Sat, Jul 04, 2020 @ 17:45 GMT
The financial markets are lacking clear direction for the moment. DJIA hit new record high at 20155.35 overnight but pared back much gain to close at 20090.29, up only 0.19%. Treasury yields dropped rather notably with 10 year yield closed down -0.024 at 2.389 as recent consolidation extends. Dollar index reached as high as 100.72 but failed to break through 55 day EMA and retreated, currently at 110.40. Dollar's rebound lost momentum as weighed down mildly by dovish comments from a Fed official. Meanwhile, Sterling regained footing after hawkish comments from BoE policy maker. Some more time is needed for the markets to seek clarity on the directions. .
Dollar's rebound gathers some momentum today as dollar index regained 100 handle and hit as high as 100.72 so far. Hawkish comments from Philadelphia Fed president Patrick Harker is seen as a factor supporting the greenback. Meanwhile, weakness in European majors is providing further lift. Technically, GBP/USD leads the way with break of 1.2411 minor support, which is seen as sign of near term reversal. USD/CAD also took out 1.3168 minor resistance which indicates near term bottoming. The near term focus will now turn to 1.0619 in EUR/USD, 1.0043 in USD/CHF and 113.44 in USD/JPY. In other markets, gold retreats mildly after hitting 1237.5 and is back at around 1230 at the time of writing. But there is no clear sign of topping yet and that mildly dampens the case for reversal in Dollar. WTI crude oil is staying in recent range between 50/55.
Dollar recovers mildly today but momentum stays weak. Philadelphia Fed president Patrick Harker said that he's open to a March hike, but markets thought otherwise. Harker noted that he's "supportive of three rate hikes" this year depending on how the economy and policies evolve. And, more importantly, "March should be considered as a potential for another 25 basis point increase". While he said the Fed is not behind the curve now, he wants to "make sure we don't get behind the curve". Meanwhile, fed fund futures are pricing in just 8.9% chance of a March hike, down from prior day's 13.3% and nearly 30% last month. Dollar index continues to hover tight range around 100 handle. Technically, as it's close to key support level between 99.0/99.5. There is prospect of a short term rebound.
As widely anticipated, RBA left its cash rate unchanged at1.5% in February, its first meeting in 2017. Policymakers acknowledged improvement in the global economic outlook. They also retained the view that the domestic economy would growth above-trend. The overall monetary stance is neutral, signaling the central bank is in no hurry to adjust the policy. The market is closely awaiting Governor Philip Lowe's speech on Thursday and RBA's Statement on Monetary Policy (SoMP) on Friday. The SoMP would reveal policymakers' updated economic forecasts. We expect downgrades of both growth and inflation outlooks.
Euro trades mildly softer today in rather quiet markets. Eurozone Sentix investor confidence dropped to 17.4 in February, down from 18.2, but beat expectation of 17.4. Sentix noted in the release that "investors are reacting to Donald Trump's first official acts and see in these a burden for the global economy." Eurozone PMI dropped 0.3 pt to 50.1 in January. German factory orders rose 5.2% mom in December, versus expectation of 0.7% mom. German finance minister Wolfgang Schäuble blamed ECB for making Euro's exchange rate "too low" and monetary polices that are "too loose" for Germany. He said that "when ECB chief Mario Draghi embarked on the expansive monetary policy, I told him he would drive up Germany's export surplus.... I promised then not to publicly criticise this [policy] course. But then I don't want to be criticized for the consequences of this policy."
The forex markets are generally staying in tight range today with Dollar, Euro and Aussie trading with a soft tone. Recent developments in the US is prompting some analysts to push back their expectations on Fed's hike this year. According to a Reuters poll of dealers, all 14 respondents expected Fed to stand pat in March meeting too. 12 our of 14 expected Fed to hike 0.25% by the end of second quarter. 10 expected interest rate to hit 1.00-1.25% by the end of the year. But only 2 expected interest rate to hit 1.25-1.50%. That is, the majority is expecting Fed to hike only twice this year.
Dollar spiked higher after much stronger than expected headline non-farm payroll number. But the greenback quickly retreated back into established range after looking at the details. NFP showed 227k growth in the job market in January versus expectation of 175k, up from prior month's 157k. However, unemployment rate rose 0.1% to 4.8%, above expectation of 4.7%. The bigger disappointment is seen in wage growth. Average hourly earnings rose 0.1% mom in January, much lower than expectation of 0.3% mom. Dollar is set to end the week as the second weakest major currency, next to Sterling.
Dollar trades mildly higher in Asian session today but remains the second weakest major currency for the week, next to Sterling. Main focus is turning to employment data from US. Markets are expecting non-farm payroll report to show 175k growth in January while unemployment rate would be unchanged at 4.7%. Average hourly earnings are expected to grow 0.3% mom. Looking at other employment related data, ADP report showed 246k growth in January, much stronger than December's 151k. Four week moving average of initial jobless claims dropped 10k to 248k during the period. Employment component of ISM manufacturing surged to 56.1, up from 52.8. Conference board consumer confidence, however, dropped to 111.8, down from 113.3. Overall, other employment data points to a strong NFP report today. But the question is, based on current market sentiment, it's unsure if Dollar will respond positively to a set of good numbers.
BOE voted unanimously (9-0) to leave the Bank rate unchanged at 0.25% and the asset purchases program at 435B pound for UK gilts and 10B pound for non-financial GBP investment-grade corporate bonds. The members revised the growth forecasts significantly higher but left the inflation outlook largely unchanged. The latter was mainly due to the judgment that the labor slack was more than previously expected. Despite stronger growth outlook, Governor Mark Carney warned of the uncertainty over Brexit, cautioning that "there will be twists and turns along the way". While he reiterated that "we can see scenarios in either direction" for policy, we expect BOE to leave the monetary policy and the QE program unchanged at least in the first half of the year.
Sterling tumbles sharply today even though BoE upgraded growth forecasts in the quarterly Inflation Report. The central bank kept key interest rate unchanged at 0.25% and held the asset purchase target at GBP 435b, as widely expected. The central bank maintained a neutral stance and noted that "monetary policy can response, in either direction". Also, it noted that some policy makers are "closer to those limits" referring to the tolerance of overshooting the 2% inflation target. In the latest projections, BoE forecasts inflation to average 2.7% in 2017, 2.6% in 2018 and 2.4% in 2019, November forecast of 2.8% in 2017, 2.7% in 2018 and 2.5% in 2019. Growth is projected to be 2.0% in 2017, 1.6% in 2018, 1.7% in 2019, comparing to November's forecast of 1.4% in 2017 and 1.5% in 2018, 1.6% in 2019. Sterling bulls are clearly dissatisfied with the announcement as the pound weakens notably against Euro and Yen..
Dollar's decline extended overnight after Fed left interest rates unchanged as widely expected. The dollar index reaches as low as 99.42 so far is is pressing 99.43 key near term support level. Markets continued to pare back expectation on Fed higher. Fed fund futures are pricing in 17.7% chance of March hike an 69.0% only. Nonetheless, treasury yield was steady with 10 year yield closed up 0.023 to 2.474. Stocks also stabilized with DJIA closed up slightly by 26.85 pts, or 0.14%, at 19890.94. S&P 500 rose 0.68 pts, or 0.03%, to close at 2279.55. In the currency markets, Dollar remains the weakest major currency this week. On the other hand Yen stays the strongest , followed closely by Aussie and Loonie. In other markets, Gold rides on Dollar weakness and surges to as high as 1210.2 so far today, and is set to take on 1220.1 resistance. WTI crude oil stays in familiar range and hovers around 53.5.
FOMC voted unanimously to leave its policy rate within a target range of 0.50-0.75%. The outcome had been widely anticipated as the Fed just adopted rate hike of +25 bps in December. Only minor changes were seen in the accompanying statement. In short, policymakers retained the stance that future interest rate change would be 'data dependent'. They also reiterated that economic conditions will evolve in a manner that will warrant only gradual increases in the federal fund rate'. The market has only priced in 2 rate hikes this year, although the December dot plot signaled there might be 3. CME’s 30-day Fed fund futures suggested a 17.7% chance of rate hike in March, down from 20.3% prior to FOMC meeting. Yet, they priced in a 38.8% chance in May, compared with 37.7% the day before the meeting.
Dollar remains generally weak today after a rather weak recovery attempt. And, much better than expected ADP job data seems providing little inspiration. FOMC rate decision will be the main focus today but would likely be a non-event. Firstly, there practically no chance for Fed to adjust monetary policy at today's meeting. Secondly, after some hawkish Fedspeaks back in January, there were a little speculation of a March hike. And Fed could make use of today's statement to signal this.
Dollar is trying to recover today but remains the weakest major currency as markets turn their focus to FOMC rate decision today. The greenback has been under much selling pressure since the start of drama of US president Donald Trump's executive order on immigration ban. And more certainties are added after Trump called China and Japan playing their money markets. Also, his trade adviser Peter Navarro complained that the Euro was "grossly undervalued". Markets' enthusiasm over Trump's expansive policies diminished much this week and that can clearly be seen in the sharp pull back in stocks. DJIA ended down -107.04 pts or -0.54% at 19865.09, moving further away from 20000 handle. 10 year yield also lost 0.032 to close at 2.451. Dollar index is back below 100 handle, trading at around 99.8 at the time of writing.
Euro surges broadly today on much stronger than expected inflation reading. Flash CPI rose 1.8% yoy in January, up from prior month's 1.1% yoy, and beat expectation of 1.5% yoy. That's also the highest reading since February 2013. Core CPI, on the other hand, was unchanged at 0.9% yoy, in line with consensus. Eurozone Q4 GDP showed 0.5% qoq growth, up from 0.3% qoq, beat expectation of 0.4% qoq. Eurozone unemployment rate also dropped to 9.6% in December, better than expectation of being unchanged at 9.8%. That's also the lowest level since mid-2009.
Yen gains broadly on risk aversion as the drama of US president Donald Trump's immigration ban continued. DJIA closed down -122.65 pts, or -0.61%, at 19971.13 overnight, below 20000 handle. S&P 500 lost -13.79 pts, or -0.6%, to close at 2280.90. NASDAQ dropped -47.07 pts, or -0.83%, to end at 5613.71. Nikkei follows and is trading down -1.7% at the time of writing. Treasury yields, on the other hand, was steady, with 10 year yield closed at 2.482, up 0.002. Dollar struggled to find a clear direction but weakened mildly, except versus Sterling. The dollar index hit as high as 101.02 yesterday but failed to sustain above 55 day EMA, and is now back at 100.35. In other markets, WTI crude oil stays in recent range and hovers around 52.50. Gold is trying to regain 1200 as consolidation extends.
Dollar reversed earlier loss and trades higher in early US session. Traders are turning their eyes from the unrests and protests regarding US president Donald Trump's immigration ban executive orders. Instead the focuses are back on economic data and the anticipate of FOMC announcement later in the week. Released from US, personal income rose 0.3% in December while spending rose 0.5%. Headline PCE rose 0.2% mom, 1.6% yoy. Core PCE rose 0.1% mom, 1.7% yoy. In particular, the upward movement in core PCE should affirm the case for Fed to continue policy accommodation later this year.
Asian markets trade lower as the week starts on concerns of unrests and geopolitical tensions caused by US president Donald Trump's executive order regarding immigration ban. Trump signed an executive order last Friday, suspending entry of people from seven Muslim-majority countries for 90 days and suspending the refugee program for 120 days. The situation has then developed into a chaotic one as a federal judge in Brooklyn temporarily blocked part of the executive order. And there were waves of protests with ten of thousands of people rallied in US cities to voice the opposition of the order. The uncertainties over the situation weighed down on market sentiments As Nikkei lost -0.51%. In the currency markets, Dollar trades broadly lower except versus Kiwi. Yen surges on risk aversion. The uncertainties might take some time to clear.
The financial markets traded with solid risk appetite last week and the three major US equity indices surged to new record highs in US president Donald Trump's first week in White House. Markets took Trump's signing of some executive orders, include trade and immigration, as sign that he will deliver his election promise and push an expansive fiscal policy. Nonetheless, the rally in stocks and yields lost some steam towards the end of the week after disappointing Q4 GDP data. And Dollar ended mixed. Meanwhile, Sterling ended as the strongest major currency as Supreme Court ruled that prime minister Theresa May's Brexit plan must seek parliament approval. The sale of a new 40 year government bond in UK also attracted record demand, showing appetite for UK assets. Meanwhile, Yen ended as the weakest one as BoJ stepped up its asset purchases to cap the rally in JGB yields.
Dollar's recover lost steam quickly today and is set to end the week mixed. US GDP grew 1.9% annualized in Q4, below expectation of 2.2%. GDP price index rose 2.1%, met consensus. Durable goods orders dropped -0.4% in December, much lower than expectation of 2.6%. Ex-transport orders rose 0.5%, met expectations. UK prime minister Theresa May will meet US president Donald Trump in Washington today and that could be a focus. US futures point to a flat open and markets could turn into profit taking mode after record rerun in stocks.
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