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Notes/Observations

• Risk aversion sentiment sending equity markets lower and core bond yield lower; Trade conflicts and growth fears remain the key driver
• Poor Chinese PMIs underscore global growth concerns (Note: Caixin China PMI Manufacturing: 49.7 v 50.2e for its first contraction since May 2017; on Dec 30th China Dec Official Manufacturing PMI: 49.4 v 50.0e for its 1st contraction since July 2016 and lowest since Feb 2016
• European Manufacturing PMI Data (Beats: UK, Netherlands, Italy; Misses: Spain, Sweden; Norway, Poland, Czech; In-line: France, Germany)

Asia:

• China Dec Caixin China PMI Manufacturing: 49.7 v 50.2e for its first contraction since May 2017
• Singapore Q4 Advance GDP Q/Q: 1.6% v 3.6%e; Y/Y: 2.2% v 2.5%e

Europe:

• Italy President Mattarella year end TV address stated that the country's high debt penalized the state and its citizens. Reprimanded the coalition govt for calling for measures promised in the 2019 budget to be verified attentively given the lack of debate
• Italy Dep PM Salvini stated that did not see any danger to Italian govt in coming months; no need for govt reshuffle.
• FT Survey on Brexit saw certain business leaders concerned about deteriorating economic conditions in the UK which would hinder UK business investment and depress consumer spending this year
• Money transport drivers in Germany have called nationwide strike, the union was unable to reach labor agreement after 5 rounds

Americas:

• US President Trump formally invited Democrats to meeting at White House on Wed, unclear if Democrat leaders will attend
• House Majority Leader Pelosi (D-CA) to attend Trump meeting

Energy:

• Russia Dec Oil Production Output: 11.45M bpd v 11.37M m/m; +4.5% y/y

Macro

• (N) China: December Caixin manufacturing PMI fell to a 19-month low of 49.7, down from 50.2 in November. The data followed the two-year low that had already been reported in the official PMI survey out of China. Fears are that the trade war has affected domestic demand as well as the export sector and will ultimately lead to expectations of fiscal stimulus as well as reserve ratio cuts.
• (EU) Eurozone: Manufacturing PMI indicates that last quarter of 2018 saw the worst factory output growth since Q2 2013, with firms having to drawdown on back orders to sustain production levels. Some temporary factors evident but trend looks worryingly weak
• (AU) Australia: CoreLogic reported home prices were down another 2.3% over the December quarter, the largest decline in 10 years. The downturn accelerated through 2018 with the overall market falling 4.8% and driven by weakness in Sydney and Melbourne. Sydney home prices were down -9% for the year with Melbourne's -7%. Sydney house prices fell back to August 2016 levels, while Melbourne values are back to February 2017 . House price weakness has led to a chain of thought that the RBA's next move this year will be a rate cut as opposed to a hike.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.44% at 334.20, FTSE -1.08% at 6,655.50, DAX -0.48% at 10,508.03, CAC-40 -1.90% at 4,640.96, IBEX-35 -1.55% at 8,407.85, FTSE MIB -1.57% at 18,035.50, SMI closed, S&P 500 Futures -1.49%]
• Market Focal Points/Key Themes: European Indices trade sharply lower across the board starting the year on a negative tone as weaker PMI data in China added to the negative sentiment. Asian Indices were sharply lower while US Index futures also point to a negative open. On the corporate front Ophir Energy advances on bid talk, with Amerisur Resources and Karo Pharma among other notable risers. Hammerson declines following a trading update; Italian Banks are under pressure as Banca Carige's woes continue with the dissolving of the companies board as the company is put under administration. Elsewhere Gerresheimer trades under pressure following an analyst downgrade, while Sligro Food also declines after full year sales figures.

Equities

• Consumer discretionary: Rezidor Hotel Group AB [REZT.SE] -1.5% (recommended not to accept public offer), Sligro Food Group NV [SLIGR.NL] -1.5% (FY sales)
• Energy: Ophir Energy [OPHR.UK] +33% (confirms in talks over takeover offer), Amerisur Resources PLC [AMER.UK] +10% (operational update)
• Financials: Hammerson [HMSO.UK] -3% (trading update; update on buyback program), Spar Nord Bank A/S [SPNO.DK] +2% (designated as a systemically important financial institution in Denmark), Banca IFIS [IF.IT] -4.5%, UBI Banca [UBI.IT] -4%, Banco BPM [BAMI.IT] -3%, Unicredit [UCG.IT] -2.5% (Banca IFIS confirms acquisition of NPLs; Banca Carige's Board of Directors dissolved, ECB appointed Monitoring Committee, trading suspended)
• Industrials: Gerresheimer AG [GXI.DE] -7.5% (analyst action)

Speakers

• Taiwan President Tsai rejected China's stance of 'One country, two systems'. Talks should be conducted between China and Taiwan. Taiwan was willing to have orderly exchange
• Indonesia Central Bank Gov Warjiyo reiterated stance to remain pre-emptive in monetary policy; saw less uncertainties in 2019 compared to 2018
• Indonesia Fin Min Indrawati noted that 2018 GDP growth was seen at 5.2% and supported by household and govt consumption and investment

Currencies/Fixed Income

• Risk aversion was the key driver to price action in the session which sent equity markets lower and core bond yields lower. Dealers noted that trade conflicts and growth fears remained prevalent with poor Chinese PMI data underscoring global growth concerns
• EUR/USD initially made a try to bust above stops rumored to lie above the 1.15 level but continued to encounter fierce resistance. The pair moved lower as various European PMI manufacturing data disappointed to test 1.1430 just ahead of the NY morning. Dealers also cited that precarious political climate within and outside the Eurozone had become a significant risk and would likely cut growth for the region in 2019
• USD/JPY continued to move lower on safe haven flows into the Yen. The pair moved below the 109 levelto hit its lowest level since May. Before the New Year Japan Currency Head Asakawa noted that FX turbulence had been rising and the Govt was ready to curb yen volatility if speculative activity was behind it.

Economic Data

• (IN) India PMI Manufacturing: 53.2 v 54.0 prior (14th month of expansion)
• (IE) Ireland Dec Manufacturing PMI: 54.5 v 55.4 prior (67th month of expansion but lowest since March)
• (TR) Turkey Dec Manufacturing PMI: 44.2 v 44.7 prior (9th straight contraction)
• (SE) Sweden Dec PMI Manufacturing: 52.0 v 56.2e
• (TH) Thailand Dec Business Sentiment Index: 49.5 v 53.1 prior
• (NL) Netherlands Dec Manufacturing PMI: 57.2 v 55.6e (64th month of expansion)
• (NO) Norway Dec PMI Manufacturing: 55.9 v 56.0e (6th month of expansion)
• (PL) Poland Dec Manufacturing PMI: 47.6 v
• (ES) Spain Dec Manufacturing PMI: 51.1 v 52.4 e 49.8e (2nd straight contraction and lowest since Apr 2013)
• (HU) Hungary Dec Manufacturing PMI: 54.2 v 53.5 prior (37th month of expansion)
• (HU) Hungary Nov Unemployment Rate: 3.6% v 3.7% prior
• (ES) Spain Dec Manufacturing PMI: 51.1 v 52.4 e (62nd month of expansion, but lowest since Aug 2016)
• (CZ) Czech Republic Dec Manufacturing PMI: 49.7 v 51.4e (1st contraction in 29 months and lowest since July 2016)
• (IT) Italy Dec Manufacturing PMI: 49.2 v 48.4e (3rd straight contraction)
• (FR) France Dec Final Manufacturing PMI: 49.7 v 49.7e (confirmed its 1st contraction in 27 months and lowest since Sept 2016)
• (DE) Germany Dec Final Manufacturing PMI: 51.5 v 51.5e (confirmed 48th month of expansion and lowest since Feb 2016)
• (EU) Euro Zone Dec Final Manufacturing PMI: 51.4 v 51.4e (confirmed 66th month of expansion but lowest since Feb 2016)
• (GR) Greece Dec Manufacturing PMI: 53.8 v 54.0 prior (19th month of expansion)
• (UK) Dec PMI Manufacturing: 54.2 v 52.5e (29th month of expansion)
• (DK) Denmark Dec PMI Survey: 58.1 v 57.9 prior

Fixed Income Issuance

• (IN) India sold total INR100B vs. INR100B indicated in 3-month, 6-month and 12-month bills
• (VN) Vietnam sold VND5.65T vs. VND6.5T target in 5-year,10-year, 15-year and 20-year bonds

Looking Ahead

• (IT) Italy Dec Budget Balance: No est v -€3.9B prior
• 07:00 (BR) Brazil Dec PMI Manufacturing: No est v 52.7 prior
• 08:30 (CA) Canada Nov Leading Indicators: No est v -0.1% prior
• 08:55 (FR) France Debt Agency (AFT) to sell combined €4.0-5.2B in 3-month, 6-month and 12-month BTF Bills
• 09:30 (BR) Brazil Currency Flows Weekly
• 09:30 (NZ) Fonterra Global Dairy Trade Auction: Dairy Trade price index: No est v +1.7% prior
• 09:30 (CA) Canada Dec Manufacturing PMI: No est v 54.9 prior
• 09:45 (US) Dec Final Markit Manufacturing PMI: 53.9e v 53.9 prelim
• 10:00 (MX) Mexico Nov Total Remittances: $2.6Be v $2.9B prior
• 10:00 (MX) Mexico weekly International Reserve data
• 10:30 (MX)) Mexico Dec PMI Manufacturing: No est v 49.7 prior
• 11:00 (DK) Denmark Dec Foreign Reserves (DKK): No est v 467.3B prior
• 12:00 (IT) Italy Dec New Car Registrations Y/Y: No est v -6.3% prior
• 13:00 (MX) Mexico Dec IMEF Manufacturing Index: 49.5e v 49.7 prior; Non-Manufacturing Index: 49.5e v 49.2 prior
• 22:30 (TH) Thailand Dec Consumer Confidence: No est v 80.5 prior; Economic Confidence: No est v 67.5 prior

EUR/USD

Current level - 1.1478

Keeping in mind, that on the senior frames the whole pattern after 1.1214 low is corrective, I favor a failure here at 1.1500 resistance and a beginning of a substantial slide towards the November lows. Key low lies at 1.1420 and a violation of it will signal a slide for 1.1340, en route to 1.1264.

USD/JPY

Current level - 109.29

The downtrend is intact below 110.20 resistance and the pair is heading towards 108.10 zone. Crucial on the upside is 111.45 high.

GBP/USD

Current level - 1.2753

The low liquidity during the end of the holiday led to a brief spike above 1.2710 hurdle, but my outlook is bearish, for a return below the mentioned area and a violation of 1.2615 crucial low will confirm, that the prolonged consolidation pattern after 1.2470 is over.

The GBP/USD has made a bullish spike prior to New Year and we see a correction now. Failure to close below Weekly Pivot Point turned the price bullish.

The Cable has established a new POC zone at W H3 camarilla pivot. The zone 1.2662-1.2680 could reject the price. The bounce targets 1.2730, 1.2760 and 1.2783. Only above 1.2785 we will see a continuation towards 1.2820.

However, a close below 1.2660 might target 1.2628-1.2611, so pay attention to either a bounce or a close below W L3 that will negate an interim bullish scenario.

Cable holds in red in European trading on Wednesday and dipped below 1.2700 handle, pressured by sales by risk aversion sales of GBPJPY pair.

Repeated failure to clearly break above 1.2743 pivot (Fibo 38.2% of 1.3174/1.2476 downleg) after Friday's action spiked to 1.2814 but closed below 1.2743, weighs on near-term action.

Strong bullish momentum on daily chart continues to underpin, along with formation of 10/20SMA bull-cross (1.2654), suggesting that current easing could be positioning for fresh upside, while 20SMA (1.2655) holds.

Bulls need confirmation on close above 1.2743 Fibo barrier to open way towards 1.2812 (falling 55SMA) and possible extension towards more significant resistances at 1.2897/1.2916 zone (100SMA/Fibo 61.8%/ base of falling daily cloud).

Conversely, negative signal would be generated on close below 20SMA, with extension below 1.2605 (Fibo 61.8% of 1.2476/1.2814 recovery leg) to signal an end of corrective phase and shift focus lower.

Res: 1.2743, 1.2772, 1.2812, 1.2850
Sup: 1.2683, 1.2655, 1.2605, 1.2555

The US dollar has tumbled below 109.00 support level against the Japanese yen during the European trading session, as global equity market losses accelerate. The USDJPY pair is likely to target the important May 2018 trading low, at 108.10, given the increased technical selling. The MACD indicator on the daily time frame is also trending lower, signaling further downside ahead.

The USDJPY pair is strongly bearish while trading below the 109.25 level, key technical support is found at the 108.50 and 108.10 levels.

If USDJPY pair trades above the 109.00 level, buyers may test the 109.26 and 110.10 levels.

The euro has reversed sharply lower against the US dollar during the European trading session, following more weak PMI manufacturing data from the eurozone economy. The EURUSD pair may decline below the 1.1400 support level if the pivotal 1.1430 level is broken. The MACD indicator on the four-hour time frame is also starting to show signs of upside price exhaustion.

The EURUSD pair is only bearish while trading below the 1.1430 level, key technical support is found at 1.1400 and 1.1360 levels.

If the EURUSD pair holds the 1.1430 level, key technical resistance is found at the 1.1470 and 1.1500 levels.

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.14334
Open: 1.14572
% chg. over the last day: +0.28
Day's range: 1.14427 – 1.14967
52 wk range: 1.1214 – 1.2557

EUR/USD has a bullish sentiment. The EUR/USD quotes are consolidating around 1.14850-1.15000. 1.14600 acts as a mirror support. EUR has prospects for further growth. Investors are expecting an array of reports regarding the EU. You should open positions from the key levels.

At 10:55 (GMT+2:00) Germany will publish the Industrial PMI.

The price fixed above 50 MA and 200 MA which points toward the power of the buyers.

The MACD hystogram is in the positive zone and above the signal line, which gives a strong signal to purchase EUR/USD.

The Stochastic Oscillator is in the neutral zone, the %K line is above the %D line which also points toward the growth of EUR/USD.

Trading recommendations

Support levels: 1.14600, 1.14250, 1.14000
Resistance levels: 1.14850, 1.15000, 1.15400

If the price fixes above 1.14850, expect further growth of the EUR/USD quotes. The movement will tend toward 1.15250-1.15400.

Alternatively the currency pair can descend toward 1.14300-1.14000.

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.26916
Open: 1.27172
% chg. over the last day: +0.28
Day's range: 1.27100 – 1.27727
52 wk range: 1.2477 – 1.4378

GBP/USD is consolidating after a sudden growth during the current week. The pound is testing the key support and resistance levels: 1.27350 and 1.27700. The trading instrument has prospects for further recovery. We expect important stats on the UK economy. Positions should be opened from the key levels.

At 11:30 (GMT+2:00) the UK will publish a report on the business activity in the industrial sector.

The price fixed above 50 MA and 200 MA which points toward the power of the buyers.

The MACD hystogram is in the positive zone but below the signal line, which gives a weak signal to purchase EUR/USD.

The Stochastic Oscillator is in the neutral zone, the %K line is crossing the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.27350, 1.27000, 1.26700
Resistance levels: 1.27700, 1.28000

If the price fixes above 1.27700, expect further growth of the EUR/USD quotes. The movement will tend toward 1.28000-1.28300.

Alternatively the currency pair can descend toward 1.27000.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.36380
Open: 1.36157
% chg. over the last day: -0.11
Day's range: 1.35691 – 1.36559
52 wk range: 1.2248 – 1.3664

USD/CAD started to descend. At the moment CAD is consolidating at 1.35700-1.36200. A technical correction is highly probable. You should open positions from the key levels while keeping an eye on the oil quotes.

The Economic News Feed for 02.01.2019 is calm.

Indicators do not provide precise signals, the price fixes between 50 MA and 200 MA.

The MACD histogram started to descend, which points toward the power of the sellers.

The Stochastic Oscillator is in the neutral zone, the %K line started the cross the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 1.35700, 1.35250, 1.34900
Resistance levels: 1.36200, 1.36600

If the price fixes below the 1.35700 expect the USD/CAD correction toward 1.35300-1.35000.

Alternatively the quotes can grow toward 1.36600.

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 110.188
Open: 109.645
% chg. over the last day: -0.68
Day's range: 109.050 – 109.724
52 wk range: 104.56 – 114.56

USD/JPY keeps showing a negative trend. Since the beginning of the week USD/JPY fell by 100 points. The currency pair is close to the round 109.000 with 109.550 acting as the closest resistance. Positions should be opened from the key levels. You should keep an eye on the US Treasury bonds yield dynamics.

Japanese financial markets are closed due to the New Year celebrations.

The price fixed below 50 MA and 200 MA which points toward the power of the sellers.

The MACD histogram is in the negative zone and below the signal line, which gives a strong signal to sell USD/JPY.

The Stochastic Oscillator is near the oversold zone, the %K line started to cross the %D line. There are no signals at the moment.

Trading recommendations

Support levels: 109.000, 108.500
Resistance levels: 109.550, 110.200, 110.700

If the price fixes below 109.000, expect the quotes to fall further toward 108.600-108.400.

Alternatively, the currency pair can correct toward 110.000-110.200.

• Chinese factory activity contracts, feeding growth slowdown fears
• Yen rallies to seven-month highs, aussie drops to three-year lows
• Oil extends downtrend into 2019

Stocks have a rough start as Chinese data disappoint

Stock markets in Asia started in the red in the first trading day of the year as lower than expected factory data out of the world’s second largest economy added further evidence of a potential slowdown in global growth.

The Chinese Caixin manufacturing index crossed unexpectedly below 50 in December for the first time in 19 months, hinting that the sector is contracting. The news pushed Shanghai’s CSI 300 stock index down by 1.40%, while Hong Kong’s Hang Seng stock index lost nearly 3.0%, with futures tracking US indices such as the S&P 500 pointing to another bear session as well later in the day. Japanese markets will be closed on Wednesday.

With business conditions in China deteriorating and clarity missing over how Washington and Beijing will finally solve their trade dispute, despite both sides showing willingness to do so, some additional stimulus might be needed later in the year to prevent further economic weakness. This may include an of easing monetary policy by the People’s Bank of China and more fiscal expansion by the government. Moreover, given the headwinds the rest of the world could face because of the trade war that seems to have started to bite, other key economies could also begin to ease policy, making it more difficult for the Fed to continue raising rates.

Safe-havens take the front seat

In FX markets, the dollar was on the back foot against its major counterparts after a positive yearly performance in 2017, amid increased speculation that the Fed may have potentially overestimated the number of rate hikes it plans to deliver in 2019 and therefore a more cautious period may be approaching ahead.

The Japanese yen was the best performer, jumping by 0.53% against the greenback to touch seven-month highs, while the aussie, whose fortunes are significantly tied to the Chinese economy, broke strong support around 0.70 to fall to near three-year lows. The sliding dollar could not help the euro and the pound either as the political environment remains fragile in Europe, with Brexit topping concerns. Should the British Parliament vote against May’s exit plan later this month, forcing a hard Brexit to take place in March, chances for a rate hike by the Bank of England and the European Central Bank may move well into the horizon.

Oil opens with losses

Crude prices registered their first yearly loss in three years and continued to decline at the start of the new year as traders were afraid that a downturn in China could squeeze demand for oil at a time when supply is in a big surplus. WTI crude and London’s based Brent tumbled by 1.80%, with sentiment depending largely on US production which is currently near all-time highs and the commitment between Russia and OPEC to cut supply and prop up prices. Developments around the US-Iran sanction story could also bring fresh volatility.

UK PMI manufacturing rose to 54.2 in December, up from 53.1 and beat expectation of 52.6. It's also the highest level in six months. Markit also noted that "new order and new export order inflows strengthen", and "stocks of purchases and finished goods rise sharply".

Rob Dobson, Director at IHS Markit, which compiles the survey:

"December saw the UK PMI rise to a six-month high, following short-term boosts to inventory holdings and inflows of new business as companies stepped up their preparations for a potentially disruptive Brexit.

"Stocks of purchases and finished goods both rose at near survey-record rates, while stock-piling by customers at home and abroad took new orders growth to a ten-month high. Any positive impact on the PMI is likely to be short-lived, however, as any gains in the near-term are reversed later in 2019 when safety stocks are eroded or become obsolete.

"The trend in production volumes remained lacklustre despite the safety stock-building, with the latest survey consistent with a mild decrease in the official measure of manufacturing output over the final quarter. Uncertainties regarding Brexit disruption on supply chains and the exchange rate are also weighing on business confidence. Although manufacturers forecast growth over the coming year, confidence remains at a low ebb. Manufacturing will therefore be entering 2019 on a less than ideal footing with Brexit uncertainty having intensified considerably."

Full release here.

Trading activity and volatility on currency majors decreased due to the New Year holidays. At the moment, the dollar index (#DX) is declining. A report on the US labor market for December will be the key event in the current trading week. Experts expect improvements in key indicators. We recommend taking into account the difference between the actual and forecasted values.

In December, China Caixin Manufacturing PMI slowed down from 50.2 to 49.7. Economists forecasted growth to 50.3. Today, financial market participants will assess indicators of economic activity in the Eurozone and the UK.

The bearish sentiment still prevails in the "black gold" market. At the moment, futures for the WTI crude oil are testing the mark of $44.85 per barrel.

Market Indicators

Yesterday, the main financial markets were closed due to the New Year holidays.

The 10-year US government bonds yield shows negative dynamics. Currently, the indicator is at the level of 2.69-2.70%.

The economic calendar on 02.01.2019:

The index of economic activity in the manufacturing sector in Germany at 10:55 (GMT+2:00);

The index of economic activity in the UK manufacturing sector at 11:30 (GMT+2:00).