risk-off vibes in Europe
The major European equity indices fell victim to a bout of risk aversion during the morning London session.
And according to market analysts, risk aversion returned because of growing global growth concerns, Germany’s poor GDP data, and yesterday’s oil slide. And to that I’d add skittishness ahead of Theresa May’s cabinet meeting.
- The pan-European FTSEurofirst 300 was down by 0.53% to 1,426.93
- Germany’s DAX was down by 0.37% to 11,429.43
- The blue-chip Euro Stoxx 50 was down by 0.59% to 3,205.85
Major Market Mover(s):
The pound was arguably the most volatile currency of the session since it plunged at the start of the session, with DUP MP Donaldson’s comment being the apparent catalyst, but eventually found support and began turning higher after that tweet from Christopher Hope.
GBP/USD was down by 10 pips (-0.08%) to 1.2974 but hit a session low of 1.2885, GBP/JPY was down by 17 pips (-0.11%) to 147.73 but hit a session low of 146.77, GBP/CAD was down by 24 pips (-0.14%) to 1.7161 but hit a session low of 1.7063
The Swissy was the worst-performing currency of the session, which is rather odd since risk aversion was the dominant sentiment in Europe. Perhaps the SNB was sneakily weakening the Swissy?
USD/CHF was up by 23 pips (+0.22%) to 1.0091, CAD/CHF was up by 20 pips (+0.27%) to 0.7628, EUR/CHF was up by 16 pips (+0.14%) to 1.1387
The Loonie outperformed its peers and was the top-performing currency of the morning London session, apparently because CAD pairs were tracking the recovery in oil prices, which was sparked by that Reuters report about a possible OPEC oil cut deal.
USD/CAD was down by 6 pips (-0.05%) to 1.3229, AUD/CAD was down by 15 pips (-0.16%) to 0.9537, NZD/CAD was down by 20 pips (-0.23%) to 0.8973
Watch Out For:
- 1:30 pm GMT: Headline (0.3% expected vs. 0.1% previous) and core (0.2% expected vs. 0.1% previous) readings for U.S. CPI
- 2:00 pm GMT: Brexit cabinet meeting
- 3:00 pm GMT: U.S. Fed Governor Randal Quarles will testify before the House Financial Services Committee