Market Roundup
- USD/JPY hits 1 year low at 115.97. 115.85 was low last January.
- BoJ poised to cut inflation forecast again. Wages key.
- BoJ likely to cut CPI forecast to below 1% in a blow to QE.
- Japan Econ Min Amari - Up to BoJ to decide on monetary policy.
- Japan official closely watching currency markets.
- GBP/USD makes fresh 7 year low at 1.4125, recoveries limited.
- EUR/GBP rises to fresh year high at 0.7756 before easing.
- UK December Claimant Count -4.3k vs previous -2.2k. 2.5k expected.
- UK November Unemployment rate 5.1% vs previous 5.2%. 5.2% expected.
- UK November Average Weekly Earnings 3M 2.0% vs previous 2.4%. 2.1% expected.
- CAD braces for potential interest rate cut. USD/CAD plays in between 1.4554-1.4689 levels.
- IEA Birol - There is no reason for surprise gain in oil price this year.
- Dalian iron ore eases from 1-week high as oversupply weighs.
- ECB Nowotny - Unconventional policies in euro are working.
- Switzerland January ZEW Investor Sentiment -3.0 vs previous 16.6.
Economic Data Ahead
- (0830 ET/1330 GMT) U.S. consumer prices likely remained flat in December while core Consumer Price Index is expected to have gained 0.2 percent last month.
- (0830 ET/1330 GMT) U.S. Commerce Department will release housing starts and building permits data for December. Groundbreaking is expected to have risen to a seasonally adjusted annual pace of 1.20 million-units, while permits likely dropped to a 1.20 million-unit pace from 1.282 million-unit pace in the prior month.
- (0830 ET/1330 GMT) Canada's wholesale trade for November is estimated to have risen 0.5 percent compared to prior month's sudden drop of 0.6 percent.
- (0830 ET/1330 GMT) Canadian manufacturing sales likely rose 0.5 percent in November after dropping 1.1 percent in October.
- (1000 ET/1500 GMT) The Bank of Canada is set to take a decision on whether to cut interest rates to counter the continued slide in the price of oil and the rippling economic effect this has had beyond the resource sector. Markets are much more prepared for the possibility of a rate cut. Along with the decision, BoC will release its quarterly Monetary Policy Report.
- (1630 ET/2130 GMT) API release its weekly Crude Oil Stocks.
Key Events Ahead
- (1115 ET/1615 GMT) Bank of Canada's Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins will hold a news conference.
FX Recap
USD: The dollar slipped against the yen, it was strong against emerging markets, compounding the misery for many countries already suffering from low oil prices. It fell more than 1.2 percent to 116.10 yen in London trade, its lowest since January 2015.
EUR/USD: The euro rose against the dollar to $1.0943. But it underperformed the yen, and was down 0.7 percent at 127.34 yen. The German Producer Price Index (PPI) sank 2.3% year-on-year in the last month of 2015, while analysts had predicted a 2.2% fall. On a monthly basis, the PPI also tumbled 0.5% in the last reading for 2015, after a negative 0.2% print seen in November. It made intraday high at 1.0975 and low at 1.0904 levels. Short term weakness is only below 1.0800 and break below targets 1.0710/1.06700. On the higher side any break above 1.0940 will take the pair to next target 1.09800/1.1000. Short term bearish invalidation is only above 1.1000 and above that level a jump till 1.0600/1.1100 is possible.
USD/JPY: The risk aversion boosted appetite for the yen, which rose more than 1 percent against the dollar to its highest level in a year after crude oil prices fell to near 13-year lows. Traders sold the riskier and higher yielding assets as the risk aversion wave re-emerged, pushing down stocks, commodities and their linked currencies such as the AUD or NZD. Pair made intraday high at 117.68 and low at 115.97 levels. Major resistance is seen at 120.67 and support is seen at 115.74 levels.
GBP/USD: Sterling recovered from a 7-year low against the dollar after data showed UK unemployment rate unexpectedly fell to its lowest in a decade, even as wage growth slowed. Having hit a 7-year low of $1.4125 just before the data's release, it trimmed some of its losses to trade at $1.4149 after the numbers were published, still down 0.1 percent on the day. Against the euro, it pared losses to trade at 77.28 pence per euro, down a third on the day but stronger than a one-year low of 77.56 pence hit earlier in the day. Pair made intraday high at 1.4190 and low at 1.4125 levels. Major support is seen at 1.3653 and resistance is seen around 1.4750 levels.
NZD/USD: The New Zealand dollar plunged to 4-month lows after benign inflation data narrowed the odds on further interest rate cuts. It dropped more than a U.S.cent to $0.6370 after New Zealand's consumer price index fell 0.5 percent in the fourth quarter led by lower food and petrol prices. The kiwi was hit hard against the euro which jumped to NZ$1.7159, the highest since mid-October, While the Australian dollar climbed to a 1-month peak of NZ$1.0811. It made intraday high at 0.6416 and low at 0.6347 levels. Initial support is seen at 0.6318 and resistance at 0.6896 levels.
AUD/USD: The Australian dollar was hit by another slide in oil prices. It was pulled back under U.S. 69 cents after oil prices dropped to 12-year lows and shook risk sentiment. It was last at $0.6893, having touched a peak of $0.6957 on Tuesday. The Westpac-Melbourne Institute Consumer Sentiment Index for Australia decreased a massive 3.5% in January, which comes after tumbling 0.8% to 100.8 index points in December of 2015, easing from 6-month highs in November. Pair made intraday high at 0.6924 levels and low around 0.6827 levels. Initial support is seen at 0.6825 and resistance at 0.7050 levels.
USD/CAD: The Canadian dollar was on track to post its 13th straight trading day of losses against its U.S. counterpart, hitting C$1.4654 per dollar, it's lowest in 13 years. Recent intensification in the selloff in oil is pressure BoC to cut rates again. It's expected that the central bank would hold their hands today and keep interest rate unchanged at 0.50%, and signal the possibility of a cut. Yet, BoC could surprise the markets by cutting rates today. After all, it's seen inevitable for more loosening by BoC considering the depth and speed in oil's free fall. Pair made intraday high at 1.4689 and low at 1.4551 levels.
Equities Recap
European stock markets slumped to their lowest since October 2014 following losses in U.S and Asian stock markets as the continuous drop in oil prices continued to drag on risk assets.
The FTSEurofirst 300 dropped 3.3 percent, on track to post its biggest single session loss of 2016 so far. Germany's DAX, France's CAC and Britain's FTSE were all edged lower around 3 percent and also set for their biggest fall of the year so far.
Japan's Nikkei closed down 3.7 percent. The CSI300 index closed down 1.5 percent, after rallying more than 3 percent on Tuesday. The Shanghai Composite Index dropped 1 percent. MSCI's broadest index of Asia-Pacific shares outside Japan fell 3 percent on the day and hitting its lowest since October 2011. Top emerging market shares dropped 2.9 percent to a 6-1/2 year low.
Commodities Recap
Crude futures slid again in Asian trade, with U.S. oil dropping more than 3 percent towards $27 a barrel and its lowest since 2003, on worries about global oversupply. U.S. crude futures were trading down 97 cents at $27.49 a barrel, or 3.4 percent, at 0625 GMT. Brent futures dropped 61 cents to $28.15 a barrel, or 2.1 percent, not far from the 12-year low hit on Monday.
Gold inched higher as a further slide in equities and oil shined bullion's safe-haven status although slow physical demand from Asia kept the metal well under this month's peak. Spot gold was up 0.4 percent at $1,091.36 an ounce by 0630 GMT. U.S. gold for February delivery gained 0.2 percent to $1,091.70 an ounce.
Treasuries Recap
10-year U.S. Treasury yield stood at 2.022 percent vs U.S. close of 2.036 percent on Tuesday.
German 2-year bond yields fell to -0.408 percent, lowest since Dec.3 ECB meeting. While 10-year bund yields dropped to their lowest since May 2015 at 0.42 percent.
UK March Gilts are around 7 ticks lower at 119.81. A lot of work had already been done by a dovish Carney yesterday and the fixed income rally against declining stock prices this morning with sellers now focused on the improved labor sector.
New Zealand government bonds gained on the back of the CPI, sending yields 6 basis points lower at the short end and 5.5 basis points lower at the long end. Australian government bond futures were quiet, having retreated from recent 2-month peaks. The 3-year bond contract was steady at 98.100. The 10-year contract rose 1 tick to 97.3000, while the 20-year contract eased half a tick to 96.7850.
