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There were signs of returning risk aversion during the morning London session, so the safe-havens Greenback and yen fought for supremacy.

There can be only champ, however, and that happens to be the yen, probably because the yen got an extra boost from slumping global bond yields.

The euro, meanwhile, was the biggest loser of the session, thanks to strong selling pressure after the latest batch of Euro Zone PMI reports failed to impress.

  • German final GDP q/q: no change from -0.2% as expected
  • French flash manufacturing PMI: 50.7 vs. 51.3 expected, 51.2 previous
  • French flash services PMI: 55.0 vs. 54.9 expected, 55.3 previous
  • German flash manufacturing PMI: 51.6 vs. 52.3 expected, 52.2 previous
  • German flash services PMI: 53.3 vs. 54.6 expected, 54.7 previous
  • Euro Zone flash manufacturing PMI: 51.5 vs. 52.0 expected, same as previous
  • Euro Zone flash services PMI: 53.1 vs. 53.6 expected, 53.7 previous

Major Events/Reports:

Disappointing Euro Zone PMI reports

Markit released the latest batch of PMI reports for Germany, France, and the Euro Zone as a whole. And sadly for EUR bulls, most of them failed to meet expectations.

As for specifics, France’s manufacturing PMI fell from 51.2 to a 26-month low of 50.7, contrary to expectations for a slight rise to 51.3.

France’s services PMI reading, meanwhile, deteriorated from 55.3 to 55.0, which is also a two-month low but is not too disappointing since the market was expecting a weaker 54.9 reading.

And the outlook for France doesn’t look too good since new orders growth since “softened to a four-month low in November, due to a combination of slower expansion in services and a further contraction in the manufacturing sector,” according to the PMI report.

Moving on, Germany’s manufacturing PMI dropped from 52.2 to a 67-month low of 51.6 instead of improving slightly to 52.3.

Germany’s services PMI didn’t do any better since that slumped from 54.7 to a six-month low of 53.3, which is a steeper-than-expected drop since the market was only expecting the reading to ease to 54.6.

And like France, Germany’s future prospects don’t look too good since Markit found that new orders growth in November increased “the least in the current sequence of growth which began at the start of 2015. While services firms reported a further (albeit slower) increase in new business, manufacturing order books fell for the second month running and to the greatest extent in four years.

As for the PMI reports for the Euro Zone as a whole, the manufacturing PMI reading weakened from 52.0 to a 30-month low of 51.5 in November, which is rather disappointing since the market was only expecting a the reading to hold steady at 52.0.

The services PMI reading, meanwhile, eased further from 53.7 to a 25-month low of 53.1, which is a steeper drop compared to the 53.6 consensus.

And since both manufacturing and services sectors deteriorated, the composite PMI also dropped from 53.1 to a 47-month low of 52.4. That’s almost a three-year low, yo!

The details also presented a dreary picture since “Employment growth meanwhile slowed in both sectors, dropping to a 22-month low overall.”

Also, “Service sector new business inflows hit a 25-month low and export orders fell to the greatest extent for almost two years.”

Manufacturing output, meanwhile, “came to a near-standstill in response to second successive monthly falls in factory orders and exports.”

Risk appetite prevails (but fading)

The major European equity indices opened slightly higher and then climbed even higher as the session got underway, which is a sign that risk appetite got revived once again.

However, sellers returned later, forcing them back down again. Most of the major European equity indices were able to cling to to their gains, however, so risk-taking appears to be the dominant sentiment … for now.

And according to market analysts, the risk-friendly vibes were due to strong demand for Italian banking shares and the recovery in tech shares.

As for the later signs of risk aversion, those appear to have been triggered by the poor PMI readings for Germany in particular.

  • The pan-European FTSEurofirst 300 was up by 0.15% to 1,391.20 but off the day’s high at 1,395.48
  • Germany’s DAX was up by 0.17% to 11,156.20 but off the day’s high at 11,205.89
  • The blue-chip Euro Stoxx 50 was up by 0.14% to 3,131.05 but off the day’s high at 3,145.55

Global bond yields slide

Even though European equities were able to close out the session in the green, global bond yields were broadly in retreat during the session, with German bond yields taking the biggest hit, likely because of Germany’s disappointing PMI report.

  • German 10-year bond yield down by 4.61% to 0.352%
  • French 10-year bond yield down by 2.57% to 0.729%
  • U.K. 10-year bond yield down by 2.94% to 1.386%
  • U.S. 10-year bond yield down by 0.36% to 3.050%
  • Canadian 10-year bond yield down by 0.93% to 2.347%

Major Market Mover(s):


The Greenback and the yen were the top-performing currencies of the morning London session, very likely because of safe-haven flows due to signs of returning risk aversion.

And between the two, it was the yen that (barely) came out on top, likely because the yen got an extra boost from falling bond yields.

USD/JPY was down by 2 pips (-0.02%) to 112.84, AUD/JPY was down by 22 pips (-0.27%) to 81.56, NZD/JPY was down by 38 pips (-0.50%) to 76.49

NZD/USD was down by 32 pips (-0.48%) to 0.6780, GBP/USD was down by 44 pips (-0.35%) to 1.2822, AUD/USD was down by 17 pips (-0.24%) to 0.7228


The euro had a rough time during the morning London session. And the apparent catalysts for the euro’s misery are the latest batch of disappointing PMI reports for France, Germany, and the Euro Zone as a whole.

EUR/USD was down by 58 pips (-0.51%) to 1.1355, EUR/JPY was down by 66 pips (-0.52%) to 128.13, EUR/CHF was down by 27 pips (-0.24%) to 1.1316

Watch Out For:

  • 1:30 pm GMT: Headline (0.1% expected vs. -0.1% previous) and core (0.3% expected vs. -0.4% previous) readings for Canadian retail sales
  • 1:30 pm GMT: Canada’s CPI (0.1% expected vs. -0.4% previous); read Forex Gump’s Event Preview
  • 2:45 pm GMT: Markit’s flash U.S. manufacturing PMI (55.8 expected vs. 55.7 previous)
  • 2:45 pm GMT: Markit’s flash U.S. services PMI (55.0 expected vs. 54.8 previous)