Forex news from the European morning session - 14 December 2018
Headlines:
- ECB's de Cos says that unconventional monetary policy is here to stay
- China says to lift retaliatory tariffs on US cars from 1 January
- Italian government debt grew to €2.334 trillion in October
- ECB's Vasiliauskas: Risks are seen tilted to the negative side
- ECB's Nowotny: Risks to growth are broadly balanced
- Eurozone December flash manufacturing PMI 51.4 vs 51.8 expected
- ECB rate hike for next year is slowly being priced out
- Germany December flash manufacturing PMI 51.5 vs 51.7 expected
- France December flash manufacturing PMI 49.7 vs 50.7 expected
- UK's Lidington says EU summit was a welcome first step
- Bundesbank cuts 2018 German GDP growth forecast to 1.5%; previously 2.0%
- Some BOJ officials said to be fine with yields going to zero
- Italy's cuts to revised budget reportedly still may not be enough
Markets:
- JPY, USD leads as AUD, NZD lags
- European equities lower; E-minis down 0.9%
- US 10-year yields down 3.1 bps to 2.882%
- Gold down 0.31% to $1,238.18
- WTI down 0.65% to $52.24
- Bitcoin up 0.44% to $3,269
It was just bad news after bad news for the euro today as risk continues to hold weaker after weaker-than-expected Chinese data helped to stoke global growth slowdown fears in Asian trading. China's industrial production recorded its weakest growth pace in almost three years, while annual retail sales grew by only 8.1% y/y - the weakest level recorded since 2003 - and that prompted a slide in risk sentiment with equities falling alongside the aussie and kiwi.
Despite China officially confirming to undo retaliatory tariffs on US cars and auto parts starting next month, it isn't enough to lift the gloomy mood seen in markets so far today. E-minis are still down by 0.9% ahead of US trading.
But on to the main highlight for the session and that is the euro's downfall. The first piece of bad news for the single currency was that Italy and the European Commission are said to still not see eye to eye on the budget deficit target. EUR/USD started the session a little weaker around 1.1350 before a slump in French and German PMI readings saw the euro dip heavily.
French PMI readings entered into contraction territory - though Markit blames it on the yellow vest protests - but overall there wasn't any signs of confidence from the readings as they hit multi-year lows; basically reaffirming the notion that the ECB should have shifted their rhetoric to say that risks are "tilted to the downside".
That saw EUR/USD dip to 1.1300 and helped the dollar and yen gain further bids - both already supported by the risk-off sentiment - on the day. The pair then tracked lower as the session progressed, slipping to 1.1282 before trading just under 1.1300 currently.
Rate hike expectations for the ECB next year are also slowly being scaled back with money markets now seeing a ~60% probability for the ECB to move next year. That's down from the ~75% probability post-ECB meeting yesterday.
The other major loser in the session was the pound as the quid continues to fail to hang on to any gains with the Brexit saga still nowhere near its conclusion. Theresa May is still seeking concessions from European leaders but there doesn't appear to be any signs that they are willing to offer her what she needs. GBP/USD started around 1.2620 before dipping under the 1.2600 handle as the dollar gained some ground. The pair then slipped to a low of 1.2554 before trading around 1.2560 levels currently.
As mentioned above, risk sentiment remains rather poor on the session and that's seeing the aussie and kiwi be the biggest losers so far today. AUD/USD started the session around 0.7180-90 but moved lower to hit one-month lows of 0.7154 and is hovering just above that now.
USD/JPY had a more subdued session though with the pair mainly hovering around 113.50-60 as both currencies are the major beneficiaries from the risk-off sentiment and poor performance in the euro/pound.
Looking ahead, it's all about risk sentiment in US trading but before stocks open, we'll observe the US November retail sales data so keep an eye out on that as that will play a part in affecting dollar sentiment. Good luck with the final hours of the trading day and have a great weekend!
