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I. Market focus:
The U.S. government entered a partial shutdown for a second time this year as the U.S. Congress missed a midnight deadline to pass a budget bill. Senate was considering a bill which would fund the government on a short-term basis until March 23. By that time, lawmakers would have to work out a long-term budget agreement. To reach such an agreement the legislators should hash out differences in the field of immigration policy, namely, to compromise on the fate of the illegal immigrants who were protected from deportation and allowed to work in the US under the Deferred Action for Childhood Arrivals (DACA) program. However, yesterday’s vote on the temporary measure was stalled due to resistance from Republican Senator Rand Paul. Arguing with his colleagues, he said: “If you were against President Obama’s deficits and now you’re for the Republican deficits, isn’t that the very definition of hypocrisy?” The U.S. government shutdown is not expected to have a significant influence on the dynamics of the markets. Moreover, the House of Representatives will continue its work in the next few hours, and it is possible that the compromise will be reached before the U.S. market opens.
The focus of market participants will be on the Canadian employment data, set to be published at 13:30 GMT. The Canadian labor market saw a significant improvement in the previous two months, and it is possible that the figures for January may be less impressive than in December and November.
II. The market highlights are:
The Canada Mortgage And Housing Corp. (CMHC) reported Thursday the Canadian housing starts were flat m-o-m at a seasonally adjusted rate of 216,275 units in January of 2018 from a downwardly revised 216,980 units in December of 2017. Economists had forecast housing starts declining to 210,000. According to the report, urban starts edged up 0.2 percent m-o-m last month to 198,400, as multiple urban starts held steady at 134,685 units, while single-detached urban starts rose by 0.6 percent m-o-m to 63,715 units. At the same time, rural starts were estimated at a seasonally adjusted annual rate of 17,810 units.
Statistics Canada reported Thursday the New Housing Price Index (NHPI) was unchanged m-o-m in December of 2017, after gaining 0.1 percent m-o-m in November. Economists forecast a 0.1 percent m-o-m increase. According to the report, new house prices were unchanged in 15 of 27 census metropolitan areas, higher in eight and lower in the remaining four. The main upward pressure came from Vancouver (+0.2 percent m-o-m) and Guelph (+0.1 percent m-o-m) as demand was strong. Meanwhile, Calgary (-0.2 percent m-o-m) reported the largest new house price decline, due to weak market conditions and lower negotiated selling prices. In y-o-y terms, NHPI surged 3.3 percent in December, down from 3.4 percent in November.
The data from the Labor Department revealed Thursday the number of applications for unemployment benefits unexpectedly fell last week, pointing to tightening labor market conditions. According to the report, the initial claims for unemployment benefits decreased 9,000 to 221,000 for the week ended February 3. Economists had expected 232,000 new claims last week. Claims for the prior week were unrevised at 230,000. Meanwhile, the four-week moving average of claims dropped 10,000 to 224,500 last week. It was the 153rd straight week that claims remained below the 300,000 threshold, the longest streak since 1970.
The National Bureau of Statistics (NBS) reported Friday that China’s producer price index (PPI) rose 4.3 percent y-o-y in January of 2018, after gaining 4.9 percent y-o-y in the prior month. That was the lowest increase since November 2016. Economists had expected producer inflation would increase by 4.4 percent in December. Compared with a month ago, costs increased at a slower pace for means of production and consumer goods. The PPI rose 0.3 percent m-o-m in January, slower than a 0.8 percent gain in December. At the same time, the consumer price index (CPI) increased 1.5 percent y-o-y in January, decelerating from the prior month’s 1.8 percent y-o-y rise. That was the lowest inflation rate since July of 2017, but was in-line with economists‘ forecast. The deceleration was attributable to a slowdown in non-food costs (+2.0 percent y-o-y in January compared to +2.4 percent y-o-y in December) and a further decline in food prices (-0.5 percent y-o-y compared to -0.4 percent y-o-y in the prior month). On a monthly basis, consumer prices rose 0.6 percent in January, following a 0.3 percent gain in December.
III. Market Situation
The currency pair EUR/USD consolidated near the opening level, due to the lack of new catalysts. In recent days, investors' actions to protect themselves from the collapse of the stock market have supported the U.S. dollar. This allowed breaking the decline, which pushed the U.S. currency to its lowest in more than three months earlier this year. Yesterday’s remarks from the Fed policymakers William Dudley and Esther George also provided some support to the U.S. currency. Mr. Dudley said that the pace of rate hikes depends on economy's performance. He also noted that three rate hikes of a quarter-point each in 2018 remained “a very reasonable projection.” “If the economy looks stronger, could that three turns out to be more? Perhaps,” he said. However, the Fed could go a bit slower if the economy looks softer and inflation stays soft. Ms. George said that since the amount of fiscal stimulus remains “uncertain”, it is “important” that the Fed continue “on its current path of policy normalization, with gradual increases in the target federal-funds rate.” According to her, the FOMC’s outlook, which is currently eyeing about three rate rises this year and a similar amount in 2019, “is a reasonable baseline unless the outlook changes materially.” Resistance level - $1.2404 (high of February 7). Support level - $1.2165 (low of January 18).
The currency pair GBP/USD traded slightly higher, following strong fluctuations in the pair in the previous session (initially, the pound rose sharply in response to the outcomes of the Bank of England’s (BoE) meeting and comments by its governor Mark Carney, but then lost all gains due to partial profit-taking and the comments of Brexit Secretary David Davis. Recall, the BoE BOE left its benchmark interest rate unchanged at 0.5 percent on its February meeting but noted that the rates might need to rise at a steeper pace than previously thought to prevent the Brexit-weakened economy from overheating. Today, the focus will be on the British production data. It is expected that industrial production in December fell by 0.9 percent m-o-m but rose by 0.3 percent y-o-y, while manufacturing production increased by 0.3 percent m-o-m and by 1.2 percent y-o-y. Resistance level - $1.4068 (high of February 8). Support level - $1.3731 (low of January 15).
The currency pair AUD/USD fell slightly, refreshing the low of December 28, 2017, due to the dynamics of the U.S. currency, and the release of weak data in Australia. The Australian Bureau of Statistics (ABS) reported the total number of new home loans issued in the country fell 2.3 percent m-o-m in December, following a 2.1 percent m-o-m gain in November. Economists had forecast a decline of 1.1 percent m-o-m. The further fall in the pair was limited by inflation statistics from China, Australia's leading trading partner. The National Bureau of Statistics (NBS) reported that China’s producer price index (PPI) rose 4.3 percent y-o-y in January of 2018, after gaining 4.9 percent y-o-y in the prior month. That was the lowest increase since November 2016. Economists had expected producer inflation would increase by 4.4 percent in December. At the same time, the consumer price index (CPI) increased 1.5 percent y-o-y in January, decelerating from the prior month’s 1.8 percent y-o-y rise. That was the lowest inflation rate since July of 2017, but was in-line with economists‘ forecast. On a monthly basis, consumer prices rose 0.6 percent in January, following a 0.3 percent gain in December. Resistance level - AUD0.7953 (high of February 5). Support level - AUD0.7700 (psychological level).
The currency pair USD/JPY fell moderately at the beginning of the session in response to the increased demand for safe haven assets, but then erased all losses and broke through the psychological mark of Y109.00, supported by the statements by the special adviser to Prime Minister Shinzo Abe, Koichi Hamada. Mr. Hamada said that after the stock market crash this week, the Bank of Japan (BoJ) may be more cautious about changing monetary policy and urged the central bank to continue taking positive measures to support the economy. “If Japan rushes to exit from monetary easing, after this big turmoil, it could be swallowed in a wave of global stock falls,” he noted. Resistance level - Y109.79 (high of February 8). Support level - Y108.28 (low of January 26).
U.S. stock indexes closed sharply lower on Thursday, confirming a correction that has thrown the market’s nearly nine-year bull run off course. The focus also was on weekly initial jobless claims. The data from the Labor Department revealed the number of applications for unemployment benefits unexpectedly fell last week, pointing to tightening labor market conditions. According to the report, the initial claims for unemployment benefits decreased 9,000 to 221,000 for the week ended February 3. Economists had expected 232,000 new claims last week. It was the 153rd straight week that claims remained below the 300,000 threshold, the longest streak since 1970.
Asian stock indexes closed lower on Friday, tracking heavy declines seen on Wall Street overnight.
European stock indexes are expected to trade lower in the morning trading session.
Yields of US 10-year notes hold at 2.83% (+1 basis points)
Yields of German 10-year bonds hold at 0.76% (0 basis points)
Yields of UK 10-year gilts hold at 1.62% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in March settled at $60.59 (-0.92%). The crude oil prices tumbled, continuing yesterday's dynamics, amid increased concerns about a rise in global oil supplies. Iran’s deputy Oil Minister Amir Zamaninia said his country plans to increase its oil production by 700,000 barrels a day to 4.7 million barrels a day over the next four years. Meanwhile, the U.S. Energy Information Administration (EIA) reported on Wednesday that crude production last week rose to a record high of 10.25 million barrels per day. Market participants are awaiting weekly data on the U.S. oil rig count from Baker Hughes.
Gold traded at $1,319.50 (+0.06%). Gold prices rose slightly, as a resumed sell-off in global stocks propelув demand for safe-haven assets. However, further growth 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, rose by 0.05 percent. 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)
Total Trade Balance
NIESR GDP Estimate
Baker Hughes Oil Rig Count
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