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DOW closed up 0.14% after 619pt swing, yield curve flattens further

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    ActionForex.com
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    US stocks staged a strong reversal overnight again. DOW initially dropped to as low as 23881.47 but closed up 0.14% t0 24423.26. The daily range was as large as 619 pts. S&P 500 dropped to 2583.23 but closed up 0.18% at 2637.72. NASDAQ was indeed the star performer, dipping to 6878.98 but closed up 0.74% at 7020.52. Tech stocks are seen as saving markets with Apple gained 0.66%, Qualcomm gained 2.23%, Facebook gained 3.22%.

    Treasury yield curve continued to flatten with 5-year yield up 0.13 to 2.709. 10-year yield closed up 0.006 at 2.856. 30-year yield dropped -0.014 to 3.129. Yield curve remains inverted between 3-year (2.738) and 5-year (2.709).

    In the currency markets, Sterling remains the weakest one for the week as UK Prime Minister Theresa May conceded and called off Tuesday’s Brexit parliamentary vote. Canadian Dollar is the second weakest. New Zealand Dollar, Australian Dollar and Swiss Franc are the strongest ones.

    For today, Dollar turns softer, but Canadian stays weak. Aussie is staying firm for now, while Yen is trying to rally.

    Today’s top mover: GBP/NZD medium term bearishness plays out as expected

      By
      ActionForex.com
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      Sterling is under broadly based selling pressure today as UK Prime Minister Theresa May called off tomorrow’s Brexit parliamentary vote. She conceded that her Brexit deal would be defeated by a wide margin and pledged to go back to EU for changes on the Irish border backstop. Kiwi is so far very resilient and seems not even bothered with US stocks selloff. For now, GBP/NZD is the top mover of today.

      GBP/NZD’s development is inline with our bearish view as discussed here. The decline from 2.0469 resumed today and reached as low as 1.8183. Based on current downside acceleration, 61.8% retracement of 1.6684 to 2.0469 at 1.8130 will likely be taken out. And in any case, break of 1.8634 resistance is needed to confirm short term bottoming. Otherwise, outlook will remain bearish even in case of recovery.

      Also, in our view, the medium term corrective rise from 1.6684 (2016 low) should have completed at 2.0469. Based on current downside momentum, fall from 2.0469 is likely resuming the down trend from 2.5647 (2015 high). Reaction to above mentioned 1.8130 fibonacci level will reveal the chance of this bearish case. Decisive, firm break of 1.8130 will at least bring retest of 1.6684 low.

      UK PM May confirms Brexit vote delay, will seek change in backstop with EU

        By
        ActionForex.com
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        UK Prime Minister Theresa May formally confirms in the Commons that the Brexit vote will be delayed. She said, the tomorrow’s vote went ahead, it would be lost by a wide margin. May said she’ll hold emergency talks with EU to discuss possible changes to the backstop. And, she pledges that changes to the backstop would ensure it’s not permanent.

        The second Brexit referendum, May warned that “this risks dividing the country again when as a House we should be striving to bring it back together”. And she added that ” if you want to stay part of the customs union, be honest that this this involves accepting free movement.” Or, “if you want to leave with no deal, be honest that this will cause significant damage in those parts of the county that can least afford it.”

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        Into US session: Sterling dives as May will call off tomorrow’s Brexit vote

          By
          ActionForex.com
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          Sterling’s selloff finally takes off on news that UK Prime Minister Theresa May is going to call off tomorrow’s Brexit parliamentary vote. May is going to formally make a statement at 1530GMT. EUR/GBP breaks through 0.9 handle and is on track to 0.9098 resistance. GBP/JPY also breaks 142.76 support and is heading back to 139.88 low. GBP/USD breached 1.2661 key support but it’s hesitating to stay below so far.

          Staying in the currency markets, Dollar is following the Pound as second weakest for the time being. Yen is the third weakest. New Zealand Dollar leads Australian Dollar and Euro higher. Euro showed no reaction to terribly bad investor confidence data.

          In European markets, at the time of writing:

          • FTSE is up 0.20%
          • DAX is down -0.46%
          • CAC is down -0.53%
          • German 10 year yield is up 0.002 at 0.253
          • Italian 10 year yield is down -0.032 at 3.099

          Earlier in Asia:

          • Nikkei dropped -2.12% to 21219.50
          • Hong Kong HSI dropped -1.19% to 25752.38
          • China Shanghai SSE dropped -0.82% to 2584.58
          • Singapore Strait Times dropped -1.24% to 3072.44
          • Japan 10 year JGB yield dropped -0.0223 to 0.04

          Eurozone Sentix investor confidence dropped to -0.3, downside similar to pre-crisis year 2007

            By
            ActionForex.com
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            Eurozone Sentix Investor Confidence dropped sharply to -0.3 in December, down from 8.8 and missed expectation of 8.4. It’s also the fourth decline in a row, and lowest reading since December 2014. Expectation index also dropped to -18.8, lowest since August 2012. Sentix noted that “the dynamics of the downturn are similar to those of the pre-crisis year 2007.”

            Also, “sheer downward momentum that the economy is currently offering is impressive. The economy is “slimming down at a considerable pace, with pressures coming from “all corners” including “trade disputes, the Italian crisis, unrest in France and Belgium or Brexit.” Besides, “the momentum of the current downturn is in many respects similar to that of 2007, and banks, especially in Europe, appear to be in a similarly precarious position”.

            Full release here.

            UK GDP rose 0.1% mom, industrial and manufacturing production contracted

              By
              ActionForex.com
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              Some volatility is seen in Sterling in early part of European session. It firstly declined against Euro, then was limited mildly by ECJ’s ruling on Brexit revocation. But overall movements are limited and not even a batch of weak economic data was economy to kick the Pound out of range.

              UK GDP rose 0.1% mom in October, matched expectations. For the rolling three months Aug to Oct, growth to 0.4%, down from 0.6% from Jul to Sep. The slow down was even more noticeable, comparing to 0.7% recorded in both May to Jul and Jun to Aug periods.

              Services was the biggest contributor to growth in the Aug to Oct period, up 0.23%. Production rose merely 0.05% while construction rose 0.08%.

              Also from UK, industrial production dropped -0.6% mom, -0.8% yoy in October versus expectation of 0.1% mom, -0.2% yoy. Manufacturing production dropped -0.9% mom, -1.0% yoy versus expectation of 0.0% mom, 0.0% yoy. Trade deficit widened to GBP -11.9B versus expectation of GBP -10.5B. Construction output dropped -0.2% mom versus expectation of -0.4% mom.

              ECJ said UK free to revoke Brexit unilaterally

                By
                ActionForex.com
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                As widely expected, the European Court of Justice finally ruled today that “the United Kingdom is free to revoke unilaterally the notification of its intention to withdraw from the EU.” And, “Such a revocation, decided in accordance with its own national constitutional requirements, would have the effect that the United Kingdom remains in the EU under terms that are unchanged as regards its status as a Member State.

                The UK Parliament is set to vote on Prime Minister Theresa May’s Brexit agreement tomorrow. Should the agreement passes, there is no doubt that UK is heading for Brexit in March. However, it’s more likely than not that the agreement is voted down. That will open up a wide range of options in “uncharted waters” as described by May. There could be a new election, or even a new Brexit referendum.

                ECJ’s statement.

                OECD: RBA policy rates should start to rise soon

                  By
                  ActionForex.com
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                  In a report released over the weekend, OECD said Australia’s “long span of positive output growth continues”. And, “continued robust output growth of around 3% is projected in the near future”. On RBA, OECD said that “in the absence of negative shocks, policy rates should start to rise soon”. It warned that “monetary conditions remain very accommodative, with the risk of imbalances accumulating further if the low-interest rate environment persists.” And, “in the absence of a downturn, a gradual tightening should start as inflation edges up and wage growth gains momentum.”

                  However, OECD also warned that the housing market is “a source of vulnerability”. So far, “data point to a soft landing without substantial consequence for the overall economy.” But “risk of a hard landing remains.” And it urged authorities to
                  “prepare contingency plans for a severe collapse in the housing market. These should include the possibility of a crisis situation in one or more financial institutions.

                  Full report here.

                  UK PM May: Voting down the Brexit deal would take UK into uncharted waters

                    By
                    ActionForex.com
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                    Ahead of the parliamentary vote on the Brexit deal on Tuesday, Prime Minister Theresa May warned on Sunday that voting down the deal could take the UK into “uncharted waters”. And, that would mean “grave uncertainty for the nation with a very real risk of no Brexit or leaving the European Union with no deal.” She added “when I say if this deal does not pass we would truly be in uncharted waters, I hope people understand this is what I genuinely believe and fear could happen.”

                    At this, chance remains very slim for the bill to be passed. And there are rumor that May could pull the plug and postpone the vote. And she could go back to Brussels for some tweaks first. but Brexit Minister Stephen Barclay warned that “the risk for those who say simply go back and ask again, the risk is that isn’t necessarily a one way street, the French the Spanish and others will turn round, if we seek to reopen the negotiation, and ask for more.”

                    USTR Lighthizer: Trade talks with China not going beyond March

                      By
                      ActionForex.com
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                      US Trade Representative Robert Lighthizer commented on trade negotiation with China for the first time since taking the leading role. He noted that 90 days talk has a “hard deadline” and Trump is “not talking about going beyond March. And, “the way this is set up is that at the end of 90 days, these tariffs will be raised”. US has postponed raising of tariffs on USD 200B in Chinese imports from 10% to 25% after Trump-Xi meeting.

                      Lighthizer also said the US need “agricultural sales” and “manufacturing sales”. But at the same time “we need structural changes on this fundamental issue of non-economic technology transfer.” And, Americans “can be reassured that if there is a deal that can be made that will assure the protection of U.S. technology…and get additional market access…the president wants us to do it.” But he also echoed Trump’s rhetorics that “if not we will have tariffs.”

                      Canada employment rose 94.1k, unemployment rate dropped to lowest since 1976

                        By
                        ActionForex.com
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                        Canada employment market surged strongly by 94.1k in November, well above expectation of 10.0k. Unemployment rate dropped to 5.6%, down from 5.8%. That’s also the lowest level since 1976.

                        Full release here.

                        Canadian Dollar surges sharply after the release. In particular, against Dollar which is pressured by NFP miss.

                        US NFP rose only 155k, missed expectation, wage growth also missed

                          By
                          ActionForex.com
                          -

                          US non-farm payroll report came in generally weaker than expected. NFP showed only 155k growth in November, well below expectation of 200k. Prior month’s figure was also revised down from 250k to 237k. Unemployment rate, though, as unchanged at 3.7% and matched expectation. Meanwhile, average hourly earnings rose only 0.2% mom, missed expectation of 0.3% mom. The data adds to the argument that while US job growth is still strong, momentum has already peaked.

                          Full release here.

                          Italy may submit revised budget next Wed

                            By
                            ActionForex.com
                            -

                            After repeated rumors, Italy still haven’t submitted the revised Draft Budget Plan to European Commission up till now. It’s reported again today that the coalition government will have the budget ready by next Wednesday.

                            Another rumor comes up on Economy Minister Giovanni Tria’s resignation, on budget row with the cabinet. It’s reported that Five Star movement has requested Tria to step down, for ceding too much ground to EU. However, it seems that the League wants Tria to stay.

                            Five-Star leader, Italian Deputy Prime Minister Luigi Di Maio denied the rumor today and said “Tria is doing a great job and a winning team must not be changed”.

                            BoJ Kuroda: No need for additional easing

                              By
                              ActionForex.com
                              -

                              BoJ Governor Haruhiko Kuroda told the parliament today that “the economy is sustaining its momentum for achieving our 2 percent target. But that momentum lacks strength, so we will carefully watch developments.” For now, though, Kuroda added ” I don’t see the need to take additional monetary easing steps”. And BoJ has no preset idea of what tools to use if more easing is needed, but policy makers will “carefully weigh the cost and benefit of any step we take.”

                              Released from Japan, household spending dropped -0.3% yoy in October, much worse than expectation of 1.2% yoy rise. Labor cash earnings rose 1.5% yoy, higher than expectation of 1.0% yoy. The weak spending data highlights the fact that there is no condition for consumption to strengthen yet. It still take time for the rise in wages to pass though to consumption and then inflation.

                              Separately, according to a Reuters poll, 55% of Japanese companies expect 2019 growth to be around the same as 1% in 2018. 31% see it slowing and only 14% see it accelerating. Among the concerns of business, the planned sales tax hike in October and US-China trade war top. US-Japan trade negotiations, emerging markets and Middle East tensions are also seen as risks to growth.

                              Fed Williams: Tariff is a negative for jobs

                                By
                                ActionForex.com
                                -

                                New York Fed John Williams said in a forum yesterday that the Trump’s tariff war with other countries have “relatively small effect on the economy. But they created higher uncertainty for businesses.

                                Williams said “at least so far the tariffs that have been put in place, by the United States and other countries, when you roll that up into a $20-trillion economy it doesn’t have a big effect overall on economic growth or inflation”. And, the “much more important and larger” effect is higher uncertainty for businesses. As companies put off investments due to the uncertainties, “that’s a negative for jobs in the short run…and a factor that slows the economy relative to what it could be.”

                                Fed Powell: Some communities yet to feel full benefits of strong economy

                                  By
                                  ActionForex.com
                                  -

                                  Fed Chair Jerome Powell said in a speech yesterday that ” by many national-level measures, our labor market is very strong.” However, he also noted that “aggregate statistics can mask important variations between different demographic and income groups, as well as significant regional differences.” He pointed to statistics indicating unemployment rates in some persistently poor rural counties remain much higher than the national figures.

                                  And, “while the economy is strong overall, we recognize that some communities have yet to feel the full benefits of the ongoing expansion.” Fed is “conducting research, collaborating with communities, and assessing financial regulations so that our nation’s current prosperity will benefit small towns and cities alike.”

                                  Today’s top mover: AUD/JPY downside accelerate mixes up technical outlook

                                    By
                                    ActionForex.com
                                    -

                                    At the time of writing, Australian Dollar is clearly today’s biggest loser on risk aversion. And let’s be reminded that Australia Q3 GDP released earlier this week was also a big miss. Yen is the strongest one naturally on risk aversion. In particular, the selloff in stock markets is global. And, the decline in treasury yields is global too.

                                    AUD/JPY’s break of 81.18 support confirms short term topping at 83.90, ahead of 89.92 resistance. And the development mixed up the technical outlook of the cross. The steepness of the fall from 83.90 does argue that rebound from 78.56 is finished. But at the same time, 78.56 is a medium term bottom on bullish convergence condition in daily MACD. Rebound from 78.56 to 83.90 is not too corrective looking.

                                    That is, at this point, we’re unsure if fall from 83.90 is merely a pull back, or resuming down trend fro 90.29. For now, we’ll be neutral on the cross first. The structure of the upcoming recovery would reveal much about the underlying trend.

                                    Risk aversion intensifies, European indices made new 2018 low, DOW breaches Nov low

                                      By
                                      ActionForex.com
                                      -

                                      Risk aversion continues to intensify. AUD, NZD and CAD remain the weakest one is general. USD is catching up in US session. However, EURUSD and GBP/USD are staying in familiar range. USD/CHF breached 0.9908 support but quickly recovered. USD/JPY also breached 112.30 support but quickly recovered too. More is needed to prove Dollar’s weakness.

                                      In Europe:

                                      • DAX closed down -3.61% or -404.79 pts at 10795.45. Below key support level, 2018 low (made in Nov) at 11009.25.
                                      • CAC closed down -3.58%, or -117.04 pts at 4767.33. Below key support level, 2018 low (made in Nov) at 4894.30.
                                      • FTSE closed down -3.53% or -244.15 pts at 6677.68. Below key support level, 2018 low (made in Oct) at 6851.59.
                                      • German 10 year yield dropped -0.0436 to 0.234, lowest since one-day spike low at 0.186 on May 29.

                                      In US:

                                      • DOW is down -2.48% or -622pts at 24404.
                                      • S&P 500 is down -2.68%
                                      • NASDAQ is down -2.19%
                                      • 10 year yield is down -0.082 at 2.842

                                      DOW breached Nov low of 24268.74 to as low as 24242.22. Oversold condition might bring brief recovery. But further decline should be seen to 24122.23 support in near term.

                                      10 year yield has broken 55 week EMA and is now in proximity to 2.808 key support level. For now, strong support is still preferred around this level. But considering bearish divergence condition in weekly MACD, break of 2.808 would be a strong sign of medium term reversal. And deeper fall would be seen back to 2.034/2.621 support zone.

                                      US ISM non-manufacturing rose to 60.7, respondents remain positive

                                        By
                                        ActionForex.com
                                        -

                                        US ISM non-manufacturing composite rose to 60.7 in November, up fro 60.3 and beat expectation of 59.5. Employment component dropped -1.3 to 58.4 but remained well above 50. ISM noted that “The non-manufacturing sector continued to reflect strong growth in November. However, concerns persist about employment resources and the impact of tariffs. Respondents remain positive about current business conditions and the direction of the economy.”

                                        Also released, factory orders dropped -2.1% in October versus expectation of -2.0%

                                        Canada Ivey PMI dropped to 57.2, down from 61.8 and missed expectation of 60.3.

                                        BoC Poloz admits economy loss momentum going into Q4

                                          By
                                          ActionForex.com
                                          -

                                          BoC Governor Stephen Poloz admitted today that “data released since our October Monetary Policy Report have been on the disappointing side “. And, “the economy has less momentum going into the fourth quarter than we believed it would.”

                                          Also, regarding recent oil price slump, Poloz added “it is already clear that a painful adjustment is developing for Western Canada and there will be a meaningful impact on the Canadian macroeconomy.”

                                          The comments echo BoC’s cautious statement yesterday and solidify the chance for BoC to pause its rate hikes if things don’t improve.

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