Breaking News
Investing Pro 0
⏰ React to the Market Faster with Custom, Real-Time News Get Started

Subdued Ending to a Quiet Week, Ahead of Next Week's Fireworks

By Marc ChandlerCurrenciesJan 27, 2023 06:39AM ET
www.investing.com/analysis/subdued-ending-to-a-quiet-week-ahead-of-next-weeks-fireworks-200634772
Subdued Ending to a Quiet Week, Ahead of Next Week's Fireworks
By Marc Chandler   |  Jan 27, 2023 06:39AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
AUD/USD
-0.55%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
US500
+0.56%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BA
-0.19%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CL
-1.09%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
NG
+1.25%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
US10Y...
-0.16%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

Leaving aside the Australian dollar, which is benefiting from the optimism over China's re-opening and a reassessment of the trajectory of monetary policy after a stronger-than-expected inflation report, the other G10 currencies traded quietly this week and are +/- less than 0.5%.

The risk-on honeymoon to start the year remains intact. The MSCI Asia Pacific Index has risen every day this week and the index of mainland shares that trade in Hong Kong rose nearly 6.3%. This suggests positive impulses for Chinese stocks when the mainland markets re-open Monday. Europe's Stoxx 600 is up about 0.5% this week. In the US, the S&P 500 closed above the downtrend line from January 2021 and made new highs for the month yesterday. US stock futures are trading with a slightly heavier bias now. 

Bond markets are under some pressure today. Benchmark 10-year yields are 5-10 bp higher in Europe and with few exceptions are higher on the week. The 10-year US Treasury yield is up about five basis points near 3.55%, which is slightly below the week's high.

Crude oil is firm with the March WTI contract above $82. This month's high is a little higher. It settled near $81.65 last week and, barring a setback, it would be the third consecutive weekly gain and the sixth in the past seven weeks. Meanwhile, the average price of US retail gasoline continues to drift higher and around $3.50 is up about 9.5% so far this year.

Yesterday's US GDP figures reduce the chance of surprise from today's personal income and consumption reports, including the deflators. The University of Michigan reports its final January confidence and inflation expectation survey results. The focus is on next week's Fed, ECB, and BOE meetings, and the US jobs report.

Asia Pacific

Although Tokyo's inflation rose more than higher this month, it may be peaking (4.4% vs. 4.0%). Energy (gas and electricity) subsidies began this month and can be expected to show up in next month's figures. Also, the lag time between the yen's appreciation on a trade-weighted basis and the feed-through to imported prices is hard to predict. However, on a trade-weighted basis, the yen bottomed three months ago. Japan appears to be the largest buyer of Russia's liquified natural gas and the drop in natgas prices, leaving aside the exchange rate, should be beneficial to Japan if sustained. The government moved last year to cap imported wheat prices. Wheat prices retraced in full last year’s spike sparked by Russia's invasion of Ukraine and the blocking of grain exports. That said, processed food prices led to a rise in Tokyo CPI, and more increases are expected next month. While the underlying assumptions about BOJ monetary policy after Governor Kuroda retires in April are unknown, the median forecast in this month's Bloomberg survey is for Japan's CPI to rise 1.9% this year, up from 1.8% in the December survey. Next year, the CPI is expected to rise by 1%.

The Australian dollar rose a little more than 2% this week to lead the G10 currencies. It was the largest advance in two months and was driven by the higher inflation figures and developments that keep the meme about the Chinese recovery intact. Preliminary traffic data and activities in China during the holiday are constructive and the rally in Chinese shares that traded in Hong Kong yesterday and today may bolster the narrative. The MSCI Asia Pacific Index rose for the sixth session consecutive session today. Still, going back to the middle of last October, the Aussie has risen in 12 of the past 15 weeks. The higher-than-expected Q4 inflation raised the perceived probability of a quarter-point hike by the central bank next month. This is partly reflected in the futures market, but also in the 20 bp jump in the Australian two-year yield to about 3.07%.

The dollar was sold from around JPY130.20 before Tokyo's CPI to session lows near JPY129.50 in response. It recovered to trade back to session highs by the end of the Asian session but is consolidating in around a 20-pip range around JPY130. The greenback settled last week near JPY129.60. The Australian dollar briefly traded above $0.7140 yesterday and traded sideways in a slightly more than 15-pip range around the $0.7115 settlement. Of note, the 50-day moving average is crossing above the 200-day moving average ("Golden Cross"), leaving the Canadian dollar as the only G10 currency that has not done so. While the mainland has been closed this week, the dollar has fallen from a little above CNH6.78 to a little above CNH6.75 net-net and has been in a somewhat larger range of above CNH6.72-CNH6.7915. Last week, before the holiday, the range was roughly CNH6.6975-CNH6.7945.

Europe

Two panels at the World Trade Organization's dispute settlement body today or in the coming days to follow up on previous complaints. The first is the legality of trade restrictions imposed on Lithuanian exports and EU exports with Lithuanian content. China retaliated in late 2021 after Lithuania allowed a "Taiwanese Representative Office to be established, which was a clear break from the diplomatic wordplay and the use of "Taiwan" proper. Chinese figures reportedly showed an 80% decline in imports from Lithuania in the first ten months of last year from the year-ago period. The second complaint questions the legality of Beijing encroaching upon the high-tech patents of EU companies by preventing them from seeking protection in courts outside of China.

The Bank of England and the European Central Bank are expected to hike 50 bp next week. There are two key differences. First, with the move, the Bank of England is seen as little as a quarter-point from its terminal rate. The ECB is seen raising rates at least another 75 bp after next week’s move. Second, the market is favoring a cut by the BOE later this year. The implied yield of the December Sonia futures contract settled about 30 bp less than the yield of the June contract yesterday. It moved above the 25 bp last week and has largely held above it this week.

The euro is trading quietly in a narrow range of about a third of a cent below $1.09. Despite the margin's new high being set yesterday near $1.0930, the week has really been one of relatively quiet sideways movement. Of note, there are options for a little more than one billion euros struck at $1.0850 that expire today. The low for the week was set on Tuesday near $1.0835, and the euro has not been below $1.0850 since then. The Sterling has been among the softer of the G10 currencies this week. The week's high was recorded on Monday, as it edged slightly closer to $1.2450, without trading above. The low this week was set on Tuesday near $1.2265. It reached almost $1.2420 in Asia before slipping back to $1.2360. The intraday momentum indicators look constructive for another try at the highs in North America. Without a settlement above $1.2400, sterling will snap a four-week advance.

America

Trade and inventories continued to confuse the underlying signals from US GDP. They were largely responsible for the contraction in H1 22 and have been notable boosts in the second half. In Q4, inventories added 1.5 percentage points to growth and net exports added 0.6 percentage points. Just like the US economy was stronger in H1 22 than the GDP figures suggested, it was weaker later in the year than the GDP implied. Final sales to domestic purchasers (GDP minus inventories and trade) rose 0.8% and, if the government was excluded as well (final sales to private domestic purchasers), growth practically stagnated (0.2%, annualized) in Q4 22. Consumer spending slowed to 2.1% from 2.3% in Q3. Spending on services rose 2.6% while goods purchases snapped a three-quarter decline and rose 1.1%. The GDP price deflators suggest that the December PCE headline deflator that will be released today likely rose 0.1% with the core rising 0.3%. Of note, if the core deflator slows to 4.4% as the median expects, then it would be below the upper end of the current Fed funds target (4.25%-4.50%). December durable goods orders surged 5.6%, more than twice the median forecast in Bloomberg's survey. It was flattered by Boeing (NYSE:BA)'s orders (250 vs 21 in November and 122 in October). This was behind the 115.5% surge in non-defense aircraft orders, but defense aircraft orders jumped 15.2%, while overall defense orders fell 2.8% (after an 8.2% increase in November).

The end of globalization may be a popular meme, but there is no sign in the US trade figures. Looking at the US merchandise trade, both exports ($2.07 trillion) and imports ($3.26 trillion) were at record levels. The merchandise deficit was also a record ($1.19 trillion). The shortfall in December was $90.30 bln, which was larger than expected after November's $82.9 bln deficit, which was the smallest since October 2020. Perhaps the biggest surprise was the decline in weekly jobless claims. They fell to 186k, the lowest since last April. The four-week moving average is also below 200k (197.5k) for the first time since May 2022. Some economists may revise higher their forecast for next week's January nonfarm payroll report. The median forecast in Bloomberg's survey currently stands at 180k. There is bound to be the talk of a stronger "whisper number". 

Mexico reports December trade figures today, and the median forecast in Bloomberg's survey projects the first monthly surplus since last March. The December balance often (15 of the past 20 years) improved in November, but there is also something more going on. The three-month shortfall through November, was the smallest of the year and smaller than the same year-ago period, even though for the first 11 months of 2022, the deficit was more than double the Jan-Nov 2021 period. Vehicle exports rose in Q4 and is probably part of the story. Imports and exports were both up about 8% year-over-year in November.

The greenback fell to near CAD1.33 yesterday to record a new low since mid-November. It has held below CAD1.3350 and set new session lows in the European morning slightly below CAD1.3315. The intraday momentum indicators are over-extended, suggesting CAD1.33 may hold and if there is penetration, it is unlikely to be sustained. Still, without much fanfare, barring a sharp reversal back above CAD1.3380, this will be the sixth consecutive week that the US dollar has moved lower against the Canadian dollar. The US dollar has drifted lower against the Mexican peso and is traded near the lows for the week below MXN18.77. That area represented a (61.8%) retracement of last week's spike to around MXN19.11. The next technical target is around MXN18.6950. Lastly, as expected Chile left rates steady yesterday, while Colombia is expected to hike the overnight lending rate by 100 bp to 13.00%. The swaps market sees it as the last hike in the cycle that ban in October 2021.

Subdued Ending to a Quiet Week, Ahead of Next Week's Fireworks
 

Related Articles

Subdued Ending to a Quiet Week, Ahead of Next Week's Fireworks

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email