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Market panorama. 11 January 2018

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I. Market focus:

11/01/2018

At the beginning of Thursday’s session, there were seen some signs of improvement in the sentiments of market participants, whose optimism was somewhat overshadowed by the reports that China may trim or halt its purchases of U.S. Treasuries. In the morning, China’s State Administration of Foreign Exchange (SAFE) denied this information. Better-than-expected retail sales data from Australia also contributed to the improvement of the market sentiment. But despite these upbeat reports, investors’ sentiment remains somewhat subdued due to reports that the Canadian officials see an increasing likelihood the U.S. President Donald Trump will give notice about a withdrawal from the North American Free Trade Agreement (NAFTA) this month. The media reports, citing the sources with knowledge of the talks, also say that Mexico will leave the NAFTA talks if Trump triggers the process to withdraw. In the near future, the NAFTA’s fate will remain the main theme for investors, and the termination of this agreement may cause significant shocks in the financial markets.

At the beginning of today’s session, market participants also paid attention to the reports that South Korea is preparing a bill that will ban all cryptocurrency trading. That news about the tough stance of the authorities of the country, which is one of the largest markets for virtual coin trading, had a negative impact on the value of the cryptocurrencies, sending their prices plummeting.

Ahead, the main expected events will be the publication of the minutes from the latest meeting of the ECB (12:30 GMT), the U.S. statistics on the producer price index (13:30 GMT), and the speech of New York Federal Reserve Bank President William Dudley on the U.S. economic outlook (20:30 GMT).


II. The market highlights are:

  • Statistics Canada reported Wednesday that the value of building permits issued by the Canadian municipalities fell 7.7 percent m-o-m in November, following a 4.4 percent m-o-m surge in October (revised from an originally reported a 3.5 percent m-o-m increase). Economists had forecast a 0.3 percent drop in November from October. According to the report, residential building permits fell 4.6 percent m-o-m due to decline in permits for multi-family buildings (-10.1 percent m-o-m), while permits for single-family dwellings rose slightly (+0.6 percent m-o-m). Meanwhile, non-residential permits tumbled 12.2 percent m-o-m in November, due to declines in all three components - commercial (-9.7 percent m-o-m) , industrial (-19.8 percent m-o-m) and institutional (-11.3 percent m-o-m). In y-o-y terms, building permits rose 1.3 percent in November.

  • The U.S. Labor Department reported Wednesday the import-price index, measuring the cost of goods ranging from Canadian oil to Chinese electronics, rose 0.1 percent m-o-m in December after a revised 0.8-percent m-o-m increase in November (originally a 0.7 percent gain). Economists had expected prices to go up 0.4 percent m-o-m last month. According to the report, higher fuel prices (+1.8 percent m-o-m) more than offset a decline in the price index for non-fuel prices (-0.1 percent m-o-m) in December. Over the 12-month period ended December, import prices grew 3.0 percent. At the same time, the price index for U.S. exports recorded a 0.1 percent drop last month, the first monthly decline for the index since a 0.1-percent decrease in June. The December decrease was led by falling agricultural prices (-0.4 percent m-o-m), while the non-agricultural prices were flat. Over the past year, the price index for exports rose 2.6 percent.

  • The U.S. Energy Information Administration (EIA) reported Wednesday that crude inventories fell by 4.948 million barrels to 419.515 million barrels in the week ended January 5. Economists had forecast a decrease of 3.89 million barrels. At the same time, gasoline stocks increased by 4.1 million barrels to 237.3 million barrels, while analysts had expected a gain of 2.5 million barrels. Distillate stocks rose by 4.3 million barrels to 143.1 million barrels last week, while analysts had forecast a build of 1.1 million barrels. Meanwhile, oil production in the U.S. decreased to 9.492 million barrels per day from 9.782 million barrels per day in the previous week. U.S. crude oil imports averaged about 7.7 million barrels per day last week, down by 308,000 barrels per day from the previous week.

  • The Australian Bureau of Statistics (ABS) announced Thursday that Australia’s retail sales rose 1.2 percent m-o-m in November, following an unrevised 0.5 percent m-o-m increase in October. Economists had forecast retail sales would gain 0.4 percent m-o-m in November. According to the ABS, the rises were led by the household goods (+4.5 percent m-o-m) and other retailing (+2.2 percent m-o-m) industries, which were “influenced by the release of the iPhone X and the increasing popularity of promotions in November, including Black Friday sales.” In addition, clothing, footwear and personal accessory retailing (+1.6 percent m-o-m) and cafes, restaurants and takeaways (+0.4 percent m-o-m) also posted higher sales. At the same time, department stores fell (-1.1 percent m-o-m), while food was unchanged.


III. Market Situation
Currency Market
The currency pair EUR/USD rose slightly at the beginning of the trading, but then refreshed the session’s low, as demand the U.S. dollar grew after Reuters’ report that Chinese currency regulator denied that it may slow or cease its purchases of U.S. Treasury bonds. “The news could quote the wrong source of information, or may be fake news,” the State Administration of Foreign Exchange (SAFE) said in a statement. China has been diversifying its foreign currency reserves investments to help "safeguard the overall safety of foreign exchange assets and preserve and increase their value", the SAFE added. Some experts believe that even if China decides to make some adjustments to its foreign exchange reserves, it can not completely halt the purchases of U.S. Treasuries. Uncertainty about China's position could potentially weaken investors' appetite for risk. During today's session, investors will pay attention to the minutes of the ECB’s December meeting, which may contain hints about the prospects of the regulator's stimulus program. The focus also will be on the U.S. data on the producer price index (PPI) for December, the weekly initial claims report and the comments of New York Federal Reserve Bank President William Dudley on the U.S. economic outlook. Resistance level - $1.2088 (high of January 4). Support level - $1.1816 (low of December 22, 2017).

The currency pair GBP/USD declined moderately, reaching yesterday's low, due to the strengthening of the U.S. dollar in response to the statement by China’s currency regulator the that reports that country is considering slowing or halting purchases of U.S. Treasury bonds may be based on erroneous information and could be “fake”. With an empty economic calendar in the UK ahead, investors will focus on the news on Brexit talks, as well as the dynamics of the U.S. currency and the general market sentiment toward risky assets. In addition, market participants will be preparing for tomorrow's release of the data on consumer inflation in the U.S., which could trigger another round of debates about the prospects of the monetary policy tightening by the Fed. Resistance level - $1.3611 (high of January 3). Support level - $1.3426 (low of December 29, 2017).

The currency pair AUD/USD rose significantly, reaching its high of October 16, 2017, powered by the upbeat data from Australia. The Australian Bureau of Statistics (ABS) reported that Australia’s retail sales rose 1.2 percent m-o-m in November, following an unrevised 0.5 percent m-o-m increase in October. Economists had forecast retail sales would gain 0.4 percent m-o-m in November. According to the ABS, the rises were led by the household goods (+4.5 percent m-o-m) and other retailing (+2.2 percent m-o-m) industries, which were “influenced by the release of the iPhone X and the increasing popularity of promotions in November, including Black Friday sales.” In addition, clothing, footwear and personal accessory retailing (+1.6 percent m-o-m) and cafes, restaurants and takeaways (+0.4 percent m-o-m) also posted higher sales. At the same time, department stores fell (-1.1 percent m-o-m), while food was unchanged. Resistance level - AUD0.7897 (high of October 13, 2017). Support level - AUD0.7801 (low of January 9).

The currency pair USD/JPY traded higher, gradually recovering after yesterday's tumble, which was caused by the U.S. dollar’s decline and the reports the Bank of Japan (BoJ) reduced the amount of the purchases of the long-dated Japanese government bonds (JGBs). Today, the pair is supported by partial profit-taking by investors, and the resumed strengthening of the U.S. currency. In addition, market participants’ focus is on the Japanese data. The preliminary figures from the Cabinet Office revealed Japan's leading index increased in November to the highest level in nearly four years. According to the report, the leading index, measuring the future economic activity, climbed to 108.6 in November from 106.5 in October. That was the highest score since January 2014. Economists had expected the indicator to grow to 108.9. At the same time, the coincident index, reflecting the current economic activity, increased to 118.1 in November from 116.4 in the prior month. Resistance level - Y113.38 (high of January 8). Support level - Y111.27 (low of January 10).

Stock Market

Index

Value

Change

S&P

2,748.23

-0.11%

Dow

25,369.13

-0.07%

NASDAQ

7,153.57

-0.14%

Nikkei

23,710.43

-0.33%

Hang Seng

31,120.39

+0.15%

Shanghai

3,425.57

+0.11%

S&P/ASX

6,067.60

-0.48%


U.S. stock indexes closed lower on Wednesday, slipping from record highs as investors worried that China would slow U.S. government bond purchases and that U.S. President Donald Trump would soon pull the United States out of the North American Free Trade Agreement (NAFTA). The focus also was on a report on import/export prices for December. The U.S. Labor Department reported the import-price index rose 0.1 percent m-o-m in December after a revised 0.8-percent m-o-m increase in November (originally a 0.7 percent gain). Economists had expected prices to go up 0.4 percent m-o-m last month. According to the report, higher fuel prices (+1.8 percent m-o-m) more than offset a decline in the price index for non-fuel prices (-0.1 percent m-o-m) in December. Over the 12-month period ended December, import prices grew 3.0 percent. At the same time, the price index for U.S. exports recorded a 0.1 percent drop last month, the first monthly decline for the index since a 0.1-percent decrease in June. The December decrease was led by falling agricultural prices (-0.4 percent m-o-m), while the non-agricultural prices were flat. Over the past year, the price index for exports rose 2.6 percent.

Asian stock indexes closed mixed on Thursday, following the weak cues overnight from Wall Street. Investors were cautious amid concerns about rising U.S. protectionism and ahead of the release of the quarterly financial statements by the several big Japanese companies. Japanese equity benchmark, the Nikkei, finished moderately lower, as the yen pared some of yesterday’s gains against the U.S. dollar. A weaker yen is seen as a favorable factor for the Japanese 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 2.54% (-2 basis points)
Yields of German 10-year bonds hold at 0.48% (0 basis points)
Yields of UK 10-year gilts hold at 1.29% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in February settled at $63.51 (-0.09%). The crude oil prices fell slightly, correcting after yesterday's rally, which was bolstered by the latest report from the U.S. Energy Information Administration (EIA). The EIA reported that the U.S. crude inventories fell by 4.948 million barrels to 419.515 million barrels in the week ended January 5. Economists had forecast a decrease of 3.89 million barrels. At the same time, gasoline stocks increased by 4.1 million barrels to 237.3 million barrels, while analysts had expected a gain of 2.5 million barrels. Distillate stocks rose by 4.3 million barrels to 143.1 million barrels last week, while analysts had forecast a build of 1.1 million barrels. Meanwhile, oil production in the U.S. decreased to 9.492 million barrels per day from 9.782 million barrels per day in the previous week. U.S. crude oil imports averaged about 7.7 million barrels per day last week, down by 308,000 barrels per day from the previous week.


Gold traded at $1,317.20 (+0.04%). Gold prices traded almost unchanged as investor awaited important statistics on the U.S. inflation for December, set to be released on Friday. At the same time, the further growth of 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 0.15 percent to 92.47. 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)


10:00

Eurozone

Industrial Production

12:30

Eurozone

ECB Monetary Policy Meeting Accounts

13:30

Canada

New Housing Price Index

13:30

U.S.

Initial Jobless Claims

13:30

U.S.

Continuing Jobless Claims

13:30

U.S.

PPI

13:30

U.S.

PPI excluding food and energy

19:00

U.S.

Federal budget

20:30

U.S.

FOMC Member Dudley Speak

21:45

New Zealand

Building Permits

23:50

Japan

Current Account


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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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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