investingLive European FX information wrap: US shares surge as US-Iran tensions ease

The main highlights of the European session on the news front were the monthly UK GDP data and a Bloomberg report raising the possibility of an earlier than expected BoJ rate hike.

The UK data beat expectations across the board but the market reaction was muted. The main reason is the fact that the BoE is mostly focused on inflation for the next rate cut decisions.

We then got a Bloomberg report saying that the BoJ officials were paying more attention than before on the weakening yen and its potential impact on inflation. According to people familiar with the matter, this could have implication for future rate hikes even though the central bank is likely to hold rates steady next week.

The Japanese Yen strengthened on the headlines as the odds of a rate hike in March jumped to 22%. This would be much sooner than expected and could keep the JPY supported in the short-term if speculations of an earlier hike keep increasing.

In the markets, US stocks have been the most notable movers. S&P 500 and Nasdaq futures have been rallying strongly since Trump’s comment yesterday where he said that the killing in Iran was stopping and there were no plans for executions.

It certainly looks like the upside was capped by US-Iran tensions all long. In fact, a war with Iran would trigger a massive rally in oil prices which would eventually weigh on economic activity and inflation. Without the risk of a military action in Iran, we should see new all-time highs soon.

In other markets, FX has been kinda boring with most major pairs seeing slight changes on the day. US Treasury yields continue to bounce around in a range given the limited changes in interest rate expectations. Gold and silver recouped some of the losses triggered by easing US-Iran tensions although they remain negative on the day. Lastly, oil is consolidating near yesterday’s lows when Trump’s comment caused a massive and quick dip.

In the American session, the main highlight is going to be the US Jobless Claims data. Initial Claims are expected at 215K vs 208K prior, while Continuing Claims are seen at 1893K vs 1914K prior. Jobless Claims continue to point to a “low firing, low hiring” labour market with some minor improvement.

The data is unlikely to change much in terms of expectations unless we get big deviations from the estimates. We have also the Philly Fed index and the November import/export prices on the agenda but those aren’t market moving releases.