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Market panorama. 7 February 2018

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I. Market focus:

07/02/2018

The U.S. stock indexes rose on Tuesday, paring some of the losses suffered in the previous few days. The recovery of the indicators was underpinned by an increase in the investors’ risk appetite amid lower concerns over the prospects for the U.S. economy, which triggered recent sell-off in the stock market and made the major indices to record their worst falls in more than six years. It is expected that the growth of the U.S. corporations’ profits, helped by tax cuts, will continue to support the indexes, allowing them to avoid a significant correction, which implies a decline of more than 20 percent from the highs.

The main event of the morning session in the foreign exchange market was the release of the statistics on the New Zealand labor market. The report turned out to be better than expected, bolstering expectations for a tightening of the monetary policy of the Reserve Bank of New Zealand (RBNZ). The meeting of the New Zealand central bank will end today. The regulator is not expected to change its monetary policy at this gathering, but its rhetoric may be more hawkish. The outcomes of the RBNZ meeting will be announced at 20:00 GMT. This will be the main event of Wednesday. The current meeting is extended, so it will be accompanied by the central bank governor’s speech, which will begin at 21:00 GMT.

In addition, attention should be paid to the U.S. data on crude oil inventories, which will be released at 15:30 GMT.

The stock market participants continue to assess the quarterly results of companies, as the fourth-quarter earnings season rolls. Today, the focus will be on the quarterly report from Tesla (TSLA), set to be released after the close of today's trading.


II. The market highlights are:

  • The Department of Commerce reported Tuesday the U.S. the goods and services trade deficit widened by 5.3 percent m-o-m (or $2.68 billion) to $53.12 billion in December from a revised $50.44 billion in November (originally a gap of $50.50 billion). That was the biggest trade gap since October of 2008. Economists had expected a deficit of $52.00 billion. According to the report, the December increase in the goods and services deficit reflected a gain in the goods deficit of 3.6 percent m-o-m (or $2.57 billion) to $73.35 billion and a decrease in the services surplus of 0.6 percent m-o-m (or $0.12 billion) to $20.23 billion. December exports were $203.35 billion, up 1.8 percent m-o-m, while December imports stood at $256.47 billion, up 2.5 percent m-o-m. For 2017, the goods and services deficit surged 12.1 percent y-o-y (or $61.24 billion) to $566.03 billion, the highest since 2008. Exports increased 5.5 percent y-o-y (or $121.24 billion), while imports grew 6.7 percent y-o-y (or $182.48 billion).

  • Statistics Canada announced Tuesday that Canada’s merchandise trade deficit stood at CAD3.19 billion in December, widening from a revised $2.71 billion gap in November (originally a CAD2.54-billion deficit). Economists had expected a deficit of CAD2.20 billion. According to the report, the country’s exports rose 0.6 percent m-o-m to CAD46.51 billion in December, despite decreases in 6 of 11 sections. Higher exports of energy products (+6.2 percent m-o-m), and metal and non-metallic mineral products (+7.7 percent m-o-m) were partially offset by lower exports of consumer goods (-8.4 percent m-o-m). Exports excluding energy products dropped 0.6 percent m-o-m. Meanwhile, imports boosted 1.5 percent m-o-m to a record CAD49.70 billion in December, with increases in 9 of 11 sections. Higher imports of energy products (+16.9 percent m-o-m) and industrial machinery, equipment and parts (+6.3 percent m-o-m) were partially offset by lower imports of aircraft and other transportation equipment and parts (-23.4 percent m-o-m). Canada's annual merchandise trade deficit narrowed from $25.87 billion in 2016 to $23.99 billion in 2017.

  • The Ivey Business School Purchasing Managers Index (PMI), measuring Canada’s economic activity, dropped to 55.2 in January 2018 from 60.4 in December 2017. That was the worst reading since May 2017. Economists had expected the gauge to hit 61.0. A figure above 50 shows an increase while below 50 shows a decrease. Within sub-indexes, employment gauge fell to 56.5 last month (from 56.7 in December),  and deliveries index decreased to 46.4 (from 48.2 in December). At the same time, prices measure rose to 66.6 (from 62.5 in December), while inventories indicator surged to 58.4 (from 49.1 in December).

  • The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Tuesday showed the U.S. job openings fell slightly in December compared with November. According to the report, employers posted 5.811 million job openings in December, a decrease of 167,000 (or -2.8 percent) from the November figure of 5.978 million (revised from 5.879 million in original estimate). That was the lowest level since May. The job openings rate was 3.8 percent in December, down from 3.9 percent in the prior month. The report showed that the number of job openings was little changed for total private and for government. Job openings rose in information (+33,000) and federal government (+13,000) but dropped in a number of industries with the largest decreases occurring in professional and business services (-119,000), retail trade (-85,000), and construction (-52,000). Meanwhile, hiring declined by 5,000 (-0.1 percent) to 5.488 million in December from 5.493 million in November. The number of hires was little changed for total private, for government, and in all industries and regions. The hiring rate was 3.7 percent in December, unchanged from November. The separation rate in November was at 5.238 million (+26,000 or +0.5 percent m-o-m) or 3.6 percent, compared to 5.212 million or 3.5 percent in November. Within separations, the quits rate was 2.2 percent (or 3.259 million; +0.1 pp m-o-m), and the layoffs rate was 1.1 percent (or 1.645 million; -0.1 pp m-o-m).

  • Statistics New Zealand announced Wednesday the unemployment rate in the country fell to 4.5 percent in the fourth quarter of 2017 from an unrevised 4.6 percent in the third quarter. That was the lowest unemployment rate since the fourth quarter of 2008 and below economists’ forecast for 4.6 percent. The data also showed that the number of employed people rose 0.5 percent q-o-q in the fourth quarter (compared to a 2.2 percent q-o-q gain in the third quarter), while the number of unemployed decreased by 2.8 percent q-o-q (compared to a 1.2 percent q-o-q drop in the previous quarter). The employment rate held steady at 67.8 percent, the equal highest rate since the series began in 1986.

  • The Australian Industry Group (AiG) reported Wednesday that its construction index increased by 1.5 points to 54.3 points in January. This marked the 12th straight month of growth in the industry. A reading above 50 indicates expansion, while a reading below 50 signals a contraction in activity. According to the report, demand improved in January, pushing the new orders sub-index into expansion territory (to 51.8 points; +2.6 points m-o-m) after a decline into a mildly negative zone in December. The activity sub-index remained in expansion in January (at 54.5 points), broadly unchanged from December. This was associated with further growth in deliveries from suppliers. ▪ The employment sub-index accelerated to its fastest pace in six months (to 58.0 points; +3.3 point m-o-m), while capacity utilization hit a record high of 83.4% (highest since at least 2008, when this data series began). Across sectors, commercial construction was the strongest performing area of industry activity in January with its sub-index surging 7.4 points higher to 58.9 points, in line with stronger property investor sentiment and improving business conditions more generally.

  • Japan’s Ministry of Health, Labor and Welfare said Wednesday its estimates showed that labor cash earnings rose as expected in December. According to report, total cash earnings increased 0.7 percent y-o-y in December, following an unrevised 0.9 percent y-o-y gain in November. Economists had expected the cash earnings would increase by 0.7 percent y-o-y. According to the report, both contractual gross earnings and special cash earnings grew 0.7 percent y-o-y in December. Real cash earnings dropped 0.5 percent y-o-y in December, following a 0.1 percent y-o-y advance in November.

  • The preliminary data from the Cabinet Office showed Wednesday that Japan's leading index, a gauge for the economy's performance months ahead, decreased to 107.9 in December from a revised 108.2 in November (originally 108.3 points). That was below economists forecast of 108.1. Meanwhile, the coincident economic index for Japan, which reflects current economic conditions, surged to 120.7 in December from an unrevised 117.90 in November. It was expected to rise to 118.2.


III. Market Situation
Currency Market
The currency pair EUR/USD traded near the opening level, as investors took a breather after strong fluctuations in the pair in the previous session, which reflected the mixed dynamics of the U.S. currency. The dollar saw support in the previous few days as the traders purchased the U.S. currency amid a sharp drop in stock markets. This allowed breaking the decline, which pushed the U.S. currency to its lowest in more than three months earlier this year. The continued market volatility is unlikely to force the Fed to postpone the expected rate hikes in March, but may cause a slowdown in the pace of the European Central Bank's asset purchases and put pressure on the euro. Today, the focus will be on the comments of the ECB board member Sabine Lautenschläger, as well as three FOMC members - Charles Evans, William Dudley and John Williams. Resistance level - $1.2536 (high of January 25). Support level - $1.2313 (low of February 6).

The currency pair GBP/USD consolidated near the opening level, due to the lack of new drivers. Market participants continue to adjust their positions in anticipation of the Bank of England’s (BoE) meeting, set to be held on Thursday. Analysts believe that the Bank will leave its interest rates unchanged, but its statement may provide clues of a possibility of more aggressive monetary policy tightening. In view of the good economic recovery and improvement in the labor market situation, the policymakers may find it reasonable to damp accelerating inflation to the BoE’s 2 percent target. According to Reuters polls, no economist thinks the BoE to raise rates at this week's meeting. But markets see a 50 percent chance that there will be another move in May, a relatively quick follow-up to the BoE rate hike in November, the first for a decade. Resistance level - $1.4277 (high of February 1/2). Support level - $1.3838 (low of January 19/February 6).

The currency pair AUD/USD fell moderately. Investors are adjusting their positions ahead of tomorrow's speech of Reserve Bank of Australia (RBA) governor Philip Lowe. It is expected that Mr. Lowe can provide additional context for the RBA’s accompanying statement published on Tuesday, in which some investors saw the increased optimism of the Australian central bank. The RBA again noted a record level of household debt and slow growth in wages. In addition, the regulator said it forecast a gradual rise in inflation. It is not expected that Lowe’s remarks will be hawkish. Resistance level - AUD0.7953 (high of February 5). Support level - AUD0.7806 (low of January 9).

The currency pair USD/JPY traded slightly lower, as some investors turned to the yen as a safe-haven asset on the back of an increase in risk aversion. The Japanese data also impacted the pair’s performance. Japan’s Ministry of Health, Labor and Welfare reported its estimates showed that total cash earnings increased 0.7 percent y-o-y in December, following an unrevised 0.9 percent y-o-y gain in November. Economists had expected the cash earnings would increase by 0.7 percent y-o-y. According to the report, both contractual gross earnings and special cash earnings grew 0.7 percent y-o-y in December. Real cash earnings dropped 0.5 percent y-o-y in December, following a 0.1 percent y-o-y advance in November. The preliminary data from the Cabinet Office revealed that Japan's leading index, a gauge for the economy's performance months ahead, decreased to 107.9 in December from a revised 108.2 in November (originally 108.3 points). That was below economists forecast of 108.1. Meanwhile, the coincident economic index for Japan, which reflects current economic conditions, surged to 120.7 in December from an unrevised 117.90 in November. It was expected to rise to 118.2. Resistance level - Y110.46 (high of February 2). Support level - Y108.28 (low of January 26).


Stock Market

Index

Value

Change

S&P

2,695.14

+1.74%

Dow

24,912.77

+2.33%

NASDAQ

7,115.88

+2.13%

Nikkei

21,645.37

+0.16%

Hang Seng

30,323.20

-0.89%

Shanghai

3,309.58

-1.81%

S&P/ASX

5,876.80

+0.75%


U.S. stock indexes closed higher on Tuesday, rebounding after the biggest one-day selloff in more than six years, as investors’ risk appetite increased amid lower concerns over the prospects for the U.S. economy. Focus also was on the U.S. trade balance data for December and the Job Openings and Labor Turnover Survey (JOLTS). The Department of Commerce reported the U.S. the goods and services trade deficit widened by 5.3 percent m-o-m (or $2.68 billion) to $53.12 billion in December from a revised $50.44 billion in November (originally a gap of $50.50 billion). That was the biggest trade gap since October of 2008. Economists had expected a deficit of $52.00 billion. According to the report, December exports were $203.35 billion, up 1.8 percent m-o-m, while December imports stood at $256.47 billion, up 2.5 percent m-o-m. For 2017, the goods and services deficit surged 12.1 percent y-o-y (or $61.24 billion) to $566.03 billion, the highest since 2008. The JOLTS published by the Labor Department showed the U.S. job openings fell slightly in December compared with November. According to the report, employers posted 5.811 million job openings in December, a decrease of 167,000 (or -2.8 percent) from the November figure of 5.978 million (revised from 5.879 million in original estimate). That was the lowest level since May. The job openings rate was 3.8 percent in December, down from 3.9 percent in the prior month.

Asian stock indexes closed mixed on Wednesday, correcting after massive losses, recorded the previous day. Japan’s equity benchmark, the Nikkei, eked out a slim advance, tracking gains posted by U.S. stocks on Tuesday. However, its further growth was limited by the strong yen, which put pressure on export-oriented companies.

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


Bond Market
Yields of US 10-year notes hold at 2.77% (-2 basis points)
Yields of German 10-year bonds hold at 0.70% (0 basis points)
Yields of UK 10-year gilts hold at 1.52% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in March settled at  $63.86 (+0.74%). The crude oil prices rose, helped by the latest report from the American Petroleum Institute (API), which showed that U.S. crude inventories fell last week. According to the API data, the U.S. crude supplies reduced by 1.1 million barrels for the week ended February 2. At the same time, gasoline stockpiles fell by 227,000 barrels, while inventories of distillates recorded a surprise climb of 4.6 million barrels. Market participants are now awaiting weekly data on U.S. crude inventories from the U.S. Energy Information Administration (EIA).


Gold traded at $1331.50 (+0.54%). Gold prices rose, as the U.S. dollar weakened, while the demand for safe-havens remained high. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell 0.03 percent to 89.56. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.


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


07:45

France

Trade Balance

08:00

Switzerland

Foreign Currency Reserves

08:30

United Kingdom

Halifax house price index

09:00

Eurozone

ECB's Lautenschläger Speech

13:30

Canada

Building Permits

13:30

U.S.

FOMC Member Dudley Speak

15:30

U.S.

Crude Oil Inventories

16:15

U.S.

FOMC Member Charles Evans Speaks

20:00

New Zealand

RBNZ Interest Rate Decision

20:00

New Zealand

RBNZ Rate Statement

20:00

U.S.

Consumer Credit

21:00

New Zealand

RBNZ Press Conference

22:20

U.S.

FOMC Member Williams Speaks

23:50

Japan

Current Account

Market Focus

  • The number of job openings was little changed at 6.7 million on the last business day of June
  • UK house prices in the three months to July increased by 3.3% against the same period a year earlier
  • German industrial production declined more then expected in June
  • The average of household spending in Japan was down 1.2 percent on year
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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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