Forex news from the European morning session - 3 December 2018
Headlines:
- UK PM spokesman says government will publish Brexit legal position paper later today
- Fed's Clarida: Outlook for US economy looks very solid
- Fed's Kaplan: Economy may look very different by mid-2019
- UK PM May: I will still have a job in two weeks' time
- UK November manufacturing PMI 53.1 vs 51.7 expected
- Eurozone November final manufacturing PMI 51.8 vs 51.5 prelim
- Germany November final manufacturing PMI 51.8 vs 51.6 prelim
- France November final manufacturing PMI 50.8 vs 50.7 prelim
- Italy November manufacturing PMI 48.6 vs 48.9 expected
- Switzerland November manufacturing PMI 57.7 vs 56.4 expected
- Switzerland October retail sales +0.8% vs -0.6% y/y expected
- Spain November manufacturing PMI 52.6 vs 51.5 expected
- Chinese foreign ministry spokesman sidesteps questions on car tariffs, Qualcomm
- Mnuchin reportedly warns China to avoid soft commitments in trade talks
- Italy's Conte reportedly preparing for budget deficit of 1.9% to 2.0%
- Oil is crushing it on the new week
Markets:
- AUD leads, GBP lags on the day
- European equities higher; E-minis up 1.5%
- US 10-year yields up 4.5 bps to 3.033%
- Gold up 0.62% to $1,230.03
- WTI up 3.95% to $52.93
- Bitcoin up 1.49% to $3,989
The session started off with a more upbeat tone in risk following the weekend headlines that US and China agreed to a trade ceasefire. However, the focus remained on the fact that the two countries produced widely differing statements where the US' one was more detailed and had action points to be taken while China pretty much scratched the surface with theirs.
That prompted US Treasury secretary to call out China to avoid 'soft commitments' but that didn't really change as China's foreign ministry refused to confirm nor deny the action points mentioned by the US.
Regardless, risk on is the name of the game today as currencies pushed higher against the dollar early in the session. EUR/USD rose to a high of 1.1380 as the dollar slipped before it all came crashing down as the single currency dropped alongside the pound as Brexit woes weighed on the quid once again. EUR/USD then fell to a low of 1.1320 before recovering to 1.1330 levels currently.
The risk on mood prompted AUD/USD to rise from 0.7360 levels to a high of 0.7393 but gains leveled off and the pair sits back close to 0.7370 now. USD/CAD was among the biggest losers on the risk rally as well with the loonie also benefiting from a surge in oil prices. The pair fell to a low of 1.3200 early in the session, then dropped further to 1.3160 before recovering now to 1.3190 levels.
Meanwhile, the pound is the biggest loser in all of this as Brexit woes continue to haunt the currency ahead of the meaningful vote next week. Cable surged to a high of 1.2825 when the dollar weakened earlier but sellers continue to look poised to drive down any rallies in the pound and in quick succession the pair fell to 1.2750 before hitting a low of 1.2708 later on.
Theresa May's odds of winning the meaningful vote next week still isn't great and the uncertainty there is what is disabling the pound from finding any reprieve no matter what the sentiment in markets is right now.
The session ahead still promises to be a more healthy one for risk sentiment but I'd advise being cautious and watch in case the wheels start to come off the ride here. The trade truce is a positive signal for a Santa Claus rally but I'm not entirely convinced just yet of how great it truly is right now, not when both countries aren't reaffirming what was agreed and there is a 90-days stipulation attached to it (which I don't see an accord being struck in such a short period of time).
