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Market panorama. 12 January 2018

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I. Market focus:

12/01/2018

At the beginning of Friday’s session, the main topic in the foreign exchange market continued to be the expectations the European Central Bank (ECB) might change its monetary policy soon, which raised after yesterday’s release of the minutes from the latest meeting of the European regulator. In particular, the minutes indicated the ECB is preparing to revisit its communication stance in early 2018 to better reflect improvement in the growth outlook. The ECB’s next meeting is set to be held on January 25, and if the regulator acts in accordance with the said in the minutes, this will signal that it may wind down an EUR2.55 trillion bond purchase scheme this year. In such conditions, the upward trend of the euro, observed throughout 2017, will continue in the near future.

The U.S. stock indexes continue to refresh their records on the back of expectations the U.S. tax overhaul, which cuts corporate tax rates to 21%, will give a boost to companies’ profits. A rise in the prices in commodity market also provides support to the indexes. In particular, it is worth noting a rally in oil prices, which send them to 3 -year highs. Given the significant growth in U.S. stock indexes since the beginning of the month, as well as the approaching of a long weekend (the U.S. financial markets will be closed on Monday, January 15, due to Martin Luther King Jr. Day), the correction seems very likely today.

The stock market participants’ focus shifts to the quarterly earnings reports. Financial heavyweights JPMorgan Chase (JPM) and Wells Fargo (WFC) will report earnings today, unofficially marking the start of the Q4 earnings season.

The main scheduled events will be the U.S. statistics on retail sales and the consumer price index, which will be released at 13:30 GMT.


II. The market highlights are:

  • Statistics Canada reported Thursday the New Housing Price Index (NHPI) rose 0.1 percent m-o-m in November, the same advance as in October. Economists forecast a 0.2 percent m-o-m increase. According to the report, new house prices were unchanged in 12 of 27 census metropolitan areas, lower in 3 and higher in the other 12. Ottawa (+0.5 percent m-o-m) saw the largest monthly price increase due to improved market conditions, while Saskatoon (-0.5 percent m-o-m), Regina (-0.4 percent m-o-m) and Sherbrooke (-0.1 percent m-o-m) recorded declines in house prices. In y-o-y terms, NHPI surged 3.4 percent in October, down from 3.5 percent in October.

  • The data from the Labor Department revealed Thursday the number of applications for unemployment benefits unexpectedly increased last week, hitting a three-month high, as claims data tend to be volatile during a holiday period. According to the report, the initial claims for unemployment benefits rose 11,000 to 261,000 for the week ended January 6. Economists had expected 245,000 new claims last week. Claims for the prior week were unrevised at 250,000. Meanwhile, the four-week moving average of claims increased 9,000 to 250,750 last week. It was the 149th straight week that claims remained below the 300,000 threshold, the longest streak since 1970.

  • The Labor Department announced Thursday the U.S. producer-price index (PPI) edged down 0.1 percent m-o-m in December, following a 0.4 percent m-o-m increase in November. That was the first monthly decline in producer prices since August 2016. For the 12 months through December, the PPI rose 2.6 percent compared to a 3.1 percent gain recorded in the prior month. Economists had forecast the headline PPI would rise 0.2 m-o-m in last month and 3.0 percent over the past 12 months. According to the report, most of the December decline in the PPI is attributable to a 0.2-percent decrease in prices for final demand services. Meanwhile, the index for final demand goods was unchanged. Excluding volatile prices for food and energy, the PPI fell 0.1 percent m-o-m, but rose 2.3 percent over 12 months, while economists forecast advances of 0.2 percent and 2.5 percent respectively.

  • The report from the National Bureau of Statistics of China revealed Friday the Chinese trade surplus expanded in December. According to the report, China’s exports surged 10.9 percent y-o-y in December to $231.79 billion compared to a 12.3 percent increase in the prior month and economists’ forecast of a 9.1 percent growth. Meanwhile, the country’s imports rose only 4.5 percent y-o-y last month to $177.10 billion after a 17.7 percent jump in November, while economists had forecast a 13.0 percent gain. Those trade flows produced a trade surplus of $54.69 billion in December, compared to a surplus of $40.21 billion in November and $40.50 billion in December 2016. That was the largest trade surplus since January 2016. Economists had expected trade surplus of $37.00 billion in December.


III. Market Situation
Currency Market
The currency pair EUR/USD rose slightly in early trading, continuing yesterday's rally, and approached the high of January 5, but then lost some of the gains. The growth the pair showed yesterday was powered by the release of the minutes from the ECB last meeting and disappointing weekly initial claims report in the U.S.  the minutes indicated the ECB is preparing to revisit its communication stance in early 2018 to better reflect improvement in the growth outlook. The minutes indicated the ECB is preparing to revisit its communication stance in early 2018 to better reflect improvement in the growth outlook. This raised expectations that the European regulator could cut its crisis-era stimulus programme faster than anticipated. During today's session, investors will pay attention to the U.S. data on retail sales and consumer inflation for December, which could trigger another round of debates about the prospects of the monetary policy tightening by the Fed. According to economists’ forecast, consumer prices in December rose by 0.2 percent m-o-m and by 2.1 percent y-o-y, while retail sales increased by 0.5 percent m-o-m. Resistance level - $1.2088 (high of January 4). Support level - $1.1915 (low of January 9).

The currency pair GBP/USD traded flat, following yesterday’s solid growth, which was underpinned by the broad weakening of the U.S. in response to disappointing disappointing weekly initial claims report and December PPI data. 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. Resistance level - $1.3611 (high of January 3). Support level - $1.3458 (low of January 11).

The currency pair AUD/USD rose slightly at the beginning of the session, approaching the high of September 26, 2017, but then fell, refreshing the session’s low. The initial growth was supported by the upbeat data from China, Australia's largest trading partner. Meanwhile, the reason for the decline in the pair was the partial profit-taking by investors. The report from the National Bureau of Statistics of China revealed the Chinese trade surplus expanded in December. According to the report, China’s exports surged 10.9 percent y-o-y in December to $231.79 billion compared to a 12.3 percent increase in the prior month and economists’ forecast of a 9.1 percent growth. Meanwhile, the country’s imports rose only 4.5 percent y-o-y last month to $177.10 billion after a 17.7 percent jump in November, while economists had forecast a 13.0 percent gain. Those trade flows produced a trade surplus of $54.69 billion in December, compared to a surplus of $40.21 billion in November and $40.50 billion in December 2016. That was the largest trade surplus since January 2016. Economists had expected trade surplus of $37.00 billion in December. Resistance level - AUD0.7947 (high of September 26, 2017). Support level - AUD0.7801 (low of January 9).

The currency pair USD/JPY consolidated near the opening level, as investors took a breath after the pair’s recent fall. The focus also was on the weak data from Japan. The Ministry of Finance reported Japan’s current account surplus in November stood at JPY1.347 trillion, the smallest figure since June. That was below the economists’ expectations for a surplus of JPY1.900 trillion yen and down from JPY2.176 trillion recorded in October. According to the report, exports rose 13.9 percent y-o-y in November after gaining 14.3 percent y-o-y in the prior month. Meanwhile, imports surged 17.6 percent y-o-y after climbing 18.5 percent y-o-y in October. The Bank of Japan (BoJ) reported that overall bank lending in Japan rose 2.5 percent y-o-y in December after a 2.7 percent y-o-y increase in November. Economists had forecast a gain of 2.6 percent. Resistance level - Y111.87 (high of January 11). Support level - Y110.83 (low of November 27, 2017).

Stock Market

Index

Value

Change

S&P

2,767.56

+0.70%

Dow

25,574.73

+0.81%

NASDAQ

7,211.78

+0.81%

Nikkei

23,653.82

-0.24%

Hang Seng

31,412.54

+0.94%

Shanghai

3,429.32

+0.12%

S&P/ASX

6,070.10

+0.04%


U.S. stock indexes closed higher on Thursday, notching new records, as rising oil prices lifted energy stocks and investors bet on a strong Q4 earnings season, which will begin on Friday. The focus also was on weekly initial claims report and December PPI data. The data from the Labor Department revealed the number of applications for unemployment benefits unexpectedly increased last week, hitting a three-month high, as claims data tend to be volatile during a holiday period. According to the report, the initial claims for unemployment benefits rose 11,000 to 261,000 for the week ended January 6. Economists had expected 245,000 new claims last week. Anyway, that was the 149th straight week that claims remained below the 300,000 threshold, the longest streak since 1970. The Labor Department reported the U.S. producer-price index (PPI) edged down 0.1 percent m-o-m in December, following a 0.4 percent m-o-m increase in November. That was the first monthly decline in producer prices since August 2016. For the 12 months through December, the PPI rose 2.6 percent compared to a 3.1 percent gain recorded in the prior month. Economists had forecast the headline PPI would rise 0.2 m-o-m in last month and 3.0 percent over the past 12 months. Excluding volatile prices for food and energy, the PPI fell 0.1 percent m-o-m, but rose 2.3 percent over 12 months, while economists forecast advances of 0.2 percent and 2.5 percent respectively.

Asian stock indexes closed mostly higher on Friday, following the rally on Wall Street overnight, supported by Q4 earnings optimism and a rise in oil prices. Japanese equity benchmark, the Nikkei, finished moderately lower, as a stronger yen weighed on 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 2.55% (+1 basis points)
Yields of German 10-year bonds hold at 0.52% (0 basis points)
Yields of UK 10-year gilts hold at 1.31% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in February settled at  $63.45 (-0.55%). The crude oil prices fell, correcting after yesterday's rally, which pushed them to the highest levels since the beginning of December 2014. The surge was bolstered by the latest data on the U.S. oil production as well as comments of United Arab Emirates' (UAE) energy and industry minister, Suhail al-Mazrouei, who said he believed that oil markets would become balanced in 2018. Market participants are now awaiting weekly data on the U.S. oil rig count from Baker Hughes.

Gold traded at $1328.60 (+0.46%). Gold prices rose moderately, approaching the high of September 15, on the back of negative dynamics of the U.S. currency and the adjustments ahead of the release of inflation data for the United States. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell 0.03 percent to 91.83. 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

CPI

13:30

U.S.

Retail Sales

13:30

U.S.

Retail sales excluding auto

13:30

U.S.

CPI

13:30

U.S.

CPI excluding food and energy

15:00

U.S.

Business inventories

16:30

Germany

German Buba President Weidmann Speaks

18:00

U.S.

Baker Hughes Oil Rig Count


Market Focus

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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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