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Today’s morning London session was rather interesting since the best-performing currency was the Swissy while the worst-performing currency was the yen. Huh? Safe havens at the opposite extremes? What’s up with that weirdness, yo?

  • Spanish unemployment change: 46.4K vs. 16.3K expected, -26.9K previous
  • Sentix investor confidence: 28.2 vs. 27.4 expected, 27.7 previous
  • U.K. contruction PMI: 51.1 vs. 52.1 expected, 51.9 previous
  • Euro Zone PPI m/m: 0.0% vs. 0.1% expected, -0.2% previous
  • Labor Day holiday in the U.S. and Canada today

Major Events/Reports

U.K. construction PMI falls

The U.K.’s construction PMI reading for the month of August deteriorated from 51.9 to 51.1. This is rather disappointing because the consensus was for the reading to improve to 52.1. Not only that, the most recent reading is also 12-month low.

Moreover, Commentary from Markit noted that the weaker reading was due to new order volumes falling for the second running.

And new orders fell because “civil engineering activity was close to stagnation and commercial work dropped at the fastest pace since July 2016.”

Ex-BOJ Kiuchi speaks

Former BOJ Member Takahide Kiuchi was interviewed by Reuters just before the morning London session opened.

And according to Kiuchi, “The BOJ has already begun normalizing policy since it shifted to yield curve control (YCC) last year, and that’s the direction the bank seems to heading.”

In addition, Kiuchin said that “Reviewing YCC and targeting yields for bonds with a shorter duration is one option. It’s quite possible this could happen.”

In short, the BOJ is about to start tapering if it hasn’t already. Also, it may change its monetary policy framework.

As a refresher, the BOJ adopted a so-called “QQE With Yield Curve Control” framework during the September 2016 BOJ Statement.

This framework tries to keep yields of 10-year JGBs at around 0%. And this, in effect, means that the BOJ’s original target of increasing the monetary base by ¥80 trillion per year has been scrapped since the BOJ no longer has a limit on the amount of bond purchases, at least in theory.

In practice, however, the BOJ has been buying less bonds (around ¥80 trillion) as liquidity rapidly dries up, which is why Kiuchi said that “The BOJ has already begun normalizing policy.”

That’s where Kiuchi’s other comments come in, particularly the ones about redefining the BOJ’s monetary policy framework to target shorter-term bonds and whatnot.

Risk-off vibes persist but fading

The risk-off vibes from the earlier session spilled over into today’s morning London session. And as a result, the major European equity indices opened lower and then proceeded to dive lower still.

However, risk aversion appeared to fade as the session progressed since most of the major European equity indices were off their lows by the end of the morning London session.

Market analysts are still blaming the risk-off vibes on news over the weekend that North Korea supposedly conducted a hyrodgen bomb test.

As for the later signs of fading risk aversion, there’s no clear reason for that. It’s probable, however, that another round of positive earnings reports is taking some of the edge off, at least in Europe.

  • The pan-European FTSEurofirst 300 was still down by 0.44% to 1,471.79 but off the day’s low at 1,468.36
  • Germany’s DAX was still down by 0.30% to 12,106.00 but off the day’s low at 12,041.00
  • The blue-chip Euro Stoxx 50 was still down by 0.25% to 3,436.50 but off the day’s low at 3,420.50

Major Market Mover(s):


Risk aversion persisted during the morning London session and so the safe-haven Swissy reigned supreme since the yen lost its mojo for some reason.

Heck, the yen’s slide during the session opened the way for the Swissy to reign supreme for the day (so far) as well.

USD/CHF was down by 20 pips (-0.21%) to 0.9574, EUR/CHF was down by 11 pips (-0.10%) to 1.1402, CAD/CHF was down by 22 pips (-0.28%) to 0.7715


The yen is a safe-haven currency as well. And while it showed strength just before the session started, it abruptly stopped its advance and began giving back its gains during the entire duration of the session.

Other than profit-taking, there’s no clear reason for the yen’s retreat. However, it’s probable that Kiuchi’s comments are to blame for the yen’s weakness.

Sure, Kiuchi talked about tapering, which is likely why the yen rose sharply just before the morning London session rolled around. However, Kiuchi also talked about adopting a new policy framework to allow even more bond purchases, this time of shorter-term bonds, which is not really tapering when you stop to think about it.

USD/JPY was up by 20 pips (+0.18%) to 109.68, GBP/JPY was up by 28 pips (+0.20%) to 142.14, CHF/JPY was up by 47 pips (+0.42%) to 114.55

Watch Out For:

  • No economic reports on the docket
  • Labor Day holiday in the U.S. and Canada today