President Trump’s comments curbed fears over a further near-term US military response..
Risk appetite gradually recovered on Wednesday and then improved sharply after President Trump’s comments curbed fears over a further near-term US military response.
Global equities made significant gains as risk sentiment improved. The dollar posted net gains to post 2020 highs as a stronger than expected ADP jobs report boosted confidence in the US outlook.
Demand for defensive currencies faded with USD/JPY above 109.00. Sterling again reversed initial gains against the dollar while EUR/USD dipped to near 1.1100.
Oil prices came under heavy selling pressure due to reduced fears over Middle East supply disruptions, especially as US inventories also increased. Precious metals declined very sharply as demand for safe-haven assets declined with gold below $1,550 per ounce.
US ADP data recorded an increase in private-sector jobs of 202,000 for December, well above consensus forecasts of 160,000 and there was a notable upward revision for the November data to 124,000 from 67,000. The data boosted confidence in a robust monthly jobs report on Friday and also supported the US dollar. Overall, the US currency made significant headway during the day with a push to 2020 highs as European currencies faded again.
There were again no comments on monetary policy from Federal Reserve officials and, although there are speakers scheduled to speak on Thursday, there are no expectations of a change in interest rates at this month’s policy meeting.
President Trump stated that no American or Iraqi lives had been lost in the Iran missile strikes. He also stated that Iran appeared to be standing down and the US will continue to look at options to respond. There were no suggestions that the US would be looking to respond with further military action at this stage.
The comments increased optimism that there would be no further US strikes in the short term and triggered a further boost to risk appetite with equity markets moving higher. The 10-year yield increased to above 1.85% as demand for bonds faded. In this environment, defensive yen demand declined and USD/JPY pushed above 109.00.
Sterling was again subjected to choppy trading during Wednesday with early buying interest again reversed sharply ahead of the New York open. From highs close to 1.3170, there was a fresh GBP/USD decline to the 1.3100 area. GBP/EUR rallied to near 1.1800 amid wider Euro losses before a tentative recovery.
The UK currency struggled to gain any significant benefit from a recovery in risk appetite during the day. Major UK equities also failed to make significant headway as oil and gold stocks dipped sharply. EU Commission President von der Leyen stated that it would be impossible to negotiate a full trade deal with the UK by the end of 2020 and that both sides must prioritise areas of agreement to meet the decline. In this context, she stated that it was not an all or nothing approach.
GBP/USD settled near 1.3100 amid the firm dollar with GBP/EUR near 1.1780. The UK BRC retail sales data recovered in December and Barclaycard data indicated increased consumer confidence with Sterling making only fractional gains as rallies attracted selling interest.
|07:00||German Industrial Production (M/M)(NOV, 2019)||0.70%||-1.00%|
|07:00||German Trade Balance(NOV, 2019)||20.0B||20.4B|
|07:30||CHF Retail Sales (Y/Y)(NOV, 2019)||-||0.70%|
|09:00||Unemployment Rate(NOV, 2019)||9.80%||9.70%|
|09:30||BoE Gov Carney Speaks||-||-|
|10:00||Euro-Zone Unemployment Rate(NOV, 2019)||7.50%||7.50%|
|13:00||FOMC Member Richard Harris Clarida Speech||-||-|
|13:15||CAD Housing Starts(DEC, 2019)||205.0K||201.3K|
|13:30||CAD Building Permits (M/M)(NOV, 2019)||-||-1.50%|
|13:30||USD Initial Jobless Claims||220K||222K|
|13:30||USD Continuing Jobless Claims||-||1.728K|
|16:30||FOMC member John C. Williams speech||-||-|
|19:00||BoC Gov Poloz Speaks||-||-|
|19:10||German Buba President Weidmann speech||-||-|
|19:20||Fed President Evans Speaks||-||-|