Overview: The US dollar is enjoying a mostly firmer bias ahead
of today's CPI report. Sterling is the strongest among the G10 currencies after
a more resilient than expected labor market report. The dollar extended its
gains against the Japanese yen to a new high since last November, but the
market seems cautious as it approaches JPY150, where large options expire today.
On the other hand, emerging market currencies are mostly faring better. The
Mexican peso and Polish zloty of notable exceptions and are nursing minor
losses.
The Nikkei set new 30-year+ highs and at one point rose 3% today, the most since November 2022 before settling up nearly 2.9%. It is about 2.5% away from a record high. Most markets in the Asia Pacific region rose today, though Australia and New Zealand were exceptions. Europe's Stoxx 600 is giving back around half of yesterday's 0.55% gain. US equity index futures are trading lower after the S&P 500 and Nasdaq failed hold earlier gains yesterday. European benchmark yields are a little lower, but that better-than-expected UK jobs report is weighing on Gilts, where the 10-year yield is about two basis points higher. Gold is steadying after reaching a 12-day low yesterday near $2012. It is near $2026 European turnover. Lastly, April WTI is extending yesterday's recovery and has pushed above $77 a barrel for the first time this month. The year's high was set in late January slightly above $79.0.
Asia
Pacific
Japanese
markets re-opened from the long weekend holiday. It reported that producer
prices did not decline on year-over-year basis for the first time since the end of 2022. Japanese
producer price inflation peak in December 2022 at 10.6%, and after slowing
every month last year stood at a revised 0.2% in December 2023 and was steady
at 0.2% in January. Separately, Japan reported January tool orders were off
14.1% in January year-over-year after falling 9.7% in January 2023. It looks
like a poor start of the year for capex. The highlight of the week is the Q4 23
GDP due early Thursday. The world's third-largest economy is expected to have
grown by about 0.2% after contracting by 0.7% in Q3.
Australia's
January employment report is due early Thursday. After losing 65k jobs
in December, economy expect Australia to have grown 25k jobs in January. Watch
full-tine jobs, which collapsed by more than 106k in December. The
participation rate may have ticked up to 66.9% after falling from a record high
of 67.3% last November to 66.8% in December. The unemployment rate may have
risen to 4%, which would match the highest since January 2022.
Even
without the help of rising US interest rates, the dollar rose to almost
JPY149.50 in the overlap between Europe and North American session. It
edged up to almost JPY149.70 today, a new three-month high. It has not traded
above JPY150 since November 17. There are options for $1.4 bln struck at JPY150
that expire 90 minutes after the market-sensitive US CPI today. The dollar's
six-week rally against the yen matches the longest streak since Aug-Oct 2022. Until
Japanese officials protest, the market pushes onward. The market has been
fairly orderly, though it is knocking on the upper Bollinger Band (~JPY149.75).
The Australian dollar made a new marginal high yesterday, a few hundredths
of a cent above last week's high. It traded briefly trade above the
(50%) retracement of the losses from the high seen before the US jobs report on
February 2. There has been no follow-through buying today, and the Aussie has
mostly traded between $0.6510 and $0.6530 today, showing little inclination to
break out of the week-and-a-half long congestion. While the mainland markets
are closed, we expect the dollar to trade inside the onshore band, which keeps
it roughly between CNH6.9615 and CNH7.2455. Unlike its performance
against the yen, the dollar did briefly trade above last week's high, reaching
nearly CNH7.2255 yesterday. The high for the year was set on January 17
slightly above CNH7.2320. Today's range has been roughly
CNH7.2140-CNH7.2230.
Europe
The
eurozone has a light economic calendar this week. The German ZEW survey was
reported today. The expectations component continues to improve. February was
the seventh consecutive monthly improvement. It stands at 19.9, up from 15.2 in
January and 12.8 at the end of last year. However, remember the ZEW
expectations rose for five months through last February before falling again. Perhaps,
what has weighed on expectations is the continued poor current assessment. It
fell to -81.7 from -77.3. It took out last October' at -79.9. It had firmed
slightly in November and December before falling in January.
The
UK's labor market is slowing gradually, but today's report was stronger than
expected. The loss of payrolled employees in January was revised to a gain
of 31k (from-24k) and the January gain of 48k was well above the -18k median
forecast in Bloomberg's survey. Those claiming unemployment benefits in January
rose to 14.1k, but the 11.7k increase in December was halved to 5.5k. More
importantly from a policy point of view, wage growth did not moderate as much
as expected. Average weekly earnings three-months year over-year through
December slowed to 5.8% (not 5.6%, as expected) from a revised 6.7% pace
(initially 6.5%). In response, the market has downgraded the chances of a May
cut to less than 60%, the least since late November and taken sterling to a new
seven-day high near $1.2670.
The
euro traded on both sides of last Friday's range (~$1.0760-$1.0795) yesterday. In
fact, the euro traded above $1.08 for the first time since the US jobs report
on February 2. To boost the near-term outlook, the euro needs to push above the
$1.0830 area, which houses the 20- and 200-day moving average and the (61.8%)
retracement of the losses since February 2. Instead, the single currency is
mired in a narrow range in the lower end of yesterday's range. It looks to be
going nowhere fast. With the help of the resilience of the UK's labor
market, sterling recorded a higher high for the third day running. Unlike
the euro, it is above its 200-day moving average (~$1.2565). It overcame the
(50%) retracement of the losses since February 2 to reach the 20-day moving
average (~$1.2670) and approach the next retracement (61.8%) near $1.2675. Nearby
resistance is seen around $1.2700.
America
US
headline January CPI is expected to rise by 0.2% for the third consecutive
month. Given that last January's 0.5% increase drops out of the 12-month
measure, it should be around 3.0%-3.1%. The year-over-year rate bottomed at 3%
last June and was at 3.4% in December. Recall that in Q1 23, US CPI rose at an
annualized rate of 4% and in Q4 23 rose at a 2% annualized rate. Similarly, the
core rate is expected to have risen by 0.3% for the third consecutive month. It
rose by 0.4% in January 2023, so the year-over-year rate may have ticked down
to 3.7%-3.8%.
Fed
Chair Powell said two things that seem particularly relevant the post-FOMC
press conference in this context. First, he said that the Fed was not
necessarily looking for better data but simply good data, continuing the recent
trend. A 0.2%/0.3% headline/core CPI meets that bar. Second, Powell, opined
that officials would unlikely be sufficiently confident that inflation is on
course to reach the 2% inflation target on a sustained basis by the March FOMC
meeting (March 19-20). Before that meeting, there is another jobs report and
CPI.
The
US dollar traded inside last Friday's range against the Canadian dollar in
quiet dealings. The five-and 20-day and 200-day moving averages converge in
the CAD1.3465-CAD1.3475 area. Initial support near CAD1.3400 held before the
weekend and in the second half January and then again last week. The greenback
was capped around CAD1.3540. The greenback is trading quietly in a narrow
20-tick range above CAD1.3445 today. The US dollar peaked last Monday a
little above MXN17.28. Support was found in mid-week near MXN17.00. The
dollar has drifted lower seven of out the past nine weeks. However, that said,
the dollar has been confined to the range set on January 16-17:
~MXN16.88-MXN17.38. It is trading between roughly MXN17.0640 and MXN17.0955 so
far today. Trendline resistance is seen near the 200-day moving average
MXN17.30. The dollar has frayed BRL5.0 resistance but has not closed to the end
of October. Yesterday, the greenback found support near BRL4.95, the midpoint
of the month-long range.
Reviewed by Marc Chandler
on
February 13, 2024
Rating:
