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The pound got a double kick from Brexit-related worries and the U.K. disappointing PMI report. The euro, meanwhile, extended its losses from the earlier session but was able to recover against the pound and was therefore only the second-worst performing currency of the session.

  • Swiss retail sales y/y: -0.2% vs. 0.5% expected, -0.7% previous
  • Spanish manufacturing PMI: 54.3 vs. 53.2 expected, 52.4 previous
  • Swiss manufacturing PMI: 61.7 vs. 60.6 expected, 61.2 previous
  • Italian manufacturing PMI: 56.3 vs. 56.9 expected, 56.3 previous
  • French final manufacturing PMI: 56.1 vs. 56.0 expected, 56.0 previous
  • German final manufacturing PMI: no change from 60.6 as expected
  • Euro Zone final manufacturing PMI: 58.1 vs. 58.2 expected, 58.2 previous
  • U.K. manufacturing PMI: 55.9 vs. 56.2 expected, 56.7 previous
  • Euro Zone jobless rate: 9.1% vs. 9.0% expected, 9.1% previous

Major Events/Reports

U.K. manufacturing PMI drops

The U.K.’s manufacturing PMI reading for the month of September dropped from 56.7 to 55.9, which is a much harder drop compared to expectations that it would only ease to 56.2.

The weaker reading was partly due to the fact that “the latest gain in new orders was slower than the prior survey month.” Also, employment growth “was slightly below August’s three-year record.” Moreover, there were “growth slowdowns across the consumer, intermediate and investment goods sub-sectors.”

On a more upbeat note (for inflation), “Input costs and output charges both rose at faster rates in September.” Not only that, September saw “the steepest increase in output charges for four months.”

Commodities slide

Commodities were broadly in decline during today’s morning London session. However, oil benchmarks were clearly bleeding a whole lot more than the other commodities.

Precious metals were bleeding.

  • Gold was down by 0.63% to $1,276.68 per troy ounce
  • Silver was down by 0.37% to $16.614 per troy ounce

Base metals were actually mixed but most were bleeding.

  • Copper was down by 0.20% to $2.949 per pound
  • Nickel was down by 0.43% to $10,480.00 per dry metric ton

As mentioned earlier, oil benchmarks were bleeding a lot.

  • U.S. WTI crude oil was down by 1.88% to $50.70 per barrel
  • Brent crude oil was down by 1.69% to $55.83 per barrel

The broad-based commodities slide was very likely due to the Greenback’s recent strength, thanks to higher rate hike expectations, market analysts say.

And for reference, the U.S. dollar index was up by 0.52% to 93.39 for the day when the session ended. Although I would just like to note that the Greenback was actually mixed during the session itself.

As to why oil had a much harder time compared to the other commodities, market analysts say that was due to signs of higher oil output from OPEC as well as the rise in U.S. oil rigs.

Upbeat start in Europe

The risk-on vibes from the earlier Asian session spilled over into today’s morning London session since the major European equity indices were in positive territory.

The major European equity indices actually opened mixed, apparently because of worries related to the independence referendum in Catalonia.

However, the major European bourses later climbed broadly higher. And according to market analysts, the risk-on vibes in Europe were due to strong demand for airline companies because the recent collapse of Monarch Airlines, which raised expectations that other airline companies will step in and capture Monarch Airlines’ market share.

Other than that, market analysts also pointed to the euro’s weakness since that stoked demand for shares of European exporters.

  • The pan-European FTSEurofirst 300 was up by 0.26% to 1,528.69
  • Germany’s DAX was up by 0.21% to 12,855.75
  • The blue-chip Euro Stoxx 50 was up by 0.20% to 3,593.50

U.S. equity futures were also raking in gains, so risk-taking may carry over into the U.S. session.

  • S&P 500 futures were up by 0.15% to 2,519.75
  • Nasdaq futures were up by 0.20% to 5,994.63

Global bond yields fall

Despite signs of risk-taking in the European equities and U.S. equity futures markets, there was high demand for global bonds, which pushed bond yields into negative territory.

No clear reason why, but the political jitters in Spain and worries related to the Conservative Party Conference may have sent safe-haven flows towards bonds.

  • German 10-year bond yield down by 1.74% to 0.453%
  • French 10-year bond yield down by 0.80% to 0.742%
  • U.K. 10-year bond yield down by 2.11% to 1.337%
  • U.S. 10-year bond yield down by 0.06% to 2.325%

Major Market Mover(s):

GBP

The pound tumbled when the morning London session rolled around, apparently because of Brexit-related worries as the Conservative Party Conference got under way today, according to market analysts.

The pound then got another bearish infusion later when the U.K.’s manufacturing PMI report failed to meet expectations. There were actually positive details with regard to inflation, but the market didn’t seem to pay attention to those, at least for now.

GBP/USD was down by 74 pips (-0.56%) to 1.3286, GBP/JPY was down by 88 pips (-0.59%) to 149.93, GBP/CHF was down by 51 pips (-0.39%) to 1.2901

EUR

The euro extended its losses from the earlier session. As to why the euro was in decline, market analysts are still pointing to jitters and political uncertainty related to the independence referendum in Catalonia and the Spanish government’s violent crackdown.

EUR/USD was down by 24 pips (-0.21%) to 1.1738, EUR/JPY was down by 33 pips (-0.25%) to 132.45, EUR/CHF was down by 23 pips (-0.21%) to 1.1397

JPY

The yen was the best-performing currency during the morning London session, even though there were no apparent catalysts and risk-taking was the more prevalent sentiment. Bond yields were in decline during the session, though, and that may have allowed the yen to climb higher.

USD/JPY was down by 4 pips (-0.04%) to 112.83, AUD/JPY was down by 12 pips (-0.14%) to 88.15, NZD/JPY was down by 9 pips (-0.11%) to 81.13

Watch Out For:

  • 1:30 pm GMT: Canada’s manufacturing PMI (54.6 previous)
  • 1:45 pm GMT: Markit’s final U.S. manufacturing PMI (no change from 53.0 expected)
  • 2:00 pm GMT: ISM U.S. manufacturing PMI (57.5 expected, 58.8 previous)
  • 2:00 pm GMT: U.S. construction spending (0.4% expected, -0.6% previous)
  • 6:00 pm GMT: Dallas Fed President Robert Kaplan will speak