US equities closed mixed overnight as markets await president-elect Donald Trump's first post election press conference. DJIA continued to struggle in tight range below 20000 handle and closed down -31.85 pts, or -0.16%, at 19855.53. S&P 500 closed completely flat for the first time in 9 years, at 2268.9. On the other hand, NASDAQ closed at 4th straight record at 5551.82, up 20 pts, or 0.36%. 10 year yield was relatively unchanged, closed up 0.003 at 2.379. Dollar index is trying to recover and is back above 102, comparing to last week's low at 101.30, but lacks momentum. In other markets, gold is staying firm as recent rebound is still in progress and is pressing 1190 handle. WTI crude oil dropped sharply overnight to as low as 50.71 and is trying to defend 50 handle.
Dollar recovers mildly today but stays weak for the week, next to Sterling. Focus is turning to US president-elect Donald Trump's first post election press conference tomorrow. Markets are looking for clues on whether Trump is prepared to deliver his election promises and push expansive fiscal policy after his inauguration on January 20. While the greenback weakens this week, it's still holding on to key near term support levels. Thus, the pull back is still seen as a correction technically. Meanwhile, markets will also pay close attention to whether DJIA would power through 20000 handle, or bounce off from there. Meanwhile, Sterling remains on the weakest major currencies on Brexit worries.
Sterling remains the weakest major currency this week as pressured by uncertainties over Brexit. UK prime minister Theresa May blamed the fall in the Pound's exchange rate on media's misinterpretation of what she said yesterday. She clarified that "I am tempted to say that the people who are getting it wrong are those who print things saying I'm talking about a hard Brexit, it is absolutely inevitable it is a hard Brexit. I don't accept the terms soft and hard Brexit." She emphasized that "what we are doing is going to get an ambitious, good and best possible deal for the United Kingdom, in terms of trading with and operating within the European single market." Earlier in the day, May said in a televised interview that Brexit is about "getting the right relationship" and the right relationship is about being "have control of our borders, control of our laws".
Sterling is sold off across the board today and remains weak in early US session. The pound falls on fear that UK will opt for hard Brexit and lose access to the single market in EU. On the other hand, FTSE surges to new record high at 7239. UK prime minister Theresa May. May emphasized in a televised interview that Brexit is about "getting the right relationship, not about keeping bits of membership." And she noted that the right relationship is about being "have control of our borders, control of our laws" while having the "best possible deal" for trading with EU. The comments indicated that control of immigration and law prevail access to the single markets. Meanwhile, May also pledged to set out "some more details in the coming weeks" about Brexit ahead of the March 31 deadline for triggering Article 50 for Brexit negotiations.
Sterling opens the week broadly lower as weighed down by comments from UK prime minister Theresa May. May emphasized in a televised interview that Brexit is about "getting the right relationship, not about keeping bits of membership." And she noted that the right relationship is about being "have control of our borders, control of our laws" while having the "best possible deal" for trading with EU. The comments indicated that control of immigration and law prevail access to the single markets. Meanwhile, May also pledged to set out "some more details in the coming weeks" about Brexit ahead of the March 31 deadline for triggering Article 50 for Brexit negotiations. GBP/USD dips through 1.2200 near term support to resume recent decline next key support level at 1.1946.
Subdued economic growth and unconventional easing measures resulted in EURUSD's third consecutive yearly decline, although the loss was greatly trimmed to about -3%, last year. EURGBP, however, jumped +16% as sterling slumped on concerns over British economic outlook after Brexit. Risk is to the downside for the single currency in 2017 as pressured by elevated political uncertainties and ECB's dovish tapering stance. Recent upside surprises on inflation data would not make ECB less dovish. Core inflation remained weak and should only improve gradually this year, not sufficient for the central bank to commit to tapering. A break below the 1.0463 low in March 2015 has paved the way for EURUSD to go further lower. We expect EURUSD to reach parity by 2Q17, probably after French election.
The markets originally looked set for a general trend reversal with the synchronized sharp decline in US stocks, yield and the Dollar leading into 2017. Nonetheless, equities staged a strong come back towards the end of last week and helped stabilized both yields and the greenback. The overall solid non-farm payroll report, with strong wage growth, provided some support to sentiments. But it looked more like the trump rally is back in force. While there are still risks of trend reversals, it's much lowered now with S&P 500 and NASDAQ closing at record high at 2276.98 and 5521.06 on Friday. DJIA also just missed 20000 handle by a hair and reached as high as 19999.63 before closing at 19963.80. The coming would be crucial to the overall developments in the markets as Donald Trump's inauguration day on January 20 approaches.
Dollar is trying to rebound after non-farm payroll report but struggles to find sustainable buying. Headline NFP showed 156k growth in December, below expectation of 178k. Nonetheless, prior month's figure was revised up from 178k to 204k. Unemployment rate rose to 4.7% as expected. Wages showed strong growth with average hourly earnings increased 0.4% mom, above expectation of 0.3%. Also from US, trade deficit widened to USD -45.2b in November. On the other hand, Canadian dollar rises on job data which showed an impressive 53.7k growth in December. Unemployment rate in Canada also rose to 6.9%. Canada trade balance turned into CAD 0.5b surplus in November.
US treasury yields tumbled sharply as markets corrected the post election rally. Surge in yields since November was driven by anticipation of Donald Trump's policies of higher spending, lower taxes and higher debt. Markets seemed to turn cautious as Trump prepares to take office later in the month. 10 year yield dropped to 2.368 comparing to December's high at 2.621. 30 year yield also dropped to close below 3.000 handle at 2.962, comparing to December's high at 3.196. The development dragged Dollar broadly lower with the dollar index hitting as low as 101.30. The developments confirmed that yields and Dollar turned into a correction phase which could last for the the rest of the month. It's doubtful whether a strong non-farm payroll report could trigger sustainable comeback in the Dollar in near term. In other markets, gold rode on Dollar weakness and reached as high as 1185.9. DJIA continued to stay in tight range below 20000 handle.
Dollar stays soft in early US session after mixed job data as the post FOMC minutes selloff might extend. Initial jobless claims dropped 28k to 235k in the week ended December 31, much lower than expectation of 260k. That's also just 2k above the 43 year low of 233k made back in November. In addition, initial claims stayed below 300k for 96 straight weeks, the longest since 1970. Continuing claims rose 16k to 2.11m in the week ended December 24. ADP report showed 153k growth in private sector jobs in December, missing expectation of 175k. Challenger report showed 42.4% yoy rise in planned layoffs in December. Also release in US session, Canada IPPI rose 0.3% mom in November. RMPI dropped -2.0% mom.
The financial markets reacted differently to the FOMC minutes overnight. Stocks seemed to have taken the more optimistic view of the minutes. DJIA closed up 60.4 pts, or 0.30%, at 19942.16. S&P 500 also gained 12.92 pts, or 0.57%, to close at 2270.75. Both indices are heading back to historical high with DJIA set to take on 20000 handle again. However, Dollar and yields seemed to pay more attention on the "consider uncertainties" that policy makers believed would alter the policy path. In particular, Dollar index drops sharply to as low 101.86 so far today and is threatening a near term reversal. Gold rides on dollar weakness and is back above 1170.
Dollar trades mildly softer today as markets await FOMC minutes. Besides the discussion over the 25 bps rate hike decision made on the month, we are closely watching for the discussion of potential monetary policy changes as Trump takes office. The president-elect has been proposing pro-growth fiscal policy. We would also look for the rationale behind the more hawkish shift in the dot plot which signals 3 rate hikes in 2017. Currently, fed fund futures are pricing in around 70% chance of another rate hike by June this year.
2017 is year of high uncertainty, mainly hinging on the shift of global political agendas, from the new policy direction under Trump's administration, to the beginning of negotiations between the UK and the EU on Brexit, to the leadership transition in China. On the currency outlook, we remain constructive over USD this year, anticipating Trump's pro-growth policy would drive higher economic expansion and inflation, and facilitate a tighter monetary policy stance. With the market shy of pricing in three Fed funds rate hikes (as signaled in the December dot plot) this year, there is room for USD to rally further should incoming macroeconomic data eventually convince traders that more rate hikes are possible. We are bearish on Treasuries and expect US yields to move higher, especially at the front-end. Monetary policy divergence should bold well for the greenback, especially against the euro.
Dollar surged with stocks and yield overnight but momentum was unconvincing. Dollar index hit as high as 103.82 but failed to sustain above recent resistance at 103.65. The index is currently trading back at around 103.20. DJIA gained 119.16 pts, or 0.60% to close at 19881.76. However, that close to yesterday's open at 19872.86 which indicates indecisiveness. S&P 500 performed slightly better as it closed up 19.00 pts, or 0.85% at 2257.83, comparing to the open at 2251.57. 10 year yield jumped to as high as 2.518 but closed at 2.450, sharply below the open at 2.511 even though it ended up 0.004. 30 year yield perform worse, opening at 3.123 but closed at 3.047, down -0.016 from prior close. In the currency market, EUR/USD breached 1.0351 near term support briefly but failed to stay below and is back at 1.0410. Markets are generally staying cautious ahead of employment data from US.
Dollar surges broadly today, except versus Aussie, as helped by the selloff in Euro. Dollar index reaches as high as 103.52 and is set to test recent high at 103.65. Nonetheless, Dollar bulls could stay cautious ahead of key economic data to be released this week, including Friday's non-farm payroll, as well as FOMC Minutes. Euro is weighed down by talk that Italy might eventually leave the Eurozone, and receives little help from better than expected German data. Oil price resumes rally as the agreement of OPEC and non-OPEC countries on production cut kicks start. WTI crude oil surges to 18-month high at 55.24. Gold is weighed down by the strength in dollar and dips below 1150 handle.
Aussie and Kiwi open the year mildly higher as lifted by China data. The Caixin PMI manufacturing for China rose to 51.9 in December, much better than expectation of being unchanged at 50.9. That's the best reading in three years since January 2013. Caixin noted that "a further rise in production at Chinese manufacturers supported the higher PMI reading in December. Notably, the rate of output growth accelerated to a 71-month high, with a number of panelists commenting on stronger underlying demand and new client wins." And, "data indicated that improved domestic demand was the key driver of new business growth, however, as new export sales were unchanged in December." Nonetheless, released earlier in the week, the official PMI manufacturing dropped to 51.4, down from 51.7 and below expectation of 51.6. Technically, AUD/USD just defended 0.7158 temporary low and more sideway trading would be seen above this level in near term.
Euro spiked higher in Asian session on ultra thin market condition but quickly retreated. EUR/USD hit as high as 1.0653 but is back at 1.0530 at the time of writing. The pair is also limited well below 1.0669 resistance so far which maintains near term bearishness. EUR/JPY jumped to 122.14 but failed to take out 124.08 near term resistance and is back at 122.70. EUR/JPY is still seen as engaging in sideway consolidation. The more important move is in EUR/GBP which took out 0.8577 resistance and is staying above for the moment. It's seen as a sign that recent pull back from 0.9304 is completed and we'd probably seen more upside in the cross soon. The development is in line with the outlook in EUR/AUD which suggests some near term bullishness. We'd be paying attention to whether Euro would gain additional momentum against Sterling and commodity currencies.
Dollar stays soft in early US session but selling momentum is limited so far. Indeed, the greenback has pared back some losses against Yen, which is the relatively stronger one. Released from US, trade deficit widened to USD -65.3b in November, larger than expectation of USD -61.5b. Exports rose 1.0% to USD 121.7b while imports rose 1.2% to USD 187.0b. Initial jobless claims dropped 10k to 265k in the week ended December 24, below expectation of 277k. Continuing claims rose 63k to 2.1m in the week ended December 17.
US equities closed lower overnight as DJIA suffered the second triple digit loss since presidential election. DJIA closed down -111.36 pts, or -0.56%, at 19833.68. S&P 500 lost -18.96 pts, or -0.84%, to close at 2249.92. NASDAQ also dropped -48.88 pts, or -0.89%, to close at 5438.56. While a day of decline in thin holiday trading is not enough to warrant reversal in trend, the synchronous move with other markets suggest that the markets overall is turning into a consolidation phase. To be more specific, 10 year yield closed down -0.057 to 2.506. 30 year yield also lost -0.055 to close at 3.084. Dollar index is back at 102.90 after edging higher to 103.63. Gold breaches 1150 again, comparing to recent low at 1124.3. We'd probably see more consolidative trading ahead, at least before US non-farm payroll to be released on January 6.
Trading in financial markets are generally subdued in holiday mood. DJIA closed up 11.23 pts, or 0.06%, overnight at 19945.04, still struggling to take out 20000 handle. S&P 500 also closed up 5.09 pts, or 0.22%, at 2268.88, but stays in recent range. Asian markets are mixed with little movements. US yields closed higher with 10 year yield up 0.02 to 2.563 but like others, stayed in tight range. Notable strength is seen in gold this week, hitting as high as 1151.7, comparing to recent low at 1124.3. There is prospect of a stronger rebound in gold in near term. WTI crude oil also strengthened mildly this week and breached 54 handle. But recent price actions suggest that it's staying in consolidation since hitting 54.51 and more sideway trading is in favor.