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Europe was hit by a bout of risk-aversion and the yen was apparently the safe-haven of choice since the yen outpaced the Greenback and the Swissy to claim the top spot of the morning London session.

The risk-off vibes in Europe were partly blamed on Italy-related concerns, which is likely why the euro got whupped and was the worst-performing currency of the session.

As for other currencies of note, the Aussie and Kiwi are both worth highlighting since they were respectively the second and third worst-performing currencies of the session. And the Aussie apparently got an extra bearish kick due to RBA Guv’nah Lowe’s speech.

The pound is also noteworthy since it found sellers right from the start, but jumped higher when BOE Guv’nah Carney showed support for Theresa May’s deal, only to encounter fresh sellers again and close out the session mixed but a net loser.

  • German PPI m/m: 0.3% as expected vs. 0.5% previous
  • Swiss trade balance: CHF 3.75B vs. CHF 2.89B expected, CHF 2.23B previous
  • CBI’s U.K. industrial order expectations: 10 vs. -6 expected, same as previous

Major Events/Reports:

BOE Guv’nah Carney speaks

BOE Guv’nah Carney and other key BOE MPC officials testified before the Treasury Committee earlier.

Carney was asked about Theresa May’s deal and, well, Carney revealed that the BOE supports the deal, especially the transition period (emphasis mine):

“We have emphasized from the start the importance of having some transition between the current arrangements and the ultimate arrangements, so we welcome the transition arrangements in the withdrawal agreement … and take note of the possibility of extending that transition period.”

Carney also emphasized that a so-called “soft” Brexit, not a “hard” no-deal, no transition Brexit, is still the BOE’s base scenario. Moreover, Carney said that:

“This [no deal, no transition Brexit] would be a very unusual situation. It is very rare to see a large negative supply shock in an advanced economy. You would have to stretch back at least in our analysis until the 1970s to find analogies.”

RBA Guv’nah Lowe speaks

RBA Guv’nah Philip Lowe delivered a speech near the start of the session. Lowe mainly talked about Australia’s financial services industry, but he also touched on the Australian economy and monetary policy during the later half of his speech.

And as usual, Lowe gave an upbeat assessment of and outlook on the Australian economy, noting that “the economy is moving in the right direction and further progress is expected in lowering unemployment and having inflation consistent with the target,” while also pointing out that there is “strong population growth and only limited pockets of excess housing supply.”

He did warn that Australia’s growth may ease in 2020 “as the boost from the large increase in liquefied natural gas exports tapers off.” He also warned that inflation is expected to gradually pick up but “to remain low.”

As for monetary policy, Lowe reiterated that the RBA has a hiking bias when he said that:

“[T]he probability of an increase in interest rates is higher than the probability of a decrease. If the economy continues to move along the expected path, then at some point it will be appropriate to raise interest rates.”

But as usual, Lowe repeated the RBA’s mantra that there is no case for a near-term hike:

“[T]he Board does not see a strong case for a near-term change in interest rates. There is a reasonable probability that the current setting of monetary policy will be maintained for a while yet.”

Italy’s Di Maio speaks

Italy-related updates were sparse during the session, even though the E.U. is expected to give its formal reply to Italy’s budget tomorrow.

With that said, there was one market-moving, Italy-related update, namely Deputy PM and 5-Star leader Luigi Di Maio’s defiant comments:

“I do not know what the Commission will decide, but if they open up to dialogue, a solution – which must not envisage the scrapping of the (main) measures of the budget law – can be found.”

“Italy is certainly paying the consequences of the European Union being a stonewall.”

Risk aversion in Europe

Risk aversion was apparently the dominant sentiment in Europe since the major European equity indices opened lower and then plumbed fresh intraday lows as the session progressed.

And according to market analysts, the risk-off vibes were due to Italy-related concerns and poor earnings, which pulled banking shares lower, as well as bearish pressure on tech stocks because of risk sentiment spillover from the earlier sessions.

  • The pan-European FTSEurofirst 300 was down up by 0.30% to 1,395.09
  • Germany’s DAX was down by 0.52% to 11,185.61
  • The blue-chip Euro Stoxx 50 was down by 0.61% to 3,141.15

Major Market Mover(s):

EUR

The euro was the biggest loser of the session and is also now the second biggest loser of the day (after the Aussie).

And apparently, bears were enticed to come out of the woods because of Di Maio’s comments about the E.U. being a “stonewall” since that also kicked European equity indices lower and convinced investors to dump Italian bonds.

EUR/USD was down by 39 pips (-0.35%) to 1.1418, EUR/JPY was down by 63 pips (-0.49%) to 128.30, EUR/CHF was down by 43 pips (-0.38%) to 1.1327

JPY

The risk-off vibes fueled demand for the safe-haven currencies, and the yen was apparently the safe-haven of choice since it won out against its fellow safe-havens. In fact, the yen is now the top-performing currency of the day (so far).

USD/JPY was down by 17 pips (-0.15%) to 112.34, AUD/JPY was down by 33 pips (-0.41%) to 81.63, NZD/JPY was down by 18 pips (-0.23%) to 76.93

Watch Out For:

  • 1:30 pm GMT: U.S. building permits (1.26M expected vs. 1.24M previous)
  • 1:30 pm GMT: U.S. housing starts (1.23M expected vs. 1.20M previous)
  • 3:00 pm GMT: Deutsche Bundesbank President Jens Weidmann will speak
  • 5:45 pm GMT: BOC Senior Deputy Governor Carolyn Wilkins is scheduled to speak
  • 10:00 pm GMT: BOC Deputy Governor Timothy Lane
  • Dairy auction currently underway (-2.0% previous); auction usually ends at around 2:00 pm GMT