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Today’s morning London session was rather lively since the yen and the Swissy bitterly fought for the top spot during the risk-off session, with the yen ultimately coming out on top (for this session at least).

The Kiwi, meanwhile, extended its losses in the aftermath of earlier news that New Zealand First chose to back Labour instead of National.

As for the pound, it got hammered down when the U.K.’s disappointing retail sales report was released.

  • Swiss trade balance: CHF 2.92B vs. CHF 2.47B expected, CHF 2.20B previous
  • U.K. retail sales m/m: -0.8% vs. -0.2% expected, 0.9% previous
  • Core U.K. retail sales m/m: -0.7% vs. -0.1% expected, 0.9% previous
  • U.K. retail sales y/y: 1.2% vs. 2.1% expected, 2.3% previous
  • Core U.K. retail sales y/y: 1.6% vs. 2.4% expected, 2.6% previous

Major Events/Reports

U.K. retail sales report

Retail sales volume in the U.K. contracted by 0.8% in September. This is a much sharper contraction compared to the -0.2% consensus, as well as the first contraction after four months of increases.

To make matters worse, the previous reading was also downgraded from +1.0% to +0.9%. Worse still, the core reading took a hit as well, falling by 0.7% after also four months of increases.

Year-on-year, total retail sales volume increased by 1.2%, significantly weaker than the consensus for a 2.1% increase, as well as the previous month’s 2.3% increase. The annual core reading deteriorated as well, increasing only by 1.6% after gaining 2.6% previously.

On a more upbeat note, retail sales for all of Q3 was around 0.6% higher compared to retail sales in Q2. So despite the misses for September’s reading, retail sales will still very likely have a positive contribution to Q3 GDP growth.

Spain to impose direct rule over Catalonia

The political drama between Spain and Catalonia reached new heights during the session, as Catalonia’s Carles Puigdemont declared that if Madrid continues to “impede dialogue and continues its repression”, then Catalonia will continue with its plans to declare its independence from Spain.

And Puigdemont said this just minutes before the deadline of Spain’s ultimatum that Catalonia cease its bid for independence finally lapsed.

And since Catalonia refused to bow to Madrid’s demands, Spain has fired the opening shot by declaring that it will trigger Article 155 of the 1978 Spanish Constitution this Saturday, which will effectively strip Catalonia of its autonomy and allow Spain to legally impose direct control.

Interestingly enough, this news initially caused the euro to retreat. However, there was no follow-through selling. In fact, the euro found buyers on some pair and closed the session as a net winner.

Severe risk aversion in Europe

The major European equity indices were beaten down and bleeding out during the course of the morning London session. Risk aversion was therefore very clearly the dominant sentiment in Europe.

And according to market analysts, the feelings of doom and gloom were due to disappointing Q3 earnings results for European companies, as well as renewed worries with regard to Catalonia’s political situation.

  • The pan-European FTSEurofirst 300 was down by 0.78% to 1,527.85
  • Germany’s DAX was down by 0.76% to 12,944.00
  • The blue-chip Euro Stoxx 50 was down by 0.69% to 3,592.50

Even U.S. equity futures got weighed down by all that risk aversion.

  • S&P 500 futures were down by 0.49% to 2,547.50
  • Nasdaq futures were down by 0.74% to 6,073.75

Major Market Mover(s):

JPY & CHF

Risk aversion made a strong comeback during today’s morning London, thanks to disappointing earnings and heightened political uncertainty because of the spat between Catalonia and Spain.

And the main beneficiaries of all that risk aversion were, quite naturally, the safe-haven yen and Swissy, so the two currencies battled it out during the session, with the yen ultimately coming out on top (during this session at least).

USD/JPY was down by 54 pips (-0.48%) to 112.49, EUR/JPY was down by 48 pips (-0.38%) to 133.12, CAD/JPY was down by 51 pips (-0.56%) to 90.25

USD/CHF was down by 48 pips (-0.49%) to 0.9751, EUR/CHF was down by 44 pips (-0.38%) to 1.1540, CAD/CHF was down by 46 pips (-0.59%) to 0.7823

NZD

The Kiwi extended its losses from the earlier session and was the worst-performing currency of the morning London session, as well as the worst-performing currency of the day (so far).

And if you’re wondering why the market didn’t like New Zealand First’s (NZF) decision to back Labour instead of National, the short of it is that investors fear that a Labour-Greens-NZF coalition may lead to protectionist policies.

NZD/USD was down by 26 pips (-0.38%) to 0.7019, NZD/JPY was down by 69 pips (-0.87%) to 78.95, NZD/CHF was down by 58 pips (-0.84%) to 0.6846

GBP

The pound was already feeling some bearish pressure ahead of the U.K.’s retail sales report. Par for the course, I suppose. After all, I have been noting in the past that the pound tends to behave that way, so much so that some market analysts think that there may be leaks.

Anyhow, the pound encountered more selling pressure when the disappointing retail sales report was released.

The pound did find support later. Whether this was due to profit-taking by those who got in early or the late realization that retail sales will likely have a positive contribution to GDP growth is not clear, though.

GBP/USD was down by 32 pips (-0.25%) to 1.3177, GBP/JPY was down by 106 pips (-0.71%) to 148.24, GBP/CHF was down by 96 pips (-0.74%) to 1.2849

Watch Out For:

  • 12:30 pm GMT: U.S. initial jobless claims (240K expected, 243K previous)
  • 12:30 pm GMT: Philadelphia Fed manufacturing index (21.9 expected, 23.8 previous)
  • 2:00 pm GMT: CB’s U.S. leading index (0.1% expected, 0.4% previous)
  • 9:45 pm GMT: New Zealand’s visitor arrivals (-0.3% previous)