Markets remained in risk-off mode in European trading on Wednesday, with risk assets coming under pressure while safe-havens flourished. The US dollar extended its losses against the yen despite another batch of solid data out of the United States today. The euro rallied to a one-month high against the greenback, but the pound remained range-bound.
The yen was the day’s strongest currency, though its driver was not the upbeat third quarter GDP figures released in Japan earlier in the day but safe-haven flows. Risk sentiment failed to recover during the course of the day, with a sell-off in commodities and doubts about the US tax reforms weighing heavily on investors. Major stock indices in Europe were all in the red, following on from declines in Asia today and on Wall Street overnight. US indices looked set for a second straight day of losses after opening lower.
The Swiss franc also benefited from safe-haven demand, rising against the dollar and the euro, but gold’s advances were more constrained. The precious metal hit a 3½-week high of $1289.09 an ounce but had fallen back to around $1280 towards the close of European trading.
Long-term US treasury yields continued to decline as a plan by Senate Republicans to link a repeal of the individual mandate that requires Americans to buy health insurance – a key component of Obamacare – with the tax reforms raised concerns that it would make it harder for the legislation to pass. The development undermined the dollar’s recent bullish run, with dollar/yen sliding to a 4-week low of 112.46 yen before recovering to around 112.90 in late session. The dollar index also fell to a 4-week low, hitting 93.40.
There was little support for the greenback from the latest US inflation and retail sales figures. The annual CPI rate eased from 2.2% to 2.0% in October as expected, but core CPI came in slightly above forecasts at 1.8%, up from 1.7% in September – the first gain since January. Retail sales impressed, growing by 0.2% month-on-month in October, beating forecasts of no change and follows an upwardly revised 1.9% jump in September. The retail control measure, which is used in GDP calculations, missed expectations of 0.4% to rise by 0.3%, but the prior month’s figure was revised up from 0.4% to 0.5%. Also released today was the Empire State Manufacturing index, which missed estimates of 26.0 to sharply drop to 19.4 in November.
The euro reached a high of $1.1860 and was up against most major currencies. It stood 0.2% higher against the pound at 0.8980 in late trading, having earlier broken above 0.90 pounds to touch a near 4-week peak. It was down against the yen however, sliding by 0.5% to 133.15.
Sterling was mixed and saw limited reaction to today’s UK jobs data. Britain’s unemployment rate was unchanged at 4.3% in the three months to September. But there was an unexpected fall in employment of 14,000 during the period, raising fears that the slowing economy may be starting to impact the labour market. However, there was a positive surprise from wage growth. Average weekly earnings rose by 2.2% year-on-year in the three months to September. It compares with expectations of 2.1% and an upwardly revised 2.3% in August. Excluding bonuses, earnings also rose by 2.2%, in line with estimates.
The pound touched a session low of $1.3131 after the data but later rebounded slightly to around $1.3160. There was some support for the pound after the first day of debate for the UK government’s EU Withdrawal bill passed without any hurdles on Tuesday, in a boost for the prime minister, Theresa May.
Meanwhile, the Bank of England’s Deputy Governor Ben Broadbent today defended the Bank’s rate increase earlier this month, though he gave little away about the path of future hikes.
Commodities continued to struggle on Wednesday, particularly base metals and energy. Copper was down sharply for a second day, slipping 0.75% to $3.037 a ton. Crude oil also extended its losses, falling by over 1% on the day. WTI crude was last trading just under $55 a barrel and Brent crude stood at $61.37. Oil prices came under further pressure today from a surprise build in US crude and gasoline stocks in the Energy Information Administration’s latest weekly report.
