The euro charged higher across the charts, likely because of the ECB’s upbeat economic assessments and the E.U. upgraded economic forecasts, as well as hawkish comments from ECB’s Benoît Cœuré.
The Swissy gave the euro a run for its money, though, likely because of safe haven flows in favor of the Swissy due to the persistent risk aversion in Europe.
The pound, meanwhile, came crashing down, even though there were no apparent catalysts.
- Swiss jobless rate: steady at 3.1% as expected
- German trade balance: €21.8B vs. €21.0B expected, €21.3B previous
- French BOF business sentiment: 106.0 vs. 105.0 expected, 104.0 previous
ECB’s Cœuré speaks
ECB Board Member Benoît Cœuré was speaking at an economics conference earlier. And Cœuré gave some rather hawkish comments, namely the following:
“A lot of people would like us to continue quantitative easing forever, but the depth of European capital markets is totally different to that in the United States.”
“Personally, I don’t think quantitative easing can be a permanent instrument of ECB monetary policy simply because financial markets are not deep enough.”
ECB economic bulletin
The ECB released its latest economic bulletin earlier. For those who don’t know, the ECB’s economic bulletin “presents the economic and monetary information which forms the basis for the Governing Council’s policy decisions,” as the ECB puts it.
And according to the latest economic bulletin, “Risks surrounding the euro area growth outlook remain broadly balanced.”
On the one hand, prospects for the Euro Zone’s economy is positive since “consumption growth is expected to remain resilient” and “business investment should continue to grow in the third quarter of 2017.”
Moreover, “survey-based indicators point to sustained momentum” in-line with sustained global growth.
But on the other hand, “downside risks continue to relate primarily to global factors and developments in foreign exchange markets.”
That ECB elaborated on that last bit about the downside risk from the exchange rate by pointing out that (emphasis mine):
“The euro depreciated vis-à-vis the US dollar (by 1.6%) and the pound sterling (by 2.8%), reflecting market expectations regarding the relative monetary policy stances of those two countries. This depreciation was, however, largely offset by other developments, with the euro appreciating vis-à-vis most other major currencies, including the Chinese renminbi (by 0.8%), the Japanese yen (by 3.1%) and the Swiss franc (by 2.4%). Moreover, the euro also strengthened against the currencies of most major emerging market economies, as well as those of most EU Member States outside the euro area.”
E.C.’s updated economic forecasts
The European Commission (E.C.) revealed its Autumn 2017 Economic Forecast during the morning London session. And compared to the Spring 2017 Economic Forecast, the E.C. upgraded its growth forecasts as follows:
2017 – upgraded to 2.2% (1.7% previous)
2018 – upgraded to 2.1% (1.8% previous)
2019 – 1.9% (new forecast)
The 2017 forecast of 2.2% is noteworthy since it’s the fastest rate of expansion in a decade.
The E.C.’s forecasts for HICP were mixed but net positive, however, since the E.C. downgraded its forecast for 2017 while upgrading its forecast for 2018 and then projecting a pick up by 2019.
2017 – downgraded to 1.5% (1.6% previous)
2018 – upgraded to 1.4% (1.3% previous)
2019 – 1.6% (new forecast)
According to the E.C., the downgraded forecast for 2017 reflected “the impact of a prolonged period of low inflation, weak wage growth as well as remaining labour market slack.”
The E.C. thinks that wage growth will pick up as the labor market tightens, though, which is why it expects the rate of inflation to accelerate by 2019.
As for balance of risk, the E.C. has the same outlook as the ECB in that “The risks that economic developments could turn out better or worse than forecast are broadly balanced.”
The E.C. explicitly stated that the downside risks are mainly from outside the E.U., “relating to elevated geopolitical tensions (e.g. on the Korean peninsula), possibly tighter global financial conditions (e.g. due to an increase of risk aversion), the economic adjustment in China or the extension of protectionist policies.”
Still, there are also downside risks from within the E.U., namely “the outcome of the Brexit negotiations, a stronger appreciation of the euro, and higher long-term interest rates.”
More risk aversion in Europe
The major European equity didn’t get any respite today, since another wave of risk aversion sent them lower pretty much across the board.
And today’s bout of risk aversion was attributed by market analysts to risk sentiment spillover from the Asian session.
Although some market analysts also pointed to disappointing earnings reports for some European companies.
- The pan-European FTSEurofirst 300 was down by 0.57% 1,543.01
- Germany’s DAX was down by 0.70% to 13,288.75
- The blue-chip Euro Stoxx 50 was down by 0.57% to 3,634.50
U.S. equity futures also felt the pain, hinting that the risk-off vibes may carry over into the upcoming U.S. session.
- S&P 500 futures were down by 0.30% to 2,583.25
- Nasdaq futures were down by 0.33% to 6,320.88
Major Market Mover(s):
The euro outperformed all its peers during today’s morning London session.
The euro began getting buyers after ECB’s Cœuré gave his comments and the ECB’s economic bulletin was released. The euro then got another bullish infusion after the European Commission released its updated forecasts, so those were the likely catalysts for the euro’s strength during the session.
EUR/USD was up by 26 pips (+0.22%) to 1.1631, EUR/NZD was up by 61 pips (+0.37%) to 1.6707, EUR/AUD was up by 47 pips (+0.32%) to 1.5143
The Swissy was bid higher during today’s morning London session, very likely because of safe-haven flows due to another bout of risk aversion in Europe. The Swissy came short against the euro, however, so it had to content itself with second place.
USD/CHF was down by 16 pips (-0.17%) to 0.9966, NZD/CHF was down by 20 pips (-0.30%) to 0.6939, AUD/CHF was down by 19 pips (-0.25%) to 0.7656
The pound got another good bashing, even though there were no apparent catalysts. It’s possible that renewed Brexit-related jitters were weighing on the pound, though, especially after reports yesterday that post-Brexit trade talks may be delayed until next year.
GBP/USD was down by 24 pips (-0.19%) to 1.3119, GBP/CHF was down by 45 pips (-0.35%) to 1.3075, GBP/JPY was down by 35 pips (-0.35%) to 148.68
Watch Out For:
- 1:30 pm GMT: U.S. initial jobless claims (232.0K expected, 229.0K previous)
- 1:30 pm GMT: Canadian NHPI (0.2% expected, 0.1% previous)
- 1:45 pm GMT: ECB Board Member Vítor Constâncio has a speech
- 3:00 pm GMT: U.S. final wholesale inventories (no change from +0.3% expected)
- 4:30 pm GMT: SNB Boss Thomas Jordan is scheduled to speak
- 6:20 pm GMT: ECB Board Member Sabine Lautenschläger will speak