There wasn’t much on the docket during today’s morning London session. Even so, there was price action aplenty since the euro extended its losses after closing the weekend gaps on most pairs.
Falling bond yields and signs of returning risk aversion, meanwhile, gave the safe-haven yen a boost and allowed the yen to just shrug off Kuroda’s speech and Abe’s call for a snap election.
As for the Kiwi, it was mixed but still showing mostly weakness during the morning London session. The Kiwi is also still the worst-performing currency of the day (so far), despite the more mixed performance during the session.
Another noteworthy currency is the pound since it edged lower against the euro and was actually the worst-performing currency of the session, even though there were no apparent catalysts.
- German IFO business climate: 115.2 vs. unchanged at 115.9 expected
- German IFO current conditions: 123.6 vs. unchanged at 124.6 expected
- Lots of central bankers will be speaking later, including ECB Overlord Draghi
BOJ Shogun Kuroda speaks
Haruhiko Kuroda, shogun of the BOJ, gave a little speech earlier today. And, well, he repeated last week’s message by presenting an optimistic outlook on the Japanese economy.
Kuroda also talked about the BOJ’s so-called “QQE with Yield Curve Control” framework and that the BOJ still has an easing bias but sees no need to ease further.
However, he also stressed that the BOJ won’t be tightening anytime soon when he concluded his speech by saying the following:
“Although there is still a long way to go to achieve the price stability target of 2 percent, the Bank will continue to persistently pursue powerful monetary easing with a view to achieving the target at the earliest possible time.”
In the Q&A session that followed, Kuroda also implied that North Korea is a risk to global growth for some reason.
“Our main scenario is for global growth to accelerate moderately. But we’ll continue to closely watch how developments in North Korea could affect markets and Japan’s economy.”
He didn’t really elaborate why he thinks North Korea is a risk to global growth, but he did say that “The BOJ is ready to take appropriate action as needed,” although he didn’t really specificy what.
Other than that, he repeated that it was “premature” to end the BOJ’s super loose monetary policy while also repeating that there’s no need to ease further at the moment.
And with regard to deeper negative rates, in particular, Kuroda had this to say:
“It’s true Europe and Japan have shown there is room to push interest rates into negative territory. But there’s absolutely no room to push policy rates into minus territory of, say, 4 or 5 percent.”
Abe calls for snap election
Japanese PM Shinzo Abe announced earlier during the morning London session that he plans to dissolve the Japanese lower house on Sept. 28. Abe then said that he will be calling for a snap election, but he didn’t really say when. However, there have been talks that October 22 is the tentative date for the election.
Upbeat start, but optimism fading
European equity indices opened the new trading week higher and then climbed higher still.
However, signs of returning risk aversion began to show about halfway through the session since the major European equity indices began giving back their gains.
Most of the major European bourses were still hanging on to their gains when the morning London session ended. However, most were already off their intraday highs.
The early risk-on vibes was attributed by market analysts to cautious optimism after German Chancellor Merkel successfully held onto power in Sundays election.
As to why risk aversion appeared to be making a comeback, market analysts blamed that on the signs that AfD, which is presented as a far-right group, has also gained power in Sunday’s election.
- The pan-European FTSEurofirst 300 was still up by 0.13% to 1,507.17 but off intraday highs at 1,509.86
- Germany’s DAX was still up by 0.21% to 12,619.00 but off intraday highs at 12,634.50
- The blue-chip Euro Stoxx 50 was still up by 0.03% to 3,542.50 but off intraday highs at 3,548.50
The returning risk-off vibes were enough to push U.S. equity futures into the red.
- S&P 500 futures were down by 0.07% to 2,497.75
- Nasdaq futures were down by 0.09% to 5,930.63
Global bond yields fall
Another sign of returning risk aversion was the high demand for global bonds, which pushed bond yields into negative territory.
And according to market analysts, the drop in bond yields was due to the strong support for AfD during the latest German election.
- German 10-year bond yield down by 10.64% to 0.403%
- French 10-year bond yield down by 5.89% to 0.692%
- U.K. 10-year bond yield down by 1.11% to 1.340%
- U.S. 10-year bond yield down by 1.24% to 2.234%
- Canadian 10-year bond yield down by 1.14% to 2.088%
Major Market Mover(s):
The euro staged a broad-based recovery before the morning London session opened. And after closing the weekend gaps on most euro pairs, the euro resumed its slide and then continued to do so when the morning London session finally rolled around.
As to why the euro was weak, market analysts blamed that on profit-taking by euro bulls after the latest German elections revealed a surge in support for the far-right AfD.
EUR/USD was down by 39 pips (-0.33%) to 1.1871, EUR/JPY was down by 53 pips (-0.40%) to 133.14, EUR/AUD was down by 46 pips (-0.31%) to 1.4916
The euro wasn’t actually the worst-performing currency of the session. That (dis)honor belongs to the pound, even though there were no apparent catalysts.
The BOE’s Financial Policy Committee (FPC) released its latest statement, but that wasn’t really very negative since the FPC concluded that “overall risks to UK financial stability from the domestic environment are broadly unchanged at a standard level.”
Moreover, the pound started sliding even before the FPC released its statement. Also, the pound’s slide accelerated well after the FPC released its statement.
Profit-taking by pound bulls is a possibility, though. After all, Brexit talks are expected to resume tomorrow.
GBP/USD was down by 46 pips (-0.35%) to 1.3493, GBP/JPY was down by 66 pips (-0.44%) to 151.32, GBP/NZD was down by 52 pips (-0.28%) to 1.8542
Kuroda’s speech and Abe’s call for a snap election didn’t really have much of an effect on the yen’s price action since yen pairs were apparently taking their directional cues from bond yields and risk sentiment.
And since bond yields were down and risk aversion appeared to be making a comeback, the yen ended up as the top-performing currency of the morning London session.
USD/JPY was down by 9 pips (-0.08%) to 112.14, CHF/JPY was down by 37 pips (-0.32%) to 115.16, NZD/JPY was down by 12 pips (-0.15%) to 81.59
Watch Out For:
- 12:30 pm GMT: New York Fed President William Dudley will speak
- 1:00 pm GMT: ECB Overlord Draghi is scheduled to speak
- 1:00 pm GMT: CB’s Chinese leading index (0.9% previous)
- 4:40 pm GMT: Chicago Fed President Charles Evans will give a speech
- 9:15 pm GMT: RBA Assistant Governor Michele Bullock will speak
- 9:45 pm GMT: New Zealand’s trade balance (-$825M expected, $85M previous)