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There was action aplenty during today’s morning London session, with demand for the euro and USD weakness being the most noticeable themes.

The pound is noteworthy as well since it got kicked broadly lower when the U.K.’s latest CPI reading failed to meet consensus.

  • German preliminary Q3 GDP q/q: 0.8% vs. 0.6% expected, 0.6% previous
  • Swiss PPI m/m: 0.5% vs. 0.2% expected, 0.5% previous
  • Italian preliminary Q3 GDP q/q: 0.5% as expected vs. 0.3% previous
  • U.K. CPI m/m: 0.1% vs. 0.2% expected, 0.3% previous=
  • U.K. CPI y/y: same as previous at 3.0% vs. 3.1% expected
  • HPI in the U.K. y/y: 5.4% vs. 5.2% expected, 4.8% previous
  • U.K. PPI input m/m: 1.0% vs. 0.8% expected, 0.2% previous
  • U.K. PPI output m/m: 0.2% vs. 0.3% expected, 0.2% previous
  • Euro Zone flash Q3 GDP q/q: 0.6% as expected, same as previous
  • Euro Zone industrial production m/m: -0.6% as expected vs. 1.4% previous
  • ZEW Euro Zone economic sentiment: 30.9 vs. 29.3 expected, 26.7 previous

Major Events/Reports

U.K. CPI below consensus

The Office for National Statistics (ONS) released the U.K.’s October CPI report today.

And it was rather disappointing since headline inflation in the U.K. only printed an anemic 0.1% month-on-month rise, slower than the previous month’s +0.3% and weaker the consensus for a 0.2% increase.

Year-on-year, CPI maintained the +3.0% pace, but missed expectations that it would accelerate to +3.1%.

That’s bad enough already but the +3.0% annual reading also falls below the BOE’s forecast that CPI will rise by 3.2% year-on-year in October, as laid out in the November Inflation Report.

But on a more upbeat note (for rate hike expectations), the +3.0% annual still marks the ninth consecutive month that CPI has been above the BOE’s inflation target of +2.0%.

Looking at the details of the CPI report, 7 of the 12 CPI components actually printed weaker annual increases, which point to an underlying weakness in inflation.

However the 4.0% surge in the cost of food and non-alcoholic beverages (+3.0% previous), which is the strongest in four years, as well as the 3.4% rise in the cost of healthcare (+2.4% previous), and 2.8% higher cost of recreation (+2.5% previous) were able to offset the weakness from the other CPI components.

Top central bankers speak

Fed Head Yellen, BOE Guv’nah Carney, ECB Overlord Draghi, and BOJ Shogun Kuroda were in a panel discussion hosted by the ECB during the session.

The discussion lasted for over an hour-and-a-half (I didn’t fall asleep, I swear), and here are some noteworthy soundbite/takeaways.

Draghi spoke first and he said that:

“Forward guidance has become a full-fledged monetary policy instrument.”

He then asked the following rhetorical question:

“Why discard a monetary policy instrument that has proved to be effective?”

Yeah, not really very helpful. Anyhow, Yellen, for her part, quipped that forward guidance has been beneficial for central banks “on balance” before adding that:

“All guidance should be conditional and related to the outlook for the economy.”

That sounds a bit cautious, yeah? BOE’s Carney is a noticeable more cautious, though, since he said that:

“During these exceptional circumstances we will stretch out the horizon over which we return inflation to target … in order to support the economy in the adjustment process.”

This is in-line with the recent BOE statement wherein the BOE hiked as expected to keep inflation in check but signaled only two more hikes in the next three years.

As for Kuroda, he repeated his mantra about the deflationary mindset in Japan because of weak inflation expectations, which is why the BOJ will persist with its super loose monetary policy. He did put a positive spin to his statement by saying that inflation expectations have picked up slightly.

More risk aversion in Europe

The European equities market was haunted by another bout of risk aversion that sent the major European equity indices reeling once again.

Market analysts noted that most earnings reports released during the morning London session were actually kinda positive, so some of these analysts conjectured that the risk-off vibes may have been due to stronger euro.

  • The pan-European FTSEurofirst 300 was down by 0.40% 1,514.54
  • Germany’s DAX was down by 0.18% to 13,052.50
  • The blue-chip Euro Stoxx 50 was down by 0.36% to 3,565.50

U.S. equity futures were initially in positive territory, but the risk-off vibes forced them to surrender their gains.

  • S&P 500 futures were down by 0.19% to 2,577.12
  • Nasdaq futures were down by 0.07% to 6,307.63

Major Market Mover(s):

EUR

The euro was already charging higher before the morning London session even rolled around. It then got a noticeable bullish boost at the start of the morning London session before steadily climbing even higher, putting it on course as the best-performing currency of the day.

There were a few economic report for the Euro Zone during the session and they were net positive. And Germany’s stronger GDP reading looks like the apparent catalyst for the euro’s rally during the morning London session since it was the first released.

But as noted before, the euro’s climb started before the morning London session even opened.

Anyhow, some market analysts pointed to capital flows in favor of the euro, although they did not really single out a catalyst for the stronger capital flows in favor of the euro, citing only the improved economic outlook for the Euro Zone and easier borrowing costs because of the ECB’s forward guidance that rates ain’t budging anytime soon.

EUR/USD was up by 57 pips (+0.49%) to 1.1746, EUR/JPY was up by 45 pips (+0.34%) to 133.40, EUR/GBP was up by 36 pips (+0.41%) to 0.8962

USD

The Greenback was the worst-performing currency of the morning London session. There were no apparent catalysts for the Greenback’s weakness, however. Lingering worries over the tax plan may be a possible reason, though.

USD/JPY was down by 16 pips (-0.15%) to 113.56, USD/CHF was down by 39 pips (-0.39%) to 0.9922, USD/CAD was down by 25 pips (-0.20%) to 1.2718

GBP

The pound got kicked broadly lower during the morning London session and ended up as the second weakest currency after the Greenback. And Greenback bears can thank the U.K.’s disappointing CPI report for that.

GBP/JPY was down by 12 pips (-0.09%) to 148.82, GBP/CHF was down by 41 pips (-0.31%) to 1.3004, GBP/NZD was down by 25 pips (-0.13%) to 1.9077

Watch Out For:

  • 1:30 pm GMT: Headline (0.1% expected, 0.4% previous) and core (0.2% expected, 0.4% previous) readings for U.S. PPI
  • 5:30 pm GMT: BOE Deputy Governor Jon Cunliffe will speak
  • 6:05 pm GMT: Atlanta Fed President Raphael Bostic will speak