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I. Market focus
At the beginning of Wednesday’s session, the focus of the markets continued to be on the same topics, namely, the new round of trade negotiations between the U.S. and China, as well as the situation around the upcoming Brexit.
Negotiations between the representatives of the United States and China had been extended and instead of two days, lasted three. At this writing, it was reported that this round of talks in Beijing was close to the end and the outcome of the meeting would be announced soon. While representatives of the U.S. side spoke positively about the course of the meeting, however, they did not respond to specific questions. It is known that the American delegation is returning to the United States tonight, so a lot of information on the results of the talks is expected to come out throughout the day.
Regarding Brexit, no new information was received by the beginning of the European session. A vote on a Brexit deal in the British Parliament, which is set to be held on January 15, is approaching. But it is possible that it will be delayed since there is no growth in support for the deal among parliamentarians. The media reported on Tuesday that representatives of the EU and the UK are negotiating on the possibility of extending Article 50 of the Treaty on European Union. At the same time, the government of Great Britain assured that the country would leave the EU on March 29.
The market participants also paid attention to the appeal of the President of the United States to the nation about the crisis situation on the border with Mexico. The U.S. government has been partially closed since the end of December due to the fact that Democrats in Congress refuse to approve a budget providing $5 billion to build a wall on the border with Mexico. Trump said the federal government remained shut because of the Democrats. In turn, the Democratic leaders blamed the president, saying that he "should stop holding the American people hostage." Donald Trump is scheduled to meet with Congressional leaders today. The beginning of the meeting is expected at 20:00 GMT. Trump expects that the outcome of this meeting will be the end of the partial government shutdown.
Apart from the announcement of the results of the fresh round of trade negotiations between the U.S. and China, as well as the meeting of the U.S. President with the leaders of Congress, another important event on Wednesday will be the Bank of Canada (BoC) first policy meeting in 2019. The outcomes of the meeting will be announced at 15:00 GMT and the press conference of the regulator’s head will begin at 15:15 GMT. It expected the BoC will not make any changes to the parameters of its monetary policy, continuing to monitor the impact of low oil prices on the country's economy and a spike in volatility in financial markets.
II. The market highlights are:
Statistics Canada reported on Tuesday that Canada’s merchandise trade deficit stood at CAD2.06 billion in November, widening from a revised CAD0.85 billion gap in October (originally a CAD1.17-billion deficit). Economists had expected a deficit of CAD1.95 billion. According to the report, the country’s exports fell 2.9 percent m-o-m to CAD48.33 billion in November, with energy products (-9.2 percent m-o-m) contributing the most to the decline. Meanwhile, imports decreased 0.5 percent m-o-m to CAD50.39 billion in November, as 7 of 11 product sections recorded declines, led by motor vehicles and parts (-2.8 percent m-o-m). However, these decreases were largely offset by higher imports of aircraft and other transportation equipment and parts (+21.2 percent m-o-m).
The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department on Tuesday showed the U.S. job openings decreased more than expected in November. According to the report, employers posted 6.888 million job openings in November, compared to the October figure of 7.131 million (revised from 7.079 million in original estimate) and economists’ expectations of 7.063 million. The job openings rate was 4.4 percent in November, down from 4.5 percent in the prior month. The report showed that the number of job openings decreased for total private (-237,000) and was little changed for government. Job openings increased in transportation, warehousing, and utilities (+40,000). The job openings level decreased in a number of industries, with the largest decreases in other services (-66,000) and construction (-45,000). Meanwhile, the number of hires fell to 5.710 million in November from 5.928 in October. The hiring rate was 3.8 percent, down from 4.0 percent in October. The number of hires dropped for total private (-236,000) and was little changed for government. Hires rose in federal government (+8,000) but fell in professional and business services (-167,000). The separation rate in November was at 5.507 million or 3.7 percent, compared to 5.621 million or 3.8 percent in October. Within separations, the quits rate was 2.3 percent (flat m-o-m), and the layoffs rate was 1.2 percent (flat m-o-m).
The estimates of Japan’s Ministry of Health, Labor and Welfare revealed on Wednesday that labor cash earnings rose faster than expected in November. According to the report, total cash earnings increased 2.0 percent y-o-y in November, following an unrevised 1.5 percent y-o-y gain in October. Economists had expected the cash earnings would increase by 1.3 percent y-o-y. According to the report, contractual gross earnings increased 1.6 percent y-o-y in November, while special cash earnings surged 9.7 percent y-o-y.
The Australian Bureau of Statistics (ABS) announced on Wednesday the total number of building permits issued in the country tumbled by 9.1 percent m-o-m in seasonally adjusted terms in November, following an unrevised 1.5 percent m-o-m drop in October. Economists had expected a decline of 0.5 percent m-o-m. According to the report, approvals for private sector dwellings excluding houses plunged 17.9 percent m-o-m in November, while private sector houses approvals dropped 2.6 percent m-o-m. In y-o-y terms, total approvals plummeted by 32.8 percent.
III. Market Situation
The currency pair EUR/USD traded slightly higher, due to a new wave of the weakening of the U.S. currency. In addition, investors were preparing for the release of the Eurozone’s labor market data (unemployment is expected to remain at 8.1 percent in November) and the publication of the minutes of the last FOMC meeting, which provides an in-depth understanding of the economic and financial conditions that influenced the votes of committee members when deciding on monetary policy. The focus of market participants will also be on news about the outcome of the meeting between representatives of the United States and China. Resistance level - $1.1499 (high of November 7, 2018). Support level - $1.1337 (low of January 3).
The currency pair GBP/USD rose slightly, on the back of partial profit-taking and the weakening of the U.S. dollar. However, the pair's growth was limited by the continuing uncertainty around the Brexit deal. On Tuesday, the UK’s government spokesman James Slack confirmed that the cabinet agreed that the meaningful vote on the country's withdrawal agreement will take place on January 15, but added that the date is still subject to parliamentary approval.“The prime minister is continuing to seek assurances from EU leaders that neither we nor the EU want to use the backstop,” Slack said. He also noted that the government has no plans to extend Article 50. Resistance level - $1.2810 (high of December 6, 2018). Support level - $1.2616 (low of January 4).
The currency pair AUD/USD traded slightly higher, nearing the three-week peak. The pair was supported by the negative dynamics of the U.S. dollar. However, disappointing Australian data limited the growth of a pair. The latest survey from the Australian Industry Group (AIG) revealed the service sector in Australia continued to expand in December, albeit at a slower pace. According to the report, AIG Performance of Service Index came in at 52.1 last month, down from 55.1 in November. At the same time, the data from the Australian Bureau of Statistics (ABS) showed the total number of building permits issued in the country tumbled by 9.1 percent m-o-m in seasonally adjusted terms in November, following an unrevised 1.5 percent m-o-m drop in October. Economists had expected a decline of 0.5 percent m-o-m. Resistance level - AUD0.7203 (high of December 18 and 19, 2018). Support level - AUD0.7116 (January 8).
The currency pair USD/JPY consolidated near the opening level due to the lack of new catalysts capable of setting the direction of the movement. A certain influence on the yen was exerted by the Bank of Japan's (BoJ) quarterly consumer survey, which showed sentiment fell sharply from three months ago. The consumer sentiment outlook index projecting conditions a year ahead marked the third straight decline, down by 14.9 points at -32.0 in December after dropping 0.5 points to -17.1 in September. At the same time, Japan’s Ministry of Health, Labor and Welfare reported that total cash earnings increased 2.0 percent y-o-y in November, following an unrevised 1.5 percent y-o-y gain in October. Economists had expected the cash earnings would increase by 1.3 percent y-o-y. Resistance level - Y111.45 (high of December 21, 2018). Support level - Y107.11 (low of January 3).
U.S. stock indexes closed higher on Tuesday on hopes that the United States and China would strike a deal to end their trade war. According to media reports, officials from both sides both sides believe that they have managed to achieve sufficient progress and lay the foundations for the next round of talks. The focus also was on the Job Openings and Labor Turnover Survey (JOLTS), which showed the U.S. job openings decreased more than expected in November. According to the report, employers posted 6.888 million job openings in November, compared to the October figure of 7.131 million (revised from 7.079 million in original estimate) and economists’ expectations of 7.063 million. The job openings rate was 4.4 percent in November, down from 4.5 percent in the prior month. Meanwhile, the number of hires fell to 5.710 million in November from 5.928 in October. The hiring rate was 3.8 percent, down from 4.0 percent in October. The separation rate in November was at 5.507 million or 3.7 percent, compared to 5.621 million or 3.8 percent in October. Within separations, the quits rate was 2.3 percent (flat m-o-m), and the layoffs rate was 1.2 percent (flat m-o-m).
Asian stock indexes closed higher on Wednesday, following gains on Wall Street overnight. Market participants кemained cautiously optimistic about trade negotiations between the U.S. and China, which were extended for an unscheduled third day.
European stock indexes are expected to trade higher in the morning trading session.
Yields of US 10-year notes hold at 2.71% (-2 basis points)
Yields of German 10-year bonds hold at 0.23% (0 basis points)
Yields of UK 10-year gilts hold at 1.16% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in February settled at $50.36 (+1.17%). The crude oil prices rose significantly amid weakness in the U.S. dollar, the latest data from the American Petroleum Institute (API), and investors' hopes that the U.S. and China would be able to resolve their trade disputes. The API reported that U.S. crude supplies fell by 6.1 million barrels for the week ended January 4. Meanwhile, gasoline stockpiles surged by 5.5 million barrels, while distillate inventories climbed by 10.2 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 $1,282.00 (-0.25%). Gold prices fell slightly, as optimism regarding the negotiations between the U.S. and China led to a decrease in demand for safe-haven assets. However, the further decrease in gold prices was limited by the weakness in the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell 0.13 percent to 95.78. 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 scheduled events (time GMT 0)
Consumer Price Index
FOMC Member Charles Evans Speaks
Bank of Canada Rate
Bank of Canada Monetary Policy Report
BOC Press Conference
BOE Gov Mark Carney Speaks
Crude Oil Inventories
FOMC Member Rosengren Speaks
FOMC meeting minutes
|remaining time till the new event being published|
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