The pound and the yen fought for the top spot of the morning London session, but there can be only one champ and that happens to the pound.
Slumping commodity prices and intense risk aversion due to trade-related concerns, meanwhile, continued to weigh on the comdolls, with the Aussie getting the worst of it.
- German factory orders m/m: 0.3% vs. -0.4% expected, 0.1% previous
RBA’s Debelle speaks
RBA Deputy Guv’nah Guy Debelle gave a speech at the start of the session.
He mostly talked about the history of the Global Financial Crisis (GFC) and the lessons learned from that event.
Debelle also touched on monetary policy, though, and he repeated the RBA’s mantra that:
“The Reserve Bank has repeatedly said that our expectation is that the next move in monetary policy is more likely up than down, though it is some way off.”
However, Debelle also had this dovish things to say:
“But should that turn out not to be the case, there is still scope for further reductions in the policy rate. It is the level of interest rates that matters and they can still move lower.”
Is Debelle hinting here that the RBA is beginning to shift towards a more neutral monetary policy bias?
There were some Brexit-related headlines flying about during the session. And focusing only on the most important and/or market-moving ones, first up is
Democratic Unionist Party (DUP) MP Sammy Wilson’s reassuring comment that while the DUP does not support Theresa May’s Brexit deal, “We would certainly not vote to topple the government because we would have no reason to do so.”
Next up is British PM Theresa May’s BBC radio interview where she said that (emphasis mine):
“There are three options: one is to leave the European Union with a deal… the other two are that we leave without a deal or that we have no Brexit at all.”
“It’s clear that there are those in the House of Commons who want to frustrate Brexit… and overturn the vote of the British people and that’s not right.”
While Theresa May was still speaking, Jo Maugham gave the following update.
The judgment in the Article 50 case will be issued at 9am Luxembourg time on 10 December 2018.
— Jo Maugham QC (@JolyonMaugham) December 6, 2018
For those who don’t know, Jo Maugham is one of the leading anti-Brexit lawyers who fought for clarification on whether or not Brexit can be reversed by Parliament.
And remember, the ECJ’s Advocate General recommended a couple of days ago that reversing Brexit without the consent of the other E.U. Member States should be allowed.
Also, notice that a judgment is expected on December 10, the day before Parliament is expected to have a “meaningful vote” on Theresa May’s Brexit deal.
And on that note, Andrea Leadsom announced earlier that the December 11 vote on Theresa May’s Brexit deal is still a go.
Most commodities already got a beating during the earlier session but had to endure another beat-down during the morning London session. Oil, in particular, got a really severe pounding.
The Greenback had a mixed performance during the morning London session, but it closed out the session as a net winner (mainly at the expense of the comdolls).
Also, the Greenback is still a net winner for the day. And for reference, the U.S. dollar index was up by 0.11% to 97.105 for the day when the session came to a close.
It’s therefore probably safe to blame the commodities rout partly on the Greenback’s overall strength.
In fact, market analysts were blaming the slide in precious metal prices on Greenback strength, although profit-taking was also mentioned in the case of gold prices due to nearby technical levels.
Aside from Greenback strength, it’s also very likely that trade-related fears continue to weigh on base metals.
The heavy slump in oil prices during the session, meanwhile, appears to have been a bearish reaction to Saudi Energy Minister Khalid al-Falih’s comment that OPEC Members would happily agree to another oil cut deal of only 1 million barrels per day, less than what the market has already priced in.
Also, Khalid al-Falih later told CNBC that there’s a “real” risk for a “no deal” OPEC scenario. In other words, no oil cut deal at all.
Oil benchmarks were hit really hard.
- U.S. WTI crude oil is down by 4.76% to $50.37
- Brent crude oil is down by 4.86% to $58.57
Base metals were also hit hard.
- Copper was down by 1.98% to $2.719 per pound
- Nickel was down by 2.25% to $10,962.50 per dry metric ton
Precious metals were also down despite the risk-off vibes in Europe.
- Gold was down by 0.10% to $1,241.30 per troy ounce
- Silver was down by 1.03% to $14.432 per troy ounce
Risk aversion intensifies in Europe
Feelings of doom and gloom plagued Europe for yet another day, causing the major European equity indices to bleed out some more.
And naturally, market analysts are blaming today’s round of risk aversion on growing concerns that the trade war between the U.S. and China won’t be resolved, thanks to earlier news that Huawei’s Wanzhou Meng was arrested in Canada for extradition to the U.S.
Energy and mining shares were especially vulnerable, though, so the commodities rout also apparently poisoned risk sentiment.
- The pan-European FTSEurofirst 300 was down hard by 2.24% to 1,365.66
- Germany’s DAX was down hardby 2.38% to 10,935.28
- The blue-chip Euro Stoxx 50 was down hard by 2.17% to 3,081.95
Major Market Mover(s):
The pound overpowered the yen to claim the top spot of the morning London session.
And the apparent catalysts were either Theresa May’s comment that reversing Brexit is an option, or the update that the ECJ will rule by next week on whether or not Brexit can be unilaterally reversed.
Either way, it seems like hopes that Brexit could potentially be reversed appears to have driven demand for the pound.
GBP/USD was up by 60 pips (+0.47%) to 1.2764, GBP/AUD was up by 158 pips (+0.90%) to 1.7725, GBP/NZD was up by 95 pips (+0.52%) to 1.8581
The safe-haven yen continued to enjoy the risk-off vibes and is still the top-performing currency of the day (so far), but it lost out to the pound during the morning London session.
USD/JPY was down by 29 pips (-0.26%) to 112.79, NZD/JPY was down by 22 pips (-0.29%) to 77.48, CAD/JPY was down by 29 pips (-0.35%) to 84.05
All the comdolls (AUD, NZD, CAD) got another beating during the morning London session, likely because of the slide in commodity prices and risk-off vibes.
However, the Aussie was particularly weak and Debelle appears to be the culprit since the Aussie lost out to the Loonie and Kiwi while Debelle was speaking.
AUD/USD was down by 31 pips (-0.43%) to 0.7201, AUD/JPY was down by 56 pips (-0.70%) to 81.21, AUD/CHF was down by 49 pips (-0.68%) to 0.7172
Watch Out For:
- 1:15 pm GMT: ADP’s U.S. private non-farm employment change (195K expected vs. 227K previous)
- 1:30 pm GMT: U.S. trade balance (-$55.0B expected vs. -$54.0B previous)
- 1:30 pm GMT: U.S. initial jobless claims (225K expected vs. 234K previous)
- 1:30 pm GMT: U.S. revised non-farm productivity (2.3% expected vs. 2.2% originally) and unit labor costs (1.0% expected vs. 1.2% originally)
- 1:30 pm GMT: Canada’s trade balance (-$0.7B expected vs. -$0.4B previous)
- 1:35 pm GMT: BOC Guv’nah Poloz will give a speech
- 2:45 pm GMT: U.S. final services PMI (no change from 54.4 expected)
- 3:00 pm GMT: Canada’s Ivey PMI (59.9 expected vs. 61.8 previous)
- 3:00 pm GMT: ISM’s U.S. non-manufacturing PMI (59.0 expected vs. 60.3 previous)
- 3:00 pm GMT: U.S. factory orders (-2.0% expected vs. 0.7% previous)
- 4:00 pm GMT: U.S. crude oil inventories (-1.3M expected vs. 3.6M previous)
- 5:15 pm GMT: Atlanta Fed President Raphael Bostic will speak
- 9:30 pm GMT: AIG’s Australian construction index (46.4 previous)