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Market panorama. 9 January 2018

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I. Market focus:

09/01/2018

At the beginning of Tuesday’s session, the main event in the markets was the reduction by the Bank of Japan (BoJ) of the amount of the purchases of the long-dated Japanese government bonds (JGBs). Today, the Japanese central bank cut its purchases of JGBs with 10 to 25 years left to maturity and those with 25 to 40 years to maturity by JPY 10 billion each, from its previous operations with such bonds, when it bought out JPY 200 billion of JGBs with 10 to 25 years of maturity left, and JPY 90 billion of 25 to 40 year JGBs. While this is just a one-time adjustment of the central bank's operations and, usually, such operations do not have a significant impact on the markets, today's action reminded market participants that sooner or later the BoJ will have to normalize its monetary policy.

The U.S. dollar showed mixed dynamics in the morning, but, overall, the prospect of further monetary policy tightening by the Fed continue to limit the decline in the U.S. currency, and it is expected that its recovery will continue in the near future.

Although Tuesday's session will be busy with publications of macroeconomic data, these reports are not of high importance. The most significant releases are expected to be the German data on the trade balance (07:00 GMT), the Canadian statistics on housing starts (13:15 GMT) and the U.S. report on job openings and labor turnover (15:00 GMT).


II. The market highlights are:

  • The Bank of Canada (BoC) published its business outlook survey on Monday, which indicated that positive business sentiment was widespread in the fourth quarter. The Canadian companies revealed plans to boost investment and to hire more workers on the back of the recent broad-based strength in demand. The survey noted that the share of firms reporting that they would have some or significant difficulty meeting an unanticipated increase in demand moved up again, to reach its highest level since the 2008-09 recession. The indicator of investment intentions over the next 12 months bounced back to near-post-recession highs and became more broadly-based across regions and sectors. The survey also found that companies’ hiring intentions had increased since the previous poll, particularly in the service sectors, as labour shortages became more common.

  • Atlanta Federal Reserve bank president Raphael Bostic said in a speech at the Rotary Club of Atlanta on Monday he was comfortable with slow interest rate increases but that the economy might not need as many as three or four hikes per year. “I am comfortable continuing with a slow removal of policy accommodation. However, I would caution that that doesn't necessarily mean as many as three or four moves per year," he said. Mr. Bostic noted that estimates of inflation expectations indicated the public might not be "completely convinced about the symmetry of the FOMC's inflation objective," adding that  "this possibility is one factor that might argue for being somewhat more patient in raising rates, even as the inflation rate moves toward the 2 percent objective."

  • The Australian Bureau of Statistics (ABS) announced Tuesday the total number of building permits issued in the country rose 11.7 percent m-o-m in seasonally adjusted terms in November. That beat economists’ forecast for a 0.9 percent decrease, following a 0.1 percent m-o-m drop in October (revised from a 0.9 percent m-o-m advance). According to the report, approvals for private sector dwellings excluding houses surged 30.6 percent m-o-m in November, while private sector houses approvals decreased 2.0 percent m-o-m. In y-o-y terms, total approvals climbed 17.1 percent.

  • The Cabinet Office reported Tuesday that consumer confidence in Japan unexpectedly dropped last month. The seasonally adjusted consumer confidence index fell to 44.7 in December from 44.9 in November. The reading missed the economists’ forecast of 45.1. A score above 50 indicates optimism, while a score below 50 shows the lack of confidence. According to the report, perception weakened for most components, including overall livelihood (-0.3 points m-o-m to 42.9), employment (-0.3 percent m-o-m to 49.0) and the willingness to buy durable goods (-0.2 points m-o-m to 43.8). Meanwhile, income growth perception was unchanged m-o-m (at 43.0).


III. Market Situation
Currency Market
The currency pair EUR/USD traded near the opening level, as investors took a breath after yesterday’s sharp fall in the pair, which was attributable to partial profit-taking amid concerns that the ECB could conduct a verbal intervention to weaken the euro ahead of its next monetary meeting policy (due on January 25). Some investors believe that the European regulator is dissatisfied with the strengthening of the single currency, as it negatively affects inflation and reduces the competitiveness of European exporters. Meanwhile, the U.S. dollar continues to see demand as the further monetary policy tightening is expected in the U.S. According to the dynamics of the federal funds futures, the probability of a rate hike in March is estimated at 61.6 percent against 67.3 percent on Friday and 62.0 percent a week earlier. Today, the focus will be on the German data on the trade balance and the U.S. report on job openings and labor turnover. Resistance level - $1.2088 (high of January 4). Support level - $1.1936 (low of December 29, 2017).

The currency pair GBP/USD traded slightly higher, near yesterday's session peak, which was reached on the back of Theresa May's Cabinet reshuffle. The key move was the appointment of David Lidington to the post of cabinet office minister. Mr. Lidington is known as a pro-European politician and previously served as justice minister. Meanwhile, the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Brexit Secretary David Davis retained their posts. With an empty economic calendar in the UK ahead, investors will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets as well. Tomorrow, the official data on the UK industrial production for November will come out, which will help to clarify how the sharp drop in the pound, triggered by the Brexit vote, and strong global demand are reflected in the manufacturing sector’s growth. According to economists’ forecasts, industrial production rose by 0.4 percent m-o-m  in November after flat m-o-m performance in October. Meanwhile, manufacturing production is projected to show an acceleration to 0.3 percent m-o-m for November from 0.1 percent m-o-m in October. Resistance level - $1.3611 (high of January 3). Support level - $1.3493 (low of January 3).

The currency pair AUD/USD rose moderately, approaching yesterday's high, on the back of the weakening of the U.S. dollar and upbeat data from Australia. The Australian Bureau of Statistics (ABS) reported the total number of building permits issued in the country rose 11.7 percent m-o-m in seasonally adjusted terms in November. That beat economists’ forecast for a 0.9 percent decrease, following a 0.1 percent m-o-m drop in October (revised from a 0.9 percent m-o-m advance). According to the report, approvals for private sector dwellings excluding houses surged 30.6 percent m-o-m in November, while private sector houses approvals decreased 2.0 percent m-o-m. In y-o-y terms, total approvals climbed 17.1 percent. Resistance level - AUD0.7897 (high of October 13, 2017). Support level - AUD0.7765 (low of December 28, 2017).

The currency pair USD/JPY fell sharply, reaching the low of January 4, on the back of the announcements the Bank of Japan (BoJ) reduced the amount of the purchases of the long-dated Japanese government bonds (JGBs). Today, the Japanese central bank cut its purchases of JGBs with 10 to 25 years left to maturity and those with 25 to 40 years to maturity by JPY 10 billion each, from its previous operations with such bonds, when it bought out JPY 200 billion of JGBs with 10 to 25 years of maturity left, and JPY 90 billion of 25 to 40 year JGBs. While this is just a one-time adjustment of the central bank's operations and, usually, such operations do not have a significant impact on the markets, today's action reminded market participants that sooner or later the BoJ will have to normalize its monetary policy. Resistance level - Y113.34 (high of January 8). Support level - Y111.98 (low of December 6, 2017).

Stock Market

Index

Value

Change

S&P

2,747.71

+0.17%

Dow

25,283.00

-0.05%

NASDAQ

7,157.39

+0.29%

Nikkei

23,849.99

+0.57%

Hang Seng

31,011.41

+0.36%

Shanghai

3,414.83

+0.16%

S&P/ASX

6,135.80

+0.09%


U.S. stock indexes closed mixed on Monday, as declines in the healthcare and financial sectors weighed, and investors awaited the start of the quarterly earnings season, which would kick off on Friday with reports from JPMorgan Chase (JPM), BlackRock (BLK) and Wells Fargo (WFC).

Asian stock indexes closed higher on Tuesday, although the growth was limited by declines at Samsung Electronics Co. in wake of its Q4 profit announcement. The focus also remained on the talks between South Korea and North Korea, set to take place today. Japanese equity benchmark, the Nikkei, advanced 0.6 percent, paring earlier gains as of much as 0.8 percent, as the yen strengthened in response to the reports the Bank of Japan (BoJ) trimmed the bond purchases in its latest market operations. A firm yen is seen unfavourable factor for 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 2.49% (+1 basis points)
Yields of German 10-year bonds hold at 0.43% (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 higher. Crude oil for delivery in February settled at $62.16 (+0.70%). The crude oil prices rose, as the U.S. dollar weakened. Market participants are now awaiting data on oil inventories in the U.S. Today, the American Petroleum Institute (API) will publish its weekly data on the U.S. crude oil stockpiles. Tomorrow, the focus will be on official report on crude inventories in the U.S. from the U.S. Energy Information Administration (EIA).


Gold traded at $1,318.00 (-0.17%). Gold prices fell moderately on the back of partial profit-taking and expectations of the further monetary policy tightening by the Fed. However, the further fall in gold prices was limited by 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, dropped 0.02 percent to 92.34. 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

08:15

Switzerland

Retail Sales

10:00

Eurozone

Unemployment Rate

13:15

Canada

Housing Starts

15:00

U.S.

JOLTs Job Openings


Market Focus

  • Earnings Season in U.S.: Major Reports of the Week
  • Swiss Producer and Import Price Index fell in September 2018 by 0.2% compared with the previous month
  • Fed's Quarles Calls for Predictable, Gradual Policy Normalization
  • Trump Says He Doesn't Want to Fire the Fed Chair. It Isn't Clear If He Could
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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