The dollar was the chief beneficiary of the Fed’s first and only hike of 2016, rallying to a 10-month high against the yen after officials signalled a steeper path for borrowing costs. Asian stocks outside Japan slipped with bonds and gold.
- The US dollar registered its biggest one-day gain in a month after the FOMC late last night increased rates by 25bps to , as widely expected, and saw three more hikes in 2017, an increase from their original expectation of two hikes.
- In her press conference, Fed Chair Janet Yellen said fiscal policies could potentially affect the outlook of future rate hikes although it’s still too early to determine so. She also added that the Fed hadn’t provided any advice to the Trump administration, and that she plans to serve out her full term as Fed Chair.
- In a nutshell, the Fed’s statement last night was largely similar to that of November. The Fed had also noted additionally that while market expectations of inflation have moved up considerably, they are still too low and inflation data is still below its target.
- US November retail sales disappointed, gaining 0.1% month-on-month, missing the 0.3% gain expected, while the prior month’s 0.8% advance was revised lower to 0.6%.
- PPI last month gained 0.4% from a month earlier and 1.3% from a year earlier, exceeding estimates of 0.1% and 0.9%.
- Industrial production slipped 0.4% month-on-month, more than the 0.3% drop projected.
- The S&P 500 Index retreated 0.8%, led by energy and utilities stocks, registering the worst day of losses since the US elections.
- Treasury yields gained broadly, with the benchmark 10yr yield climbing 10bps to 2.57%, the highest point since 2014.
- According to Bloomberg pricing data, Fed funds futures are pricing in a 78% probability the Fed will next move by June next year.
- With the US dollar strengthening broadly, the Bloomberg Dollar Spot Index climbed 1.1% to its highest level on record.
- December preliminary manufacturing PMI came in at 51.9, up from 51.3 last month.
- Employment rose 39,100 in November, more than double the median estimate of 17,500, while October’s gain of 9,800 was revised higher to 15,200. Today’s employment gain was the highest this year.
- The jobless rate rose to 5.7% from 5.6%, while the participation rate rose to 64.6% from 64.4%.
- Full-time employment surged by 39,900, while part-time jobs fell by 200.
- The data shows a turnaround in hiring as full-time jobs came to the fore and the participation rate reversed declines of recent months, bringing optimism to an economy that contracted last quarter.
- Spot gold tumbled 2.4% to a low of $1,134.89/Oz, its lowest point since February this year, as a more hawkish-than-expected statement from the Fed dampened demand for zero-yielding assets such as gold bullion.
- The next support level comes in at $1,125/Oz, while the previous support of $1,200/Oz now acts as a key point of resistance.
- While last night’s rate hike should impact gold bullion initially, the precious metal could still perform well over the longer-term if real interest rates remain low. The Fed’s previous hiking cycle took place from June 2004 to June 2006, when it increased by 26bps 17 straight times; gold climbed during that period, rising more than 50%. It also surged in the first half of 2016 in the wake of last year’s inaugural rate increase.
- Spot silver retreated back below the $17/Oz handle, dropping 2.4% to $16.6843/Oz.
- Crude oil for January delivery gained dropped 3.7% to $51.05/bbl, with a broadly stronger US dollar hurting almost all commodities.
- US crude supplies shrank by 2.56 million barrels last week, trimming an inventory overhand that’s at the highest seasonal level in more than 30 years, according to a government report.
- Spot 1.4367
- USDSGD advanced 1.4% to 1.4436, just shy of its 2016 high of 1.4444, after the Fed raised rates and signalled a faster-than-expected tightening policy in 2017.
- The next level of resistance beyond 1.4444 comes in at 1.4650.
- Spot 0.7426
- AUDUSD slid 1.6% to 0.7385, before paring declines back above the 0.7400 on better-than-expected jobs data released this morning.
- Support levels below come in at 0.7259 and 0.7145.
- Spot 1.3286
- USDCAD jumped 1.6% to 1.3324, amid a strengthening US dollar and overnight oil weakness.
- The continued recovery of oil prices should help negate the effects of a stronger US dollar in the near future, with resistances coming in at 1.3325 and 1.3400. Support lies around the currency pair’s 200-day moving average of 1.3076.
- Spot 6.9349
- The PBOC lowered its fixing earlier today, by 0.38% to 6.9345 per US dollar.
- According to some analysts, the reference rate wasn’t lowered as much as expected, indicating efforts by authorities to manage the yuan’s decline.
- USDCNH gained 0.6% to 6.9506 today to its highest in more than 2 weeks.
- Spot 117.31
- USDJPY rose 2.5% to 117.86, and looks on course to test the next key resistance of 120.00, according to most currency analysts surveyed by Bloomberg.
- Support is likely to be found above the 115.00 handle.
- Spot 1.2552
- GBPUSD dropped 1.1% to 1.2514, the lowest in almost 2 weeks amid a broadly stronger US dollar.
- The currency pair has been capped by its two month-high of 1.2775 in recent weeks. The key support at 1.2300 remains.