Swiss CPI dropped -0.1% mom in December, matched expectations. the decline was due to several factors including falling prices for heating oil, fuel and air transport. For the 12-month period, CPI was unchanged at 1.5% yoy, below expectation of 1.6% yoy.
Average annual inflation in 2021 was at 0.6%. Prices for domestic products increased by 0.3% on average, those for imported products increased by 1.5%. Average annual inflation was –0.7% in 2020 and +0.4% in 2019.
While Yen is being sold sharp sharply, commodity Yen crosses are generally struggling in range. Nevertheless, they’s maintaining near term bullish bias. CAD/JPY’s prior break of 90.34 resistance suggests that correction from 93.00 has completed at 87.42 has defended medium term trend line support. Further rise is expected as long as 89.41 support holds. CAD/JPY should target a test on 93.00 high next, with prospect of resuming whole up trend from 73.80 (2020 low).
Similarly, AUD/JPY’s correction from 86.24 should have completed at 78.77, ahead of 77.88 support. Further rally is expected as long as 82.42 resistance turned support holds. Break of 83.84 will resume the rebound from 78.77 to retest 86.24, also with prospect of resuming the up trend from 59.85 (2020 low).
US treasury yields surged sharply overnight as investors continued to adjust themselves “living with the virus”. Omicron is now generally taken as being much less harmful to the global economy as initially feared, despite record infection numbers.
10-year yield closed up 0.116 to 1.628, back above 1.6 handle for the first time since November. We’re holding on to the view that consolidation pattern from 1.765 has complete with three waves at 1.343. TNX could accelerate upwards in the near term to 1.693 resistance. Firm break there would send TNX through 1.765 to resume larger up trend from 0.398 (2020 low).
The picture in 30-year yield is similar. It’s now back above 2.0 handle after yesterday’s rise. Corrective pattern from 2.505 should have completed with three waves down to 1.678. Further rally should be seen to 2.177 in the near term. Sustained break there will raise the chance that it’s already resuming the up trend from 0.837 (2020 low) through 2.505 high.
USD/JPY accelerates to as high as 115.80 so far today, and breaks 115.51 resistance to resume the medium term up trend from 102.58. The rally comes as supported by strong rise in US treasury yields overnight, and the strength of Nikkei (which is up 1.5% or 438 pts at the time of writing).
Technically, the strong support from 55 day EMA is taken as a solid bullish sign. Next target will be 61.8% projection of 109.11 to 115.51 from 112.52 at 116.67. Sustained break there could trigger further upside acceleration to 100% projection at 118.92, which is close to 118.65 long term resistance. Decisive break there would pave the way to 125.85 (2015 high), probably within the first half of the year.
China Caixin PMI Manufacturing rose to 50.9 in December, up from November’s 49.9, above expectation of 50.0. The data signaled a renewed improvement in the sector with best reading since June. Caixin said rise in output was stronger amid renewed upturn in sales. Input cost inflation eased to 19-month low. Business confidence weakened amid pandemic and supply chain worries.
Wang Zhe, Senior Economist at Caixin Insight Group said: “To sum up, manufacturing demand and supply improved in December with easing inflationary pressure. But the job market was still under pressure and businesses were less optimistic, indicating unstable economic recovery. The repeated Covid-19 flare-ups and sluggish overseas demand were factors of instability.”
Japan PMI Manufacturing was finalized at 54.3 in December, slightly lower than November’s 54.5. But that was well above 2021’s average of 52.7. Markit said output and new orders increased at slower rates. Employment level rose at fastest pace in nearly four years. Business optimism eased to four-month low.
Usamah Bhatti, Economist at IHS Markit, said: “Domestic markets were buoyed by a gradual recovery from the COVID-19 pandemic however a sharp rise in cases, particularly in South Korea, hindered international demand and continued to disrupt supply chains across the sector… Delivery delays and material shortages remained a dampener on production and sales… Average lead times across the final quarter of 2021 deteriorated further… Though still optimistic, Japanese goods producers were wary of the continued impact of the pandemic and supply chain disruption, which resulted in confidence dipping to the softest since August.”
US PMI Manufacturing was finalized at 57.7 in December, down from November’s 583. Markit said output expansion was muted, as firms registered slower upturn in new orders. Rate of cost inflation remained marked despite easing to softest since June. Backlogs of work rose at slowest pace for ten months.
Siân Jones, Senior Economist at IHS Markit said:
“December saw another subdued increase in US manufacturing output as material shortages and supplier delays dragged on. Although some reprieve was seen as supply chains deteriorated to the smallest extent since May, the impact of substantially longer lead times for inputs thwarted firms’ ability to produce finished goods yet again.
“Adding to the sector’s challenges was an ebb in client demand from the highs seen earlier in 2021, with new orders rising at the slowest pace for a year, largely linked to a reluctance at customers to place orders before inventories were worked through. Alongside a slight pick-up in hiring, softer demand conditions contributed to the slowest rise in backlogs of work for ten months.
“While shortages remained significant, the end of the year brought with it some signs that cost pressures have eased. The uptick in input prices was the slowest for six months, and firms recorded softer increases in selling prices amid efforts to entice customer spending.”
Eurozone PMI manufacturing was finalized at 58.0 in December, down from November’s 58.4. Markit said modest alleviation in supply pressures facilitated survey-record in crease in inventories. Broad sector growth growth continued to underwhelm while inflationary pressures receded slightly.
Joe Hayes, Senior Economist at IHS Markit said:
“It has been an incredibly challenging period for eurozone manufacturers this second half of 2021, but the latest survey data hasn’t spoiled the festive cheer too much – we’re seeing some tentative, but very welcome signs that the supply chain crisis which has plagued production lines all across Europe is beginning to recede. The Suppliers’ Delivery Times Index increased for a second month in a row to its highest since February, signalling a weaker deterioration in vendor performance.
“Although what gains to be had were only marginal, with shortages, port congestion and transport issues still at large, PMI data showed stocks of purchases rising at a survey-record rate in December. This should hopefully bring some much-needed relief to production schedules in the very near-term, which have been squeezed tight by input shortages. That said, the latest survey data showed output growth remaining subdued overall and unchanged from November.
“Alleviating supply chain pressures also fed through to prices as input costs rose at the slowest rate since April. Easing inflation rates are again a welcome sign, but we’re still in hot territory. We’re now facing a fresh bout of economic uncertainty as the Omicron variant emerges in Europe. COVID-19-driven supply chain disruptions cannot be ruled out, and therefore neither can further spikes in inflation.”
Germany PMI Manufacturing was finalized at 57.4 in December, unchanged from November’s level, lowest since January. Markit said output growth ticked up as incidence of lengthening input lead times fell. Input costs and output prices rose sharply, but rates of inflation eased. Faster rise in employment as business expectations strengthened slightly.
Phil Smith, Associate Economics Director at IHS Markit, said:
“After a promising start to 2021, the German manufacturing sector’s performance faded as the year went on as unprecedented supply chain constraints took their toll. However, although growth in December was only modest with supply shortages still an issue, the survey’s output index has now ticked up in each of the last two months, to offer some hope that the final quarter of 2021 can be a turning point from which growth starts to pick up as we move through 2022.
“Buoyed by full order books, German manufacturers are confident about growth prospects in the coming year, though much still depends on an improvement in the supply situation.
“Latest data provided some signs of encouragement, as expectations improved, the incidence of lengthening lead times eased to an 11-month low, and firms were able to rapidly build up stocks of inputs. Nevertheless, supply chains remain under intense pressure by historical standards, and there’s still a risk of fresh disruption as a result of flare-ups in the pandemic.”
France PMI Manufacturing was finalized at 55.6 in December, down from November’s 55.9. Markit noted trends in output and new orders improved but rounded off subdued quarter. Delivery delays were at least severe since March as pressures abated. Purchasing activity rose further while firms stockpiled at record pace.
Joe Hayes, Senior Economist at IHS Markit, said:
“The December PMI survey gave us a few reasons to be a bit more optimistic towards the manufacturing sector looking ahead. The Suppliers’ Delivery Times Index registered a meaningful move higher in December. We’re by no means anywhere near out of the woods yet, and a large portion of our survey panel are still seeing shortages and increasing lead times, but there were some reports of improving stock levels at vendors.
“Firms took advantage though, and we saw purchasing activity growth accelerate and stocks of purchases accumulate to the fastest extent on record, which will certainly help firms increase production levels.
“We also saw continued hiring across the sector, despite anecdotal evidence suggesting that demand conditions still remain subdued. Manufacturers expect order books to begin filling a lot faster as the supply situation improves.
“Overall, the stabilisation in the output and new order indices following the harsh slowdown in the second half of 2021, combined with some alleviation of supply-side constraints, suggests growth rates could get better in 2022.”
Gold’s rebound form 1752.32 resumed after brief pull back and hit as high as 1831.66 so far. 4 hour MACD suggests that Gold is picking up upside momentum. For now further rise is expected as long as 1789.31 support holds. Rise from 1752.32 should target a test on 1877.05 resistance next.
At this point, Gold is see as being in a leg inside the range pattern from 1676.65. While a break of 1877.05 cannot be ruled out, we’re not seeing much chance of breaking through 1916.30 medium term resistance. Meanwhile, break of 1789.31 support will argue that fall from 1877.05 is probably ready to resume through 1752.32.
US initial jobless claims dropped -8k to 198k in the week ending December 25, better than expectation of 205k. Four-week moving average of initial claims dropped -7k to 199k, lowest since October 25, 1969.
Continuing claims dropped -140k to 1716k in the week ending December 18, lowest since March 7, 2020. Four-week moving average of continuing claims dropped -60k to 1850k, lowest since March 14, 2020.
Swiss KOF Economic Barometer dropped slightly from 107.5 to 107.0 in December. “The barometer remains above its long-​term average,” KOF said. “The Swiss economy should thus continue to develop positively at the beginning of 2022, if the economic activity is not impaired by the renewed spread of the virus.”
“This month, the barometer is mostly influenced by indicators covering private consumption, which are slightly negative. Another slight negative contribution is sent by bundles of indicators from the finance and insurance sector. In contrast, indicators for foreign demand are contributing positively.”
ECB Governing Council member Klaas Knot said he had a “different view” to ECB’s projection that inflation will fall back to 1.8% after 2022. He said, “I think the chance we remain stuck above 2% is just as big. Not far above 2%, but still.”
Separately, another governing council member Ignazio Visco said, “(Inflation) forecasts below 2% in 2023-24 are of course subject to both downside and upside risks.”
US 10-year yield jumped notably and closed up 0.062 at 1.543. With a strong break above 55 day EMA, it’s starting to suggest that consolidation pattern from 1.765 has completed with three waves to 1.343 already. TNX has also drew solid support from 55 week EMA again, keeping medium term bullishness well in place.
The focus could quickly be on 1.693 resistance when we come back from new year holiday. Firm break there should push TNX through 1.765 resistance to resume the up trend from 0.398. If this happens, we could easily see 10-year yield back at 2% level and above.
DOW finally caught up the S&P 500 and notched a new record close at 36488.63 overnight. Market sentiments remained positive despite record surge in daily Omicron cases. Investors are relieved by more and more evidence that Omicron is less severe than Delta.
From a medium term point of view, DOW is holding well above 55 week EMA, maintaining a healthy up trend. Weekly MACD also suggest that it might also be picking up momentum again. Nevertheless, a important test lies ahead at 100% projection of 18213.65 to 29199.35 from 26143.77 at 37129.47. Sustained break of 37129.47 could easily trigger more upside acceleration in Q1 towards 138.2% projection at 41326.00.
US goods exports dropped USD -3.3B to USD 154.7B in November. Goods imports rose USD 11.3B to USD 252.4B. Goods trade deficit came in at USD -97.8B, worse than expectation of USD -89.0B, comparing to November’s USD -83.2B.
Wholesale inventories rose 1.2% mom to USD 769.9B. Retail inventories rose 2.0% mom to USD 616.9B.
Both Gold and Silver edged higher yesterday but quickly lost momentum and retreated. At this point, Gold’s rebound from 1752.32 should still extend higher as long as 1784.78 support holds. We’re seeing fall form 1877.05 as complete in 1752.43. Above 1820.02 will target 61.8% retracement of 1877.05 to 1752.32 at 1829.40 first. Sustained break there will pave the way back to retest 1877.05 resistance.
Silver’s picture is similar. Fall from 25.39 should have completed at 21.39 already. Rise from 21.39 is in favor to extend higher as long as 22.17 support holds. Break of 23.42 will target 61.8% retracement of 25.39 to 21.39 at 23.86 first. Sustained break there will pave the way to retest 25.39 resistance.
Selloff in Yen gathers momentum this week on the back of risk-on sentiment. Even CHF/JPY manages to accelerate to as high as 125.37. We’re seeing the correction from 125.48 has completed at 122.10 after drawing support from 55 day EMA. Immediate focus is now on this 125.48 resistance. Firm break there will resume larger up trend to 61.8% projection of 117.51 to 125.48 from 122.10 at 127.02.
The bigger question is whether there would be more upside acceleration after breaking through 125.48. The key channel is the long term channel resistance. Sustained break there could easily send CHF/JPY to 100% projection at 130.07. And that would be a strong signal of Yen weakness elsewhere. Nevertheless, rejection by the channel resistance will just keep the selling in Yen steady.
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UK PMI manufacturing finalized at 57.9, upturn remains subdued
UK PMI Manufacturing was finalized at 57.9 in December, down slightly from November’s 58.1. The index has now remained above neutral 50 mark for 19 straight months. Markit noted that output, new orders and employment all rose. New export orders fell for the fourth month running. Selling price inflation hit fresh record high.
Rob Dobson, Director at IHS Markit, said: “While the uptick in growth is a positive step, the upturn remains subdued compared to the middle of the year, as supply chain constraints and weak export performance constrained attempts to raise production further. Manufacturers indicated that logistic issues, Brexit difficulties and the possibility of further COVID restrictions (at home and overseas) had all hit export demand at the end of the year.”
Full release here.