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Market panorama. 11 January 2019

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I. Market focus

The comments of Federal Reserve Vice Chairman Richard Clarida remained in market participants’ focus at the beginning of Friday’s session. Statements of the official echoed the Fed’s recent rhetoric. In particular, Clarida noted the worsening global growth prospects and overall financial conditions. According to him, if these crosswinds are sustained, the Fed should respond to them. At the same time, it was noted that the economic conditions in the United States are currently favorable and the growth, which remains above average, is likely to continue. Comments from the Fed’s representative added to weakness in the U.S. dollar, which was under pressure in the morning.
The U.S. government continues to remain partially shut due to a standoff over funding of the wall on the border with Mexico between President Donald Trump and the leaders of the Democratic Party. On Thursday, the U.S. president visited the southern border of the country and, during the trip, threatened to declare a national emergency that would empower him to construct a border wall without congressional approval.
Markets continue to monitor the developments around the upcoming Brexit. According to the latest reports, the vote on a Brexit deal in the British Parliament is set to be held on January 15. Though the date has been repeatedly confirmed the risks of another delay remain. Earlier this week, the House of Commons voted for the government to come up with a plan B within days in case her deal does not get enough votes next week. It was also reported that the representatives of the EU and the UK are negotiating on the possibility of extending Article 50 of the Treaty on European Union. But so far this information has not been confirmed.
The main scheduled events of the final session of the week will be the UK’s data on industrial production (09:30 GMT) and the U.S. statistics on the consumer price index (13:30 GMT).

II. The market highlights are:

Statistics Canada reported on Thursday that the value of building permits issued by the Canadian municipalities rose 2.6 percent m-o-m in November, following a revised 0.4 percent m-o-m drop in October (originally a 0.2 percent m-o-m decrease).  Economists had forecast a 0.5 percent decline in November from the previous month. According to the report, the value of residential permits fell by 2.5 percent m-o-m as both single-family (-5.5 percent m-o-m) and multi-family (-0.1 percent m-o-m) dwellings dropped. Meanwhile, non-residential building permits surged by 11.6 percent m-o-m mainly due to climbs in industrial (+21.9 percent m-o-m) and commercial (+16.8 percent m-o-m) components, while institutional component (-7.2 percent m-o-m) recorded decline. In y-o-y terms, building permits increased by 6.6 percent in November.


Another report from Statistics Canada showed the New Housing Price Index (NHPI) was unchanged m-o-m in November for a fourth consecutive month. Economists had forecast the NHPI to be flat m-o-m in October. According to the report, new house prices were lower or flat in 18 of the 27 census metropolitan areas (CMAs).  Regina (-0.6 percent m-o-m) and St. John's (-0.4 percent m-o-m) posted the largest decreases due to unfavorable market conditions. At the same time, the largest price increases were recorded in Ottawa (+0.6 percent m-o-m) and Montréal (+0.4 percent m-o-m), with construction costs listed as the primary reason for the gains in both CMAs. In y-o-y terms, NHPI was unchanged in November, after edging up 0.1 percent in the previous month.


The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits fell more than expected last week, pointing to a strengthening labor market. According to the report, the initial claims for unemployment benefits decreased 17,000 to 216,000 for the week ended January 5. Economists had expected 225,000 new claims last week. Claims for the prior week were revised upwardly to 233,000 from the initial estimate of 231,000. Meanwhile, the four-week moving average of claims rose 2,500 to 221,750 last week.


The Ministry of Internal Affairs and Communications announced on Friday that the Japanese household spending decreased 0.6 percent y-o-y in November, following a 0.3 percent y-o-y drop in October. Economists had expected household spending to be flat m-o-m in November. Individually, spending reduced for utilities (-10.0 percent y-o-y), medical care (-5.2 percent y-o-y), culture & recreation (-2.3 percent y-o-y), food (-2.2 percent y-o-y), furniture & household utensils (-1.8 percent y-o-y), transportation and communication (-1.6 percent y-o-y) and  apparel (-0.9 percent y-o-y), but increased for housing (+18.6 percent y-o-y) and education (+7.5 percent y-o-y).


The Australian Bureau of Statistics (ABS) reported on Friday that Australia’s retail sales rose 0.4 percent m-o-m in November, following an unrevised 0.3 percent m-o-m gain in October. Economists had forecast retail sales would increase 0.3 percent m-o-m in November. According to the ABS, there were notable rises in household goods retailing (+1.2 percent m-o-m) and clothing, footwear and personal accessories retailing (+1.5 percent m-o-m), which were were impacted by strong promotional activity in the November month, including Black Friday sales. Food retailing (+0.2  percent m-o-m) and department stores (+0.4 percent m-o-m) also recorded gains last month, while other retailing (-0.1 percent m-o-m), and cafes, restaurant and takeaway services retailing (-0.1 percent m-o-m) posted minor falls.


III. Market Situation
Currency Market

The currency pair EUR/USD rose moderately, helped by the renewed weakness in the American currency on the back of recent statements by the Fed officials. In addition, investors adjusted their positions ahead of the release of the December data on inflation in the United States. In November, the consumer price index (CPI) was unchanged due to a fall in gasoline prices. Given the further decline in gasoline prices last month, experts forecast the CPI to drop by 0.1 percent m-o-m in December. A softer reading for core inflation is also expected to account for some payback after a rare back-to-back advance in core goods prices and an above-trend gain in shelter costs. However, the overall trend in core inflation is seen to remain firm. Given the fact the FOMC focuses on core inflation in its policy discussion-making, a downside miss on the headline reading is unlikely to be alarming if driven by drops in energy or food. An advance in the core CPI of 0.1-0.2 percent m-o-m would be consistent with the recent trend. A noticeably weaker reading for the core CPI would suggest that inflation is not a pressing threat, while a surprise gain would support the FOMC’s recent plans to hike rates. Resistance level - $1.1580 (high of October 17, 2018). Support level - $1.1484 (low of January 10).

The currency pair GBP/USD demonstrated a weak increase, supported by the weakness in the U.S. dollar. However, the growth of the pair was limited by the uncertainty around Brexit. According to the latest reports, a vote on a Brexit deal in the British Parliament is set to be held on January 15. Though the date has been repeatedly confirmed the risks of another delay remain. Earlier this week, the House of Commons voted for the government to come up with a plan B within days in case her deal does not get enough votes next week. During today's session, investors will continue to monitor news on Brexit, as well as pay attention to the UK’s data on industrial production and GDP for November. Industrial production is expected to post an increase of 0.2 percent m-o-m and the GDP is forecast to record a gain of 0.1 percent m-o-m. Resistance level - $1.2810 (high of December 6, 2018). Support level - $1.2705 (low of January 8).

The currency pair AUD/USD traded moderately higher, nearing the four-week peak, helped by the weakness in the U.S. dollar, higher commodity prices, as well as favorable data out of Australia. The Australian Bureau of Statistics (ABS) reported that Australia’s retail sales rose 0.4 percent m-o-m in November, following an unrevised 0.3 percent m-o-m gain in October. Economists had forecast retail sales would increase 0.3 percent m-o-m in November. According to the ABS, there were notable rises in household goods retailing (+1.2 percent m-o-m) and clothing, footwear and personal accessories retailing (+1.5 percent m-o-m), which were were impacted by strong promotional activity in the November month, including Black Friday sales. Food retailing (+0.2  percent m-o-m) and department stores (+0.4 percent m-o-m) also recorded gains last month, while other retailing (-0.1 percent m-o-m), and cafes, restaurant and takeaway services retailing (-0.1 percent m-o-m) posted minor falls. Resistance level - AUD0.7245 (high of December 13). Support level - AUD0.7145 (January 10).

The currency pair USD/JPY consolidated near the opening level due to the lack of new catalysts capable of setting the direction of movement. The Japanese economic data had a slight influence on the yen’s performance. Japan’s Ministry of Finance reported the country had a JPY757.2-billion current account surplus in November. That exceeded economists’ expectations for a surplus of JPY566.3 billion but was down from JPY1,309.9 billion in October. Meanwhile, the Ministry of Internal Affairs and Communications announced the Japanese household spending decreased 0.6 percent y-o-y in November, following a 0.3 percent y-o-y drop in October. Economists had expected household spending to be flat m-o-m in November. Resistance level - Y109.08 (high of January 8). Support level - Y107.11 (low of January 3).


Stock Market

Index

Value

Change

S&P

2,596.64

+0.45%

Dow

24,001.92

+0.51%

NASDAQ

6,986.07

+0.42%

Nikkei

20,359.70

+0.97%

Hang Seng

26,667.27

+0.55%

Shanghai

2,553.83

+0.74%

S&P/ASX

5,774.60

-0.36%


U.S. stock indexes closed higher on Thursday, helped by the comments from Fed Chair Jerome Powell, who confirmed the central bank’s to adjust its pace of interest-rate increases if economic conditions weaken.

Asian stock indexes closed mostly higher on Friday, as investor sentiment improved following overnight gains on Wall Street.

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


Bond Market
Yields of US 10-year notes hold at 2.73% (-2 basis points)
Yields of German 10-year bonds hold at 0.20% (0 basis points)
Yields of UK 10-year gilts hold at 1.17% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in February settled at $52.74 (+0.29%). The crude oil prices rose slightly, helped by the weakness in the U.S. dollar. However, the further growth in oil prices was limited by continued concerns about the state of the global economy. In addition, investors were preparing for the release of the weekly data on the U.S. oil rig count from Baker Hughes (18:00 GMT).


Gold traded at $1,293.50 (+0.55%). Gold prices rose moderately, on the back of the broad 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 0.18 percent to 95.37. 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)


08:20

Eurozone

ECB's Yves Mersch Speaks

09:30

United Kingdom

Industrial Production

09:30

United Kingdom

Manufacturing Production

09:30

United Kingdom

Total Trade Balance

09:30

United Kingdom

GDP

13:30

U.S.

CPI

14:00

United Kingdom

NIESR GDP Estimate

18:00

U.S.

Baker Hughes Oil Rig Count

19:00

U.S.

Federal budget



Market Focus

  • Britain says EU could hold emergency summit to offer conditional Brexit extension
  • ECB economic bulletin: March decisions aimed at lifting inflation towards goal
  • Fed leaves interest rates unchanged, no longer expects rate hikes this year
  • United Kingdom retail sales rose unexpectedly in February
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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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