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Downside risks for NFP, yet market impact may be fleeting

    By
    ActionForex.com
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    Today, the financial markets are keenly focused on US Non-Farm Payrolls data, which is expected to show growth of 170k jobs in August. While unemployment rate is anticipated to remain steady at 3.50%, average hourly earnings are projected to grow by 0.3% mom. However, related data paint a murkier picture, suggesting that risks could be skewed to the downside for the NFP report. Yet, it’s unsure if the impact on the markets would last long.

    Earlier this week, ADP private job growth came in at 177k, slightly missing expectations and dampening the overall employment outlook. Moreover, JOLTS data showed that job openings have plummeted to their lowest level since March 2021, and consumer confidence took a significant hit, dropping from 114.0 to 106.1. The employment components of ISM Manufacturing and Non-Manufacturing reports are not yet available, leaving a gap in the data to fully assess labor market conditions.

    Traders have been notably indecisive recently. While it is almost certain that Fed will pause its tightening this month, the likelihood of a rate hike by year’s end seems to be teetering around 50% mark. Market participants are unlikely to get more clarity until the Fed releases its new economic projections and dot plot on September 20, alongside the rate decision.

    As for Dollar Index, it’s clearly losing upside momentum as seen in D MACD. While another rise cannot be ruled out as long as 102.84 support holds, strong resistance is likely at 38.2% retracement of 144.77 to 99.57 at 105.37 to limit upside. Break of 102.84 will argue that the corrective rally from 99.57 has completed earlier then expected.

    Into US session: Yen strongest, Aussie weakest. Risk aversion lifts gold

      By
      ActionForex.com
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      Entering into US session, Yen remains the strongest one as global stock market rout deepens. Meanwhile, Australian Dollar is the weakest one, followed by Canadian and then Euro. Gold also rides on risk aversion and hit as high as 1236.7 so far. Economic calendar is light in the US session. So major focus will remain on risk sentiments, currently, DOW futures are dropping more than 300 pts. Euro will also be moved by news on European Commission’s reaction to Italy’s reply on budget.

      In Europe, at the time of writing:

      • FTSE is down -0.52% at 7006.14
      • DAX is down -1.55% at 11345.8
      • CAC is down -1.02% at 50001.79
      • German 10 year yield is down -0.0204 at 0.431
      • Italian 10 year yield is down -0.005 at 3.474. Spread with German remains around 300.

      Earlier today in Asia:

      • Nikkei dropped -2.6% to 22010.78
      • Hong Kong HSI dropped -3.08% to 25346.55
      • China Shanghai SSE dropped -2.26% to 2594.83
      • Singapore Strait Times dropped -1.52% to 3031.39

      Nikkei’s fall from 24448.07 high resumed today and the break of 22172.90 support confirmed completion of rise from 20347.49. Near term outlook is rather bearish with prior rejection by 55 day EMA. Further fall is now likely to be seen towards 20347.59 key support level. At this point, we don’t expect a break there yet.

      Fed Clarida: Inflation expectations reside in price stability range

        By
        ActionForex.com
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        Fed Vice Chair Richard Clarida said price inflation appeared “less responsive to resource slack” in recent decades. A “flatter Phillips curve permits the Federal Reserve to support employment more aggressively during downturns”. But it also increases the cost of “reversing unwelcome increase in long-run inflation expectations.

        He added that a “flatter Phillips curve makes it all the more important that inflation expectations remain anchored at levels consistent with our 2 percent inflation objective”. For now, based on the evidence reviewed, he judged that US inflation expectations “do reside in a range that I consider consistent with our price stability mandate”.

        Clarida’s full speech here.

        DOW finally made new record high, targets 32932 next

          By
          ActionForex.com
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          DOW finally caught up with other major US indices and closed at record high overnight, up 0.76% at 31385.76. The solid support from 55 day EMA affirmed near term bullishness too. Further rise is now expected as long as 29856.30 support holds. Next target is 61.8% projection of 18213.65 to 29199.35 from 26143.77 at 32932.93.

          NASDAQ has been even stronger, considering that it’s kept comfortably above rising 55 day EMA all the way in the past few months. It’s on track to 61.8% projection of 6631.42 to 12074.06 from 10822.57 at 14186.12.

          Germany PMI composite rose to 47.1, milder recession but inflation remains high

            By
            ActionForex.com
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            Germany’s November PMI data indicates a modest improvement in its economic situation, albeit still within recessionary bounds. Manufacturing PMI rose from 40.8 to 42.3, marking a six-month high, and Services PMI increased from 48.2 to 48.7. Composite PMI, climbed from 45.9 to a four-month high of 47.1.

            Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted a cautious optimism about the German economy. He observed, “Despite remaining in recession territory, the rate of slowdown has eased noticeably.”

            While, the PMI data aligns with the perspective that Germany entered a recession in the third quarter of this year, the recession’s depth might be less severe than initially anticipated. According to de la Rubia’s nowcasting model, GDP is expected to see -0.7% decline in Q4, an improvement from previous forecasts of -0.9% decline.

            Despite these signs of economic easing, inflation remains a significant challenge. De la Rubia pointed out the persistence of inflation, especially in the service sector where input prices surged in November, largely due to increasing wages.

            This inflationary pressure is partly transferred to consumers as service sector output prices continue to rise at high rates. The likelihood of sustained inflation is further supported by recent labor market trends, including increased strike activities and significant wage agreements.

            Full Germany PMI release here.

            Trump vows not to back down on tariffs, China warns of countermeasures

              By
              ActionForex.com
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              At a rally in Florida late Wednesday, Trump accused that China “broke the deal” as the trade negotiations entered the final stage. And he pledged no to back down on tariffs unless China “stops cheating our workers”. He said, “I just announced that we’ll increase tariffs on China and we won’t back down until China stops cheating our workers and stealing our jobs, and that’s what’s going to happen, otherwise we don’t have to do business with them”. And, ‘They broke the deal,” he added. “They can’t do that. So they’ll be paying. If we don’t make the deal, nothing wrong with taking in more than $100 billion a year.”

              In response to new tariff threats, China’s Ministry of Commerce said in a statement: “Escalating the trade conflict is not in the interest of the people in both countries and the world. China deeply regrets the move. But if the US tariff measures are implemented, China will have to take necessary countermeasures.” Chinese Vice Premier will be in Washington to try to save the trade deal while new round of tariffs will take effect in less than 24 hours.

              RBA Lowe explains tapering asset purchases while extending the program

                By
                ActionForex.com
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                In a speech, RBA Governor Philip Lowe said, “n the economy, our central message is that the Delta outbreak has delayed – but not derailed – the recovery of the Australian economy”. While the outbreak is a “significant setback”, there is a “clear path out of the current difficulties”.

                Lowe provided some explanations to the decision to taper weekly asset purchases to AUD 4B, but extend the program till February next year. Firstly, give the delay in recovery, “we considered it appropriate that we delay any consideration of a further taper in our bond purchases until next year.” Continuing the with purchases will also “provide some additional insurance against downside scenarios.”

                Secondly, fiscal policy is considered the “more effective policy instrument in responding to the Delta outbreak.” Public balance sheet can be used to “offset the hit to private incomes during the lockdown”. But monetary policy “works mainly on the demand side and the effects on income are felt with a lag”.

                Thirdly, “by continuing to purchase government bonds at the rate of $4 billion a week we will be adding to the support provided to the economy during the recovery phase.”

                Lowe also reiterated that the condition for lifting interest rate will “not be met before 2024”. A “tighter labor market” is needed to meet the condition, with wages growing by “at least 3 per cent”, comparing to the 1.7% yoy rate in Q2.

                Full speech here.

                BoE Pill expects headline inflation to tail off in 2nd half of next year quite rapidly

                  By
                  ActionForex.com
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                  BoE Chief Economist Huw Pill said at a conference, “we are expecting to see headline inflation tail off in the second half of next year, in fact quite rapidly, on account of those base effects.” But, “there’s a lot of uncertainty around the outlook for gas price developments,” he added.

                  “Very low levels of unemployment and the association with the mid-1970s is not entirely reassuring from an inflection point of view,” Pill said. “People in the 50 to 65 age group, relative to pre-COVID levels, are having a higher level of inactivity not being in a job and not looking for work.”

                  Eurozone CPI finalized at 0.8%, core CPI at 1.0%

                    By
                    ActionForex.com
                    -

                    Eurozone CPI was finalized at 0.8% yoy in September, down form 1.0% yoy in August. Core CPI was finalized at 1.0% yoy, up from 0.9% yoy. The highest contribution to the annual euro area inflation rate came from services (0.66%), followed by food, alcohol & tobacco (0.29%), non-energy industrial goods (0.06%) and energy (-0.18 %).

                    EU28 CPI was finalized at 1.2% yoy, down from 1.4% yoy in August. The lowest annual rates were registered in Cyprus (-0.5%), Portugal (-0.3%), Greece, Spain and Italy (all 0.2%). The highest annual rates were recorded in Romania (3.5%), Slovakia (3.0%) and Hungary (2.9%). Compared with August, annual inflation fell in twenty Member States, remained stable in five and rose in two.

                    Full release here.

                    Turkish Lira lifted mildly as Turkey raised tax on foreign currency savings

                      By
                      ActionForex.com
                      -

                      Turkish Lira is given a mild lift after the government announce to raise tax of foreign currency savings while scrapping tax on Lira savings. The decision was published in the Official Gazette today.

                      Withholding tax on foreign currency savings of up to six months was increased from current 18% to 20%. On the other hand, withholding tax on Lira savings of more than one year was lowered from 10% to 0%.

                      Lira was sold off this week on deepening worries on Turkish banks. Fitch warned that “Turkish banks are particularly exposed to refinancing risk, given their reliance on external funding.” Moody’s also said “there is a heightened risk of a downside funding scenario, where a deterioration in investor sentiment limits access to market funding.”

                      USD/TRY’s rebound has stalled now at 6.8396. Immediate threat of 7.0000 handle is eased.

                      Swiss CPI slowed to 2.2% yoy in May, slightly above expectations

                        By
                        ActionForex.com
                        -

                        Swiss CPI rose 0.3% mom in May, slightly below expectation of 0.4% mom. Core CPI (excluding fresh and seasonal products, energy and fuel) rose 0.2% mom. Domestic products prices rose 0.3% mom. Imported products prices rose 0.1% mom.

                        Comparing with May 2022, CPI slowed from 2.6% yoy to 2.2% yoy, above expectation of 2.1% yoy. Core CPI was unchanged at 2.2% yoy. Domestic products prices slowed from 2.6% yoy to 2.4% yoy. Imported products prices fell notably from 2.4% yoy to 1.4% yoy.

                        Full Swiss CPI release here.

                        Overwhelmingly negative impact of US-China tariffs on European companies in China

                          By
                          ActionForex.com
                          -

                          European Union Chamber of Commerce in China, also carried out a survey regarding US-China tariff war. Results showed that 53.9% responding said US tariffs on China affected their company. 42.9% said China tariff on US products affected their company. There is, roughly 11% difference. The Chamber said that “the high rate of negative views on either side of the trade war is emblematic of the degree of interconnectivity in the global economy.” But at the same time 72.5% said they’re taking no action to cope with the trade war, but just monitoring the situation.

                          Mats Harborn, president of the European Union Chamber of Commerce in China said “the effects of the US-China trade war on European firms in China are significant and overwhelmingly negative.” The Chamber shared the concerns regarding China’s trade and in vestment practices. However, Harborn warned that “continuing along the path of tariff escalation is extremely dangerous”. He added “it threatens to dismantle the entire global, rules-based system at a time when we should be working together to modernise it.”

                          Full release here.

                          Australia GDP grew 0.4% qoq on capital investment and services exports

                            By
                            ActionForex.com
                            -

                            Australia’s GDP saw 0.4% qoq growth in Q2, aligning perfectly with market expectations. This marks the seventh consecutive quarter of economic growth for the nation. The economy exhibited resilience with a 3.4% annual growth rate for 2022-23 financial year, comfortably surpassing 10-year pre-pandemic average of 2.6%.

                            However, it wasn’t all good news: nominal GDP dropped by -1.2% qoq in the June quarter. GDP implicit price deflator also fell -1.5%, primarily due to -7.9% decline in terms of trade. Export prices fell by -8.2%, exceeding -0.3% fall in import prices. Despite this, domestic price growth remained stable at 1.2%, buoyed by increases in household rents, food prices, and the cost of capital goods, which escalated due to Australian Dollar’s depreciation.

                            The positive quarterly GDP numbers were largely driven by two key factors: capital investment and the exports of services. Total gross fixed capital formation surged by 2.4%, reflecting growth in both public and private investment sectors.

                            Services exports soared 12.1%, with a significant push coming from 18.5% uptick in travel services.

                            Net trade in goods added 0.5% to GDP, with 2.5% rise in goods exports led mainly by mining commodities.

                            Household spending, on the other hand, remained rather muted, contributing just 0.1T to the GDP growth with modest 0.1% increase.

                            Full Australia GDP release here.

                            St. Louis Fed Bullard: Interest rate may have reached neutral level already

                              By
                              ActionForex.com
                              -

                              St. Louis Fed President James Bullard said today that interest rates may have already reached the so called “neutral” level. Beyond this point, monetary policy will become restrictive. And Bullard said that there are “reasons for caution in raising the policy rate further given current macroeconomic conditions.”

                              At the same time, Bullard pointed to market-based inflation expectations and said investors “believe there is currently little inflationary pressure in the U.S.” Thus, leave interest rates unchanged would “re-center inflation expectations at the target.”

                              AUD/CAD breaks 55 D EMA support, in third leg of consolidation from 0.9696 high

                                By
                                ActionForex.com
                                -

                                Australian Dollar is currently the second worst performing today so far, following the Pound. Tensions with China are escalating further. The latter is now trying to shift the focus from the origin of the “outbreak” in Wuhan, and blame Australia for the coronavirus pandemic that caused the lives of over 1.5 million people.

                                The Chinese Communist Party’s hawkish tabloid, the Global Times, wrote in an article: “As the mounting sporadic outbreaks in China were found to be related to imported cold-chain products, with other parts of the world, including Europe and the American continent, reportedly discovering signs of the coronavirus earlier than Wuhan, it begs a new hypothesis – did the early outbreak in Wuhan originate from imported frozen food? The city also imported Australian steak, Chilean cherries, and Ecuadorian seafood before 2019, according to the information from the website of the city’s commerce bureau.”

                                AUD/CAD’s strong break of 55 day EMA now suggests that rebound form 0.9247 has completed at 0.9617. The consolidation from 0.9696 is likely starting the third leg, and should targets 0.9247 support in the near term, and possibly below. But for now, we’d expect strong support from 38.2% retracement of 0.8066 to 0.9696 at 0.9073 to contain downside.

                                Fed Harker: The worst thing is to rush reopening

                                  By
                                  ActionForex.com
                                  -

                                  Philadelphia Fed President Patrick Harker said monetary policy is going to “stay low until we really see the economy starting to recover back to our dual mandate”. Exactly how long that is a “function of how quickly medical science and industry can put in place the tools, the testing regimes, the vaccines etc. to keep the American public safe.”

                                  But he warned, “the worst thing we can do in my mind is rush this” and have a “significant rebound… which would just set us back”.

                                  UK retail sales volumes down -0.4% mom in Nov, values up 0.5% mom

                                    By
                                    ActionForex.com
                                    -

                                    In November, UK retail sales volumes declined -0.4% mom, much worse than expectation of 0.3% mom rise. Ex-fuel sales dropped -0.3% mom, worse than expectation of 0.3% mom. Fuel sales volumes declined -1.7% mom.

                                    In value term, retail sales rose 0.5% mom while ex-fuel sales rose 0.1% mom.

                                    Full release here.

                                    Gold breaks 1875 resistance and 55 D EMA, stronger rally ahead

                                      By
                                      ActionForex.com
                                      -

                                      Gold surges to as high as 1883.12 so far today. Break of 1875.27 resistance confirms resumption of whole rebound from 1764.31. Further rise is now expected as long as 1844.78 support holds. Next near term target is 61.8% projection of 1764.31 to 1875.27 from 1819.05 at 1887.62. Break will target 100% projection at 1930.01.

                                      More importantly, the strong break of 55 day EMA reaffirms the bullish case that correction from 2075.18 has completed with three waves down to 1764.31. Break of 1965.50 resistance would resume long term up trend for new record high.

                                      US NFP grew 224k in June, dollar jumps sharply

                                        By
                                        ActionForex.com
                                        -

                                        US non-farm payroll report showed 224k growth in the job market in June, notably above expectation of 164k. Prior month’s dismal figure was revised slightly down from 75k to 72k. Unemployment rate rose 0.1% to 3.7%, above expectation of 3.6%. Participation rate rose 0.1% to 62.9%. Average hourly earnings rose 0.2% mom, below expectation of 0.3% mom. But prior month’s wage growth was revised up from 0.2% mom to 0.3% mom.

                                        Employment growth has averaged 172,000 per month thus far this year, compared with an average monthly gain of 223,000 in 2018. In June, notable job gains occurred in professional and business services, in health care, and in transportation and warehousing.

                                        Full release here.

                                        Dollar jumps sharply after the release. In particular, GBP/USD is heading to retest 1.2506 support.

                                        China Caixin PMI composite rose to 47.6, March rebound not sustainable

                                          By
                                          ActionForex.com
                                          -

                                          China’s Caixin PMI Services rose to 44.4 in April, up from March’s 43.0. PMI Composite rose to 47.6, up from 46.7. Both stayed in contraction region.

                                          Zhengsheng Zhong, Chairman and Chief Economist at CEBM Group said, “domestic services activity remained under notable pressure amid the coronavirus pandemic”. New export orders shrank at a steeper rate in April than in February, “indicating that the March rebound in exports was not sustainable”. “The second shockwave for China’s economy brought about by shrinking overseas demand should not be underestimated in the second quarter”

                                          Also from China, in April, in USD terms, exports rose 3.5% yoy while imports dropped -14.2% yoy. Trade surplus widened to USD 45.3B.

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