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Market panorama. 5 January 2018

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I. Market focus:

05/01/2018
Market participants’ attention is focused on the U.S labor market data, set to be released at 13:30 GMT. We have the following picture ahead of their release:
- The U.S. economy is expected to add 190,000 jobs in December versus 228,000 jobs added in November (November’s reading will be revised twice: today and the next month);
- The average value of jobs added is 173,000 over the past 12 months. Over the past six months – 178,000. Over the past three months - 170,000;

Fig. 1 U.S. nonfarm payrolls, month-on-month (Source: The Bureau of Labor Statistics of the U.S. Department of Labor (BLS))
- Unemployment rate is expected to stay at 4.1 percent;
- The private sector in the U.S. added 250,000 jobs in December, according to the ADP report on Wednesday. November’s figure was revised down to 185,000 jobs from a previous reading of 190,000. Analysts expected the private sector to add 191,000 jobs;
- The Institute for Supply Management's (ISM) manufacturing employment sub-index for the U.S. fell to 57.0 in December from 59.7 in November; the ISM’s services employment sub-index will be released today;
- Job openings increased to 6.00 million in October from 6.18 million in the previous month;
- Average initial jobless claims for four weeks is 242,000, remaining near 40-year lows;
- The Conference Board reported that 15.2 percent of the respondents experienced difficulties in finding a job in the last reporting month (versus 16.8 percent a month earlier). At the same time, some 35.7 percent of respondents said jobs were plentiful (versus 37.5 percent a month earlier).
Given the data available at the moment, the average forecasts for the payrolls report look rather justified, as strong ADP’s data are offset by weaker figures in the ISM and Conference Board’s reports. However, it should be borne in mind that the payrolls report is based on an analysis of other reports. There are differences between these reports.
The tax reform laws passed at the end of 2017 are expected to have a positive impact on the labor market, so the rate of new job creation in the U.S. economy may increase.

II. The market highlights are:

  • The data from the Labor Department revealed Thursday the number of applications for unemployment benefits unexpectedly increased last week, though that probably reflected volatility around the end-of-year holidays. According to the report, the initial claims for unemployment benefits rose 3,000 to 250,000 for the week ended December 30. Economists had expected 240,000 new claims last week. Claims for the prior week were revised upwardly to 247,000 from the initial estimate of 245,000. Meanwhile, the four-week moving average of claims increased 3,500 to 241,750 last week. It was the 148th straight week that claims remained below the 300,000 threshold, the longest streak since 1970.

  • The employment report prepared by Automatic Data Processing Inc. (ADP) and Moody's Analytics showed Thursday the U.S. private employers added 250,000 jobs in December. That was the biggest monthly increase since March. Economists had expected a gain of 190,000. The increase for November was revised down to 185,000 from 190,000. “We’ve seen yet another month where the labor market has shown no signs of slowing,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Throughout the year there was significant growth in services except for an overall loss of jobs in the shrinking information sector. Looking at company size, small businesses finished out 2017 on a high note adding more than double their monthly average for the past six months.” Mark Zandi, chief economist of Moody’s Analytics, noted, “The job market ended the year strongly. Robust Christmas sales prompted retailers and delivery services to add to their payrolls. The tight labor market will get even tighter, raising the specter that it will overheat.”

  • The U.S. Energy Information Administration (EIA) reported Thursday that crude inventories fell by 7.419 million barrels to 424.463 million barrels in the week ended December 29. Economists had forecast a decrease of  5.148 million barrels. At the same time, gasoline stocks increased by 4.8 million barrels to 233.2 million barrels, while analysts had expected a gain of 2 million barrels. Distillate stocks rose by 8.9 million barrels to 138.8 million barrels last week, while analysts had forecast a build of 200,000 barrels. Meanwhile, oil production in the U.S. increased to 9.782 million barrels per day from 9.754 million barrels per day in the previous week. U.S. crude oil imports averaged about 8.0 million barrels per day last week, down by 27,000 barrels per day from the previous week.

  • The Australian Bureau of Statistics (ABS) announced Friday that Australia’s trade deficit widened in November. According to the ABS, a gap of AUD0.628 billion was recorded in seasonally adjusted terms in November compared to a downwardly revised AUD0.302 billion deficit in October (initially a surplus of AUD0.105 billion). Economists had expected a surplus of AUD0.550 billion. According to the report, the value of exports was little-changed m-o-m at AUD31.853 billion in November, after dropping 2.7 percent m-o-m in October. Imports rose 1.5 percent m-o-m to AUD32.481 billion in November, following a 1.9 percent m-o-m increase in the prior month.


III. Market Situation
Currency Market
The currency pair EUR/USD consolidated near the opening level, as investors were cautious ahead of the release of key data on the U.S. labor market. Experts note that the U.S. dollar could firm if today's report shows an increase in earnings on the back of a continuing economic recovery, as this will allow the Federal Reserve to hike interest rates in 2018 more actively. The tax reform laws passed at the end of 2017 are seen to have a positive impact on the labor market as well, so the rate of new job creation in the U.S. economy may increase. At the moment, it is expected that the nonfarm payroll employment rose by 190,000 in December, while the unemployment rate remained at 4.1 percent, and the average hourly earnings increased by 0.3 percent m-o-m and by 2.8 percent y-o-y. Resistance level - $1.2220 (high of December 29, 2014). Support level - $1.2000 (low of January 3).


The currency pair GBP/USD rose moderately, continuing yesterday's dynamics, as investors adjusted positions ahead of the release of the U.S. labor market statistics, while risk appetite rose. In addition, the pair continued to receive support from yesterday’s report on the UK services PMI, which revealed that British services activity growth in December slightly exceeded economist forecast. According to IHS Markit/Chartered Institute of Procurement & Supply report, the  UK’s  services PMI rose to 54.2 in December from 53.8 in November. Economists had expected the indicator to grow to 54.1. Any reading above 50 indicates expansion in the sector. With an empty economic calendar ahead, investors will focus on the U.S. statistics, news on the Brexit negotiations, as well as the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.3611 (high of January 3). Support level - $1.3493 (low of January 3).

The currency pair AUD/USD  fell slightly, retreating from the high of October 19, weighed down by weak trading data from Australia. The Australian Bureau of Statistics (ABS) reported that Australia’s trade deficit widened in November. According to the ABS, a gap of AUD0.628 billion was recorded in seasonally adjusted terms in November compared to a downwardly revised AUD0.302 billion deficit in October (initially a surplus of AUD0.105 billion). Economists had expected a surplus of AUD0.550 billion. According to the report, the value of exports was little-changed m-o-m at AUD31.853 billion in November, after dropping 2.7 percent m-o-m in October. Imports rose 1.5 percent m-o-m to AUD32.481 billion in November, following a 1.9 percent m-o-m increase in the prior month. Resistance level - AUD0.7897 (high of October 13, 2017). Support level - AUD0.7804 (low of January 3).

The currency pair USD/JPY rose solidly, refreshing high of December 29, as investors’ risk appetite rose and demand for the safe yen reduced. A slight pressure on the yen was also put by the data on the activity in the Japanese services sector. Nikkei’s  report revealed Japan Services PMI came in at  51.1 in December, down from 51.2 in November. That represented the weakest expansion clip since September and the second straight fall. Individually, backlogs decreased amid a weaker rise in new business, while output price inflation accelerated to a 29-month high, as higher labor costs had contributed to a solid increase in cost burdens. Resistance level - Y113.37 (high of December 27, 2017). Support level - Y111.98 (low of December 6).

Stock Market

Index

Value

Change

S&P

2,723.99

+0.40%

Dow

25,075.13

+0.61%

NASDAQ

7,077.92

+0.18%

Nikkei

23,714.53

+0.89%

Hang Seng

30,765.50

+0.09%

Shanghai

3,392.36

+0.20%

S&P/ASX

6,122.30

+0.74%


U.S. stock indexes closed higher on Thursday, notching new all-time highs again, as a strong report on the U.S. employment situation boosted investor sentiment about the global economy. The employment report prepared by Automatic Data Processing Inc. (ADP) and Moody's Analytics showed the U.S. private employers added 250,000 jobs in December. That was the biggest monthly increase since March. Economists had expected a gain of 190,000. The increase for November was revised down to 185,000 from 190,000. At the same time, the data from the Labor Department revealed the number of applications for unemployment benefits unexpectedly increased last week, though that probably reflected volatility around the end-of-year holidays. According to the report, the initial claims for unemployment benefits rose 3,000 to 250,000 for the week ended December 30. Economists had expected 240,000 new claims last week. It was the 148th straight week that claims remained below the 300,000 threshold, the longest streak since 1970.
Asian stock indexes closed higher on Friday, tracking solid gains seen on Wall Street overnight and a growth in commodities prices. However, the further gains were limited as market participants remained cautious ahead of the release of the U.S. nonfarm payrolls and unemployment data for December. The Japanese equity benchmark, the Nikkei, surged to the highest level in about 26 years, as weakness in the yen against the dollar supported the Japanese export-oriented companies.

European stock indexes are expected to trade higher in the morning trading session.


Bond Market
Yields of US 10-year notes hold at 2.46% (+1 basis points)
Yields of German 10-year bonds hold at 0.44% (0 basis points)
Yields of UK 10-year gilts hold at 1.24% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in February settled at $61.87 (-0.23%). The crude oil prices fell marginally, correcting after yesterday's jump to a 3-year high. Investors’ focus remained on the latest report from the U.S. Energy Information Administration (EIA), which revealed that crude inventories fell by 7.419 million barrels to 424.463 million barrels in the week ended December 29. Economists had forecast a decrease of  5.148 million barrels. At the same time, gasoline stocks increased by 4.8 million barrels to 233.2 million barrels, while analysts had expected a gain of 2 million barrels. Distillate stocks rose by 8.9 million barrels to 138.8 million barrels last week, while analysts had forecast a build of 200,000 barrels. Meanwhile, oil production in the U.S. increased to 9.782 million barrels per day from 9.754 million barrels per day in the previous week. U.S. crude oil imports averaged about 8.0 million barrels per day last week, down by 27,000 barrels per day from the previous week. Market participants are now awaiting weekly data on the U.S. oil rig count from Baker Hughes.

Gold traded at $1,317.90 (-0.37%). Gold prices fell moderately, due to a partial profit-taking after yesterday’s growth, as well as an increase in risk appetites and the dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.08 percent to 91.93. Since gold prices are tied to the dollar, a stronger dollar makes the precious metal more expensive for holders of foreign currencies.


IV. The most important news that are expected (time GMT0)


07:45

France

Consumer confidence

07:45

France

CPI

08:00

Switzerland

Foreign Currency Reserves

10:00

Eurozone

Producer Price Index

10:00

Eurozone

Harmonized CPI

13:30

Canada

Trade balance

13:30

Canada

Employment

13:30

Canada

Unemployment rate

13:30

U.S.

Manufacturing Payrolls

13:30

U.S.

Government Payrolls

13:30

U.S.

Average workweek

13:30

U.S.

Private Nonfarm Payrolls

13:30

U.S.

Average hourly earnings

13:30

U.S.

Labor Force Participation Rate

13:30

U.S.

International Trade

13:30

U.S.

Nonfarm Payrolls

13:30

U.S.

Unemployment Rate

15:00

Canada

Ivey Purchasing Managers Index

15:00

U.S.

Factory Orders

15:00

U.S.

ISM Non-Manufacturing

15:15

U.S.

FOMC Member Harker Speaks

17:30

U.S.

FOMC Member Mester Speaks

18:00

U.S.

Baker Hughes Oil Rig Count


Market Focus

  • Canadian union leader says three NAFTA nations are still far away from resolving the most complex issues
  • Swiss Producer and Import Price Index fell 0.2% in March
  • OPEC Sec-Gen says oil inventories in February below 50 mln barrels above 5-year-average, decline trend to continue in coming months
  • Earnings Season in U.S.: Major Reports of the Week
January 2018
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Quotes

All posted material is a marketing communication solely for informational purposes and reliance on this may lead to loss. Past performance is not a reliable indicator of future results. Please read our full disclaimer.

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