Forex news from the European morning session - 4 December 2018
Headlines:
- Wilbur Ross: "We shall see" what China commits to
- Italy's Tria says need to avoid EU procedures on budget
- Saudi oil minister says it is premature to say if OPEC+ will cut production
- BOE's Carney says underlying price of sterling hasn't factored in high chance of a disorderly Brexit
- OPEC said to be working towards output cut of at least 1.3 million bpd
- UK November construction PMI 53.4 vs 52.5 expected
- Switzerland November CPI -0.3% vs -0.1% m/m expected
- EU court aide says Britain can revoke Article 50 unilaterally
- China's foreign ministry says there are no further comments on Trump-Xi trade talks
- Italy's Conte: Will present budget proposal to EU in the next few hours
- Italy budget deficit target of 2.0% reportedly still not low enough for the EU
Markets:
- JPY leads, USD lags on the day
- European equities lower; E-minis down 0.4%
- US 10-year yields down 1.3 bps to 2.957%
- Gold up 0.66% to $1,238.80
- WTI up 1.81% to $53.91
- Bitcoin up 2.03% to $3,950
It was a session that started poorly for risk as equities turned lower and Treasury yields fell as the yen surged higher on the back of that. The market focus was turning towards a less optimistic view towards the trade truce between US and China, especially when the latter continues to offer little signs of any firm commitments. USD/JPY began things around 113.05 and continued to fall on the session as the dollar was offered throughout. The pair dipped to a low of 112.73 before settling just above that currently.
The dollar's weakness was among the key theme in markets today as a trifecta of reasons weigh on the greenback on the day. The PBOC strengthened the yuan at the fix by the most since June 2017, then US Treasury yields started to fall rather sharply down 4-5 bps across the board. The icing on top is of course the fact that the yield curve inversion has begun with 2-5 Treasury yields inverting for the first time since 2007. That is prompting worries of an imminent recession to hit in the coming future.
As a result, the greenback fell across the board with the stronger yuan helping to fuel gains in the aussie and kiwi. AUD/USD rallied to a high of 0.7394 before settling around 0.7380 levels currently. Meanwhile, NZD/USD tracked higher to 0.6970 and now trades around 0.6950 levels ahead of US trading.
The pound initially failed to join in on the party as GBP/USD traded sluggishly near flat levels around 1.2725 but that quickly changed as a European Union court aide mentioned that Britain may revoke Article 50 unilaterally. While this isn't the final ruling by the ECJ, it's pretty close. Hopes of a possible no-Brexit scenario rekindled and the cable jumped to 1.2780 before dropping back to 1.2750.
But as the dollar slumped, the pair rose to a high of 1.2840 again before paring some of those gains to 1.2800 levels currently.
There was also time for a bit of oil news with Reuters reporting that OPEC producers are seeking a 1.3 million bpd cut ahead of Thursday's meeting. That saw oil prices jump by nearly 3% to $54.50 but then Saudi Arabia poured some cold water on the news by saying that any production cuts are not a given just yet. Oil is now settling around $54.00 currently following that.
Looking at the session ahead, risk will be one of the key aspects to focus on still so keep an eye on Treasuries as well as the cash equity market. That aside, watch out for further headlines on Brexit as day one of the debate begins in the UK parliament later today.
