Market Roundup
- BOJ stuns markets with surprise move to negative interest rates.
- USD/JPY initially jumps 2%, later trims gains. Trading in between 118.38 to 121.49 range.
- Brent gives up 2.5% early gains and back to flat into NY.
- Kuroda says move aims to forestall risks from oil, China.
- BOJ Kuroda - Committed to do whatever it takes to meet price target.
- BOJ - Central bank will cut interest rates further into negative territory if judged as necessary.
- EUR/USD plays in between 1.0950/1.0883 then recovers to 1.0922 levels.
- GBP/USD sold sharply from 1.4413 to 1.4285 levels.
- EUR/CHF notches up another new high at 1.1130 from 1.1078.
- Euro zone December Money-M3 Annual Growth 4.7% vs previous 5.1%. 5.2% expected.
- Euro zone January Inflation, flash 0.4% y/y vs previous 0.2%. 0.4% expected.
- Switzerland January KOF indicator 100.3 vs previous 96.8 revised. 96.0 expected.
- Russian Central bank unchanged key interest rate at 11%.
- Kremlin spokesman - Russia interested in discussing oil market with all participants.
- Greece may have positive growth in last 2 Qs of 2016.
Economic Data Ahead
- (0830 ET/1330 GMT) The U.S. Commerce Department releases advance (first estimate) U.S. fourth-quarter gross domestic product data. The report is likely to show that GDP increased at a 0.8 percent annual rate, after growing at a 2.0 percent rate in the third quarter.
- (0830 ET/1330 GMT) The U.S. employment cost index is expected to show a solid rise in wage growth in the fourth quarter, at 0.6 percent after a similar gain in the third quarter.
- (0830 ET/1330 GMT) Canada's economy is expected to have expanded by 0.3 percent in November, underscoring expectations that the fourth quarter was likely weak at best.
- (0830 ET/1330 GMT) Canada's Producer Prices probably dropped 0.3 percent in December after falling 0.2 percent the prior month.
- (0945 ET/1445 GMT) ISM Chicago releases its Purchasing Managers Index for January. The index stood at 42.9 in December.
- (1000 ET/1500 GMT) The Reuters/Michigan Consumer Sentiment Index for likely fell to 93.0 in January from 93.3 in the previous month.
Key Events Ahead
- (1530 ET/2030 GMT) Federal Reserve Bank of San Francisco President John Williams participates in a panel before the Commonwealth Club, Bank of America/Merrill Lynch Walter E. Hoadley Annual Economic Forecast event in San Francisco.
FX Recap
USD: Most investors received Bank of Japan's shock as too cautious to ever adopt such a stimulus measure, sending dollar to an almost six-week high of 121.495 yen. It was last up 1.7 percent at 120.87 yen. The greenback was up 0.4 percent against a basket of major currencies at 98.885, though still down about 0.7 percent for the week.
EUR/USD: The Euro has made a high of 1.0975 and started to decline from that level. It was trading around 1.09197. The major resistance is around 1.1000 and break above 1.100 will take the pair to next level around 1.1060/1.1100 in short term. The minor resistance is around 1.0950/1.0980. Overall bearish invalidation is only above 1.1000. On the lower side minor support is around 1.0870 (200 day HMA) and break below targets 1.08200/1.07800.
USD/JPY: The yen was on track to post its biggest daily drop against the dollar in over a year after the Bank of Japan shocked markets by adopting negative interest rates. The pair has broken minor resistance 118.85 and jumped till 121.39 at the time of writing. The short term trend is slightly bullish as long as support 119.90 holds. The major support is around 119.90 and break below targets 119.50/119. On the higher side minor resistance is around 121.50 and break above will take the pair till 122/122.80.
GBP/USD: The Sterling turned negative against the euro and dropped half a percent against the dollar, with dealers citing a turn lower in oil prices and a month-end rebalancing by some big institutional investors. It dropped to $1.4303 per dollar and 76.30 pence per euro. The major resistance is at 1.4420 (trend line joining 1.43626 and 1.4407) and support is at 1.4260 (trend line joining 1.4079 and 1.4170). The pair has made a high of 1.4413 on the day and was trading around 1.43630. On the higher side any break above 1.4420 will take the pair to next level around 1.4450/1.4500. The Cable is facing short term support around 1.4350 and break below will take it further down till 1.4300/1.4270/1.4250 level.
NZD/USD The New Zealand dollar regained some lost ground to $0.6486. It had dropped as low as $0.6419 on Thursday after the Reserve Bank of New Zealand said it might have to cut rates again given inflation remained too low. It is set to end the week where it started.
AUD/USD: The Australian dollar held solid gains as the greenback took a knock from soft economic news that trimmed expectations of an aggressive tightening by the Federal Reserve. It was firm at $0.7093, having rallied nearly 1 percent on Thursday. It briefly popped back above 71 cents and was set to post a rise of 1.1 percent for the week. It was trading around 0.7082 and the short term trend is slightly bullish as long as support 0.7000 holds. On the higher side major resistance is around 0.7170 and break above targets 0.7250/0.7300. The pair's minor support is around 0.7060 and break below will drag the pair till 0.7000/0.6920/0.6820.
USD/CHF: The pair has broken major resistance 1.0170 and jumped till 1.02250 and was trading around 1.0200. The major resistance is at 1.0170 (trend line joining 1.01980 and 1.01894) and the short term trend is bullish as long as support 1.0140 (7 day EMA) holds. Any break below 1.0140 will drag the pair down till 1.0100/1.005. On the higher side resistance is around 1.0225 and break above 1.0225 will take the pair till 1.0255/1.0300/1.0335.
Equities Recap
World shares inched higher after the Bank of Japan shocked markets by adopting negative rates in big stimulus effort.
European stock markets were higher, with the pan-European FTSEurofirst 300 index rose 1.2 percent by 0930 GMT, having fallen 1.7 percent on Thursday. UK's FTSE climbed 0.9 pct, Germany's DAX was up 1.4 pct and France's CAC gained 1.5 pct in early deals. While the MSCI world equity index rose half a percent.
Tokyo's Nikkei closed up 2.80 pct at 17,518.30, Shanghai Composite Index ended up 3.1 pct at 2,737.60 points and China's CSI300 Index gained 3.2 pct at 2,946.09 points.
Commodities Recap
Oil prices climbed on Friday, on track to finish the week sharply higher, on expectations of a deal by major exporters to slash production to reduce the massive over-supply that has sent prices tumbling. Brent futures jumped more than a quarter since hitting an intra-day low of $27.10 a barrel on Jan. 20. Brent rose 18 cents to $34.07 a barrel by 1020 GMT, after closing up 79 cents, or 2.4 percent on Thursday. U.S. crude climbed 26 cents to $33.48 a barrel, having settled up 92 cents, or 2.9 percent, at $33.22 on Thursday. While the U.S. crude is set to record almost 6 percent weekly gain.
Gold steadied after recent gains to its highest since November, and is on track to end January with its strongest monthly rise in a year. Spot gold was little changed at $1,114.62 an ounce by 0630 GMT. U.S. gold for February delivery was flat at $1,115 an ounce.
Treasuries Recap
The yield on 10-year U.S. Treasuries fell 4 basis points to 1.95 percent.
The yield on Japanese benchmark government bonds slumped to record lows after the BoJ said it would charge 0.1 percent for excess reserves parked with the institution, in the footsteps of European Central Bank.
Germany's 10-year Bund yield dropped 4 basis points to a 9-month low at 0.29 percent, while 2-year German bond yields hit a fresh record low at minus 0.471 percent.
JGBs rallied massively into uncharted territory after the surprise BOJ rate cut, with 10-yr yields were close to 0.10%, after the biggest session gains since late 2008 and sharpest drop in yields for 13 years.
UK Gilts opened 36 ticks higher than the settlement of 119.45, as expected, as core markets reacted to the BoJ's shock of negative interest rates. March Gilts stopped shy of new contract highs of 120.14, reaching a day high of 120.06. Lows on 10-year cash are still intact, but only just with screens last at 1.605%, against the January 20 low of 1.604%.
Australian government bond futures climbed, with the 3-year bond contract up 2 ticks at 98.100. The 10-year contract also inched 2 ticks higher at 97.3300, while the 20-year contract added 1 tick to 96.8150. New Zealand government bonds eased at the short end and gained at the long end as the yield curve flattened.
