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DOW down 10% as selloff extends, key fibonacci support being tested

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    ActionForex.com
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    US stocks plunged deeply at open and hit the first circuit breaker immediately, halting trading of 15 minutes. There is no clear sign of any recovery after second open yet, with DOW currently down around -10%. We’d maintain DOW is close to a long term fibonacci support level of 38.2% retracement of 6469.96 to 29568.57 at 20744.89. And a rebound should be due.

    However, sustained break of 20744.89 could trigger another round of position squaring. Decline could accelerate further to 61.8% retracement at 15293.62.

    UK Fox: Brexit is not the only reason for slowdown

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      ActionForex.com
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      UK Trade Minister Liam Fox said today that Brexit is not the only reason for growth slowdown. He said in a news conference that “clearly there are those who believe that Brexit is the only economic factor applying to the UK economy.”

      But he argued that “the predicted slowdown in a number of European economies is not disconnected from the slowdown, for example, in China”. And, “the idea that Brexit is the only factor affecting the global economy is just to miss the point.”

      Meanwhile, even with Brexit impasse, “the chances of having a second referendum are as close to nil as I could imagine.”

      10-year yield eyeing key resistance as NFP awaited

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        ActionForex.com
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        US non-farm payroll report is the major focus for today. Markets are expecting 400k job growth in December. Unemployment rate is expected to tick down from 4.2% to 4.1%. Wage growth is expected to continue to be strong, with average hourly earnings up 0.4% mom.

        Looking at related data, ADP private employment grew strongly by 807k. ISM manufacturing component rose from 53.3 to 54.2. But ISM services employment dropped from 56.5 to 54.9. Four-week moving average of initial jobless claims dropped notably from 239k to 204.5. The NFP report is more likely a solid one than not.

        Reactions from treasury yields to the data is worth a watch. 10-year yield is now close to 1.765 key near term resistance. A set of solid job data, in particular wage growth, could push TNX through this 1.765 resistance to resume larger up trend from 0.398. In this case, we could see TNX quickly accelerate through 2.0 handle to 61.8% retracement of 3.248 to 0.398 at 2.159 down the road, even within Q1. Such development would give USD/JPY and push upwards.

        RBA Lowe said economy reached a gentle turning point, but growth forecasts revised down

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          ActionForex.com
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          In the “Opening Statement to the House of Representatives Standing Committee on Economics“, RBA Governor Philip Lowe said “there are signs the economy may have reached a gentle turning point”. The economic outlook is supported by lower interest rates, tax cuts, weaker exchange rate, stabilization of housing markets, improvement in resources sector and infrastructure spending. Thus, “consistent with this, we are expecting the quarterly GDP growth outcomes to strengthen gradually after a run of disappointing numbers,” Lowe said.

          Though, for now, Lowe reiterated that “It is reasonable to expect an extended period of low rates will be needed to achieve the Board’s employment and inflation objectives,.” And, at the Q&A session, Lowe also noted that “it’s possible we end up at the zero lower bound” on interest rates. He added “it’s unlikely but it is possible” and RBA is “prepared to do unconventional things if circumstances warranted.”.

          In the new economic forecasts, 2019 year end growth was revised down from 2.75% to 2.50%. 2020 year-end growth was unchanged at 2020%. 2021 year-end growth was expected to pick up to 3.00%. Unemployment rate forecasts for 2019 and 2002 year-end were revised up from 5.00% to 5.25%. Unemployment was expected to drop to 5.00% in 2021 year end. Headline CPI forecasts were also revised down from 2.00% to 1.75% at both 2019 and 2020 year-end, before picking up to 2.00% at 2021 year-end.

          France PMI manufacturing dropped to 26-month low, service sector robust

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            France PMI manufacturing dropped to 50.7 in November down from 51.2 and missed expectation of 51.3. That’s the lowest in 26 months. PMI services dropped to 55.0, down from 55.3 and matched expectations. PMI composite dropped to 54.0, down from 54.1.

            Commenting on the Flash PMI data, Eliot Kerr, Economist at IHS Markit said:

            “The latest flash results pointed to a second consecutive contraction in manufacturing production as goods producers continued to mention weak automotive sector demand. Nonetheless, overall private sector output growth remained solid as the service sector reported robust growth.

            “Despite input price inflation easing, panellists continued to cite higher raw material prices, particularly for oil. With pricing power muted, margins remained under pressure.

            “The latest survey responses also revealed that recent protests over fuel taxes adversely affected the economy, with some panellists blaming demonstrations for lengthened delivery times.”

            Full release here.

            USD finally starting to pull back after clearing CPI risk

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              ActionForex.com
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              Dollar drops broadly, except versus pound after inflation data.

              Headline CPI accelerated to 2.5% yoy in April, up from 2.4% yoy and met expectation. However, core CPI was unchanged at 2.1% yoy, below expectation of 2.2% yoy.

              Also from US, initial jobless claims was unchanged at 211k in the week ended May 5, sticking to the lowest level in 49 years for the second straight week. Four-week moving average dropped -5.5k to 216k, touching the lowest level since December 1969. Continuing claims rose 3k to 1.79m in the week ended April 28.

              The momentum in the post data USD selloff argues that traders are finally relieved that can take profits from recent long stretched rally. 1.1938 minor resistance in EUR/USD and 0.9982 minor support in USD/CHF will be the key levels to watch to confirm this case.

              Australia AiG services dropped to 27.1 in Apr, trade surplus swelled to 10.6B in Mar

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                Australia AiG Performance of Services Index dropped -11.6 pts to 27.1 in April. This was both the largest single monthly fall and the lowest result in the history of the series (commencing in 2003).

                AiG said: “Activity restrictions in response to the COVID-19 pandemic have decimated large segments of Australia’s services industries. The Australian PSI® indicated contraction in all sectors in April (trend).

                Also released, export of goods and services rose 15.0% mom to AUD 42.4B in March. Imports dropped -4.0% mom to 31.8B. Trade surplus widened sharply to 10.6B, well above expectation of AUD 6.4B.

                UK PMI services finalized at 54.3, revival gained momentum

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                  ActionForex.com
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                  UK PMI Services was finalized at 54.3 in January, up from December’s 53.4. PMI Composite was finalized at 52.9, up from prior month’s 52.1.

                  Tim Moore from S&P Global noted the service sector’s performance revival, with output growth at its fastest in eight months due to increased business and consumer spending. New orders have rebounded, driven by diminishing recession fears and more flexible financial conditions.

                  Inflationary pressures eased in January, despite demand surge, with input costs rising at one of the slowest rates in three years. This slowdown is attributed to reduced energy, fuel, and raw material costs. However, service providers still face elevated wage pressures, contributing to a continued, albeit slower, rise in prices charged.

                  Full UK PMI services release here.

                  Fed Daly favors gradual pace of monetary policy normalization

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                    ActionForex.com
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                    New San Francisco Fed President Mary Daly expressed her support to continued gradual rate hikes in her first remarks as monetary policy maker. She said the labor market is “booming” and inflation at the at 2% target. And, she explained that Fed might not want to go too slowly on rates and risking falling behind the curve. Her approach is consistent with Fed’s and she favors “a gradual pace of normalization.”

                    Daly also used the analogy that “you put a toe in the water and see how much of a ripple it makes”. And, “the FOMC just raised rates in September, and we’re now in the watching phase — what’s going on in the economy, how does it react.”

                    She also tried to talk down last week’s stock market crash. She said “a correction in the stock market where it comes down a little bit is not necessarily a worrisome thing.”

                    US PCE inflation slowed to 4.2% yoy, core PCE slightly down to 4.6% yoy

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                      ActionForex.com
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                      US personal income rose 0.3% mom or USD 67.9B in March, above expectation of 0.2% mom. The increase in income primarily reflected increases in compensation, personal income receipts on assets, and rental income of persons that were partly offset by decreases in proprietors’ income and personal current transfer receipts

                      Personal spending rose less than 0.1% mom or USD 8.2B, better than expectation of -0.1% mom contraction. The increase reflected a USD 44.9 billion increase in spending for services that was partly offset by a USD 36.7 billion decrease in spending for goods

                      For the month PCE price index increased 0.1% mom. Excluding food and energy, PCE price index increased 0.3% mom. Prices for goods decreased -0.2% mom and prices for services increased 0.2%. Food prices decreased -0.2% and energy prices decreased -3.7% mom.

                      From the same month one year ago, PCE price index March slowed from 5.1% yoy to 4.2% yoy, below expectation of 4.6% yoy. Excluding food and energy, PCE price index ticked down from 4.7% yoy to 4.6% yoy, above expectation of 4.6% yoy. Prices for goods increased 1.6 yoy and prices for services increased 5.5% yoy. Food prices increased 8.0% yoy and energy prices decreased 9.8% yoy.

                      Full US personal income and spending release here.

                      Eurozone GDP contracted -0.3% qoq in Q1, EU down -0.1% qoq

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                        ActionForex.com
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                        Eurozone GDP contracted -0.3% qoq in Q1, according to latest estimate by Eurostat. Compared with the same quarter of the previous year, GDP dropped -1.3% yoy. EU GDP contracted -0.1% qoq, -1.2% yoy in Q1.

                        Among EU member states, Ireland (+7.8%) and Croatia (+5.8%) recorded the sharpest increases of GDP compared to the previous quarter, followed by Estonia (+4.8%) and Greece (+4.4%). The strongest declines were observed in Portugal (-3.3%) and Slovakia (-2.0%), followed by Germany (-1.8%) and Latvia (-1.7%).

                        Full release here.

                        NIESR forecast UK GDP to grow 0.6% mom in Nov, 1.0% qoq in Q4

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                          ActionForex.com
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                          NIESR forecast UK GDP growth to reach 0.6% mom in November, before significant concerns about transmission of Covid-19 began to return, falling to 0.3% in December. Overall for Q3, GDP growth is projected to be 1.0% qoq, following the 1.3% qoq in Q3.

                          NIESR added that “Omicron is expected to restrain growth in the coming months but not to cause economic disruption anywhere near the scale of 2020, with households and businesses having adapted economic behavior more with each wave.”

                          Full release here.

                          NFP to test stock market optimism

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                            ActionForex.com
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                            The upcoming US non-farm payroll report is set to capture the market’s full attention today, with investors seeking signs that could affirm Fed’s interest rate has already peaked. In light of Fed Chair Jerome Powell’s comments this week emphasizing the need for “some slower growth and some softening in the labor market” to stabilize prices, the details of the job data, particularly wage growth, will be under intense scrutiny.

                            The market consensus pegs the headline growth of employment at 172k for October, a significant decrease from September’s robust 336,000 figure. Unemployment rate is projected to hold steady at 3.8%, with average hourly earnings expected to notch up by 0.3% mom.

                            Preceding indicators present a mixed picture: ISM Manufacturing employment showed a notable decline 51.2 to 46.8, ADP reported a modest private employment increase of 113k that fell short of expectations, and initial unemployment claims hovered around the 210k mark on a four-week moving average, indicating stability.

                            Wage growth emerges as the unpredictable factor in the equation, with the potential to sway Fed’s monetary policy direction. This data point has been particularly scrutinized for inflationary signals and the possibility of triggering another rate hike.

                            Equity markets have reflected a sense of optimism this week, with strong rebound in DOW and other major indexes. DOW’s correction from August high at 35679.13 could have already concluded at 32327.20. To further strengthen the case, DOW will need to break through 34147.63 resistance decisively. However, rejection by 34147.63 will retain near term bearishness for another decline through 32327.20.

                            The impending non-farm payroll report could be a critical determinant of the market’s direction in the closing months of the year.

                             

                            NAFTA collapse could cost Canada 0.5% reduction in growth in first year

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                              ActionForex.com
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                              The Conference Board of Canada warned that failure to resolve the difference with the US and ending NAFTA could cost -0.5% reduction in real GDP growth in the first year. And that’s even taken a lower exchange rate and easing in monetary policy into consideration. The Canadian economy could also lose as many as 85k jobs the first year.

                              In case of a NAFTA collapse, Conference Board predicts CAD 3.3b drop in real business spending in the first year. Real exports and imports will decline by -1.8%. Tariffs are predicted to revert to WTO most-favored nation rates. That is, Canadian exports to US would face 2.0% tariff. US exports to Canada would face 2.1% tariff.

                              China accelerating laws on IP protection, face-to-face meeting with US in Jan

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                                ActionForex.com
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                                China is accelerating legislation to protect intellectual property rights of foreign investments. Draft laws has been submitted to the Standing Committee of the National People’s Congress for first review. Strong wordings were used in the draft like “official authorities and their staff shall not use administrative means to force the transfer of technology.” The Committee will being a session on Sunday and then hold “public” consultations until February 24.

                                China’s Ministry of Commerce spokesman Gao Feng said today that there are plans for face-to-face meeting with the US over trade in January. In the mean time, “intensive” phone calls are on-going despite the Christmas break. Separately, Bloomberg reported that a US delegation will travel to Beijing in the week of January 7. Deputy U.S. Trade Representative Jeffrey Gerrish will lead the Trump administration’s team, including Treasury Undersecretary for International Affairs David Malpass.

                                SNB and BoE next, GBP/CHF accelerating down

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                                  ActionForex.com
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                                  SNB and BoE rate decisions are the remaining focuses of the day. SNB is widely expected to rise interest rate by 75bps to 0.50%, back in positive region. There are some speculations of a larger hike, but it’s unlikely. The central would also repeat that appreciation of the Swiss Franc is welcome for now, as it helps curb imported inflation.

                                  Meanwhile, BoE is expected to deliver another 50bps hike to 2.25%. The UK economy is stuck between a rock and a hard place. While inflation appeared to be slowing, “slightly”, it remained close to multi-decade high. On the other hand, weakness has been seen in spending while the economy is already in recession. The voting of today’s decision could contain some surprises.

                                  Some previews on SNB and BoE:

                                  GBP/CHF broke through pandemic low at 1.1107 earlier this month, and the down trend is still in acceleration mode. Near term outlook will stay bearish as long as 1.1056 resistance holds. Next target is 200% projection of 1.3070 to 1.2134 from 1.2598 at 1.0726.

                                  There is risk of further downside acceleration, either on dovish BoE or deterioration in geopolitical risks. In that case, break of 1.0726 could pave the way to 1.0148.

                                  Chinese Vice Premier Liu He to visit Washington next week for trade talk with US

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                                    ActionForex.com
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                                    White House spokesperson Sarah Sanders told reports that trade talks between US and China will resume in Washington next week.

                                    She said that “we are working on something that we think will be great for everybody”

                                    And, “China’s top economic adviser, the vice premier (Liu He), will be coming here next week to continue the discussions with the president’s economic team.”

                                    Germany PMI manufacturing dropped to 43.4, continues to weigh heavily on private sector output

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                                      ActionForex.com
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                                      Germany PMI Manufacturing dropped to 43.4 in December, down from 44.1, missed expectation of 44.5. PMI Services rose to 52.0, up from 51.7, matched expectations. PMI Composite was unchanged at 49.4.

                                      Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:

                                      “With the headline composite PMI holding steady at 49.4 in December, the flash data point to a weak end to a difficult year for the German economy.

                                      “Manufacturing continues to weigh heavily on private sector output, with faster decreases in factory production and employment in December causing the manufacturing PMI to tick down for the first time in three months. Easing rates of decline in new orders and exports continue to provide glimmers of hope, however.

                                      “The service sector remains resilient, with business activity rising at a stronger pace and business confidence perking up as well, though weak labour market trends are likely to be a restricting factor for the sector as we head into the new year.”

                                      Full release here.

                                      ECB Villeroy: Latest inflation figures confirm necessity of gradual but resolute monetary normalization

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                                        ActionForex.com
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                                        ECB Governing Council member Francois Villeroy de Galhau said today, “the latest inflation figures for May, in France and in the other countries, confirm the rise that we expected, and the necessity of a gradual but resolute monetary normalization.”

                                        Still, he emphasized that rates “that have been exceptionally accommodative for borrowers since 2015 will remain favorable and very supportive for the entire economy compared to historical norms.”

                                        “Clarity is needed: the increase in rates in an orderly and well-managed way will be favorable for the financial sector,” Villeroy said. “It should support the profitability of French banks by increasing net activity margins.”

                                        China said to seek some tariffs removals in exchange for farm purchases

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                                          ActionForex.com
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                                          US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will speak with Chinese Vice Premier Liu He today by phone. Two sides are believed to be working on the text for Phase One of US-China trade agreement, for signing at the APEC summit in Chile on November 16-17.

                                          It’s reported that China will ask US to drop the plan to impose tariffs on USD 156B of Chinese goods on December 15. Additionally, Beijing could ask US to remove the tranche of tariffs imposed on September 1, on USD 125B of Chinese imports, too. That is, China is seeking to get back to tariffs on just the original USD 250B in goods.

                                          In exchange China would buy at least USD 20B of American farm products in the first year, as part of the phase one deal. That would bring purchases back to the level in 2017, before trade war began. In the second year of a final deal, purchases could rise further to USD 40B-50B, when all punitive tariffs are removed.

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