The key theme today is the continued strengthening of the dollar following positive US wage data late last week. Share markets in Shanghai, Sydney and Singapore traded higher after US equities closed at fresh record highs last Friday. Gold maintained gains due to increased seasonal demand ahead of the Lunar New Year festival.
- December nonfarm payrolls came in at 156,000, down from an upwardly-revised 204,000 in November, and missing the median estimate of 175,000. Change in manufacturing payrolls rose 17,000, after declining for 4 straight months, while private payrolls registered a 144,000 increase, down from 198,000 in November.
- The employment rate ticked up from 4.6%, to 4.7% last month.
- Average hourly earnings last month rose 0.4% month-on-month and 2.9% year-on-year, beating their respective estimates of 0.3% and 2.8%.
- Factory orders fell 2.4% in November, down from a 2.8% increase prior and missing the 2.3% drop predicted. Durable goods orders slid 4.5% over the same period, slightly better than the 4.6% drop forecasted.
- The US trade deficit widened further during November to $45.2 billion, from $42.4 billion in October.
- The US dollar buying resumed after 2 days of selling down, with the Bloomberg Spot Dollar Index closing 0.6% higher on Friday and rising a further 0.2% in Asia today. The Dollar Index rebounded back above the key 102 level, and is 0.1% stronger at 102.330 today.
- Mohamed El-Erian, Allianz SE’s chief economic adviser, said investors shouldn’t overlook risks tied to the strengthening US currency, admitting that the USD is the first thing he looks at every morning and that the US labor market remains “structurally challenged” even amid last Friday’s job gains.
- The benchmark US 10yr Treasury yield gained 8bps to 2.42% Friday, amid the strongest annualized wage growth in 7 years.
- The S&P 500 Index rose 0.5% to a fresh record high of 2,279.28 on Friday, led by gains in the technology and industrials sectors.
- There were a couple of rather-hawkish comments by Fed officials over the weekend:
- Chicago Fed President Charles Evans said he remains optimistic that fundamentals remain strong and that the labor market will continue to support consumer-led growth in output, and added that he anticipates actual and expected inflation to move “close to 2% in the next 2 to 3 years”. Evans further stated that 2 rate increases this year is “not an unreasonable expectation”, while 3 hikes was “not implausible”.
- Dallas Fed President Robert Kaplan echoed Evans’ belief that “a higher federal funds rate in 2017 is going to be appropriate”.
- Philadelphia Fed chief Patrick Harker separate said he has “pencilled in for 3 increases this year”.
- Cleveland Fed President Loretta Mester argued for a slightly steeper path of rate hikes than the one set out by the FOMC in 2017 and 2018.
- Richmond Fed President Jeffrey Lacker stressed that the federal funds rate was “exceptionally low” and required an upward adjustment.
- The December Canadian jobs report last Friday showed the country recorded its best half-year job gains since 2007. Net change in employment rocketed by 52,700, accelerating from 10,700 in the month prior and shattering the consensus estimate of a 2,500 drop.
- Full-time employment reversed November’s 8,700 drop, rising by 81,300, while part-time jobs fell by 27,600, down from the 19,400 rise previously. The participation rate ticked up to 65.8%, more than the 65.6% predicted.
- International merchandise trade swung to a C$526 million surplus, rebounding from a C$1.02 billion deficit in the previous month.
- UK Prime Minister Theresa May signalled regaining control of immigration and law-making are her Brexit priorities even if that remains quitting Europe’s single market. She added that Brexit will be about “getting the right relationship, not about keeping bits of membership”.
- China’s foreign reserves fell for a sixth straight month in December, dropping $41.1 billion to a 5-year low of $3.01 trillion which was in line with the median estimate. The PBOC’s efforts to stabilize the yuan was the main reason for the drop last month and last year, a government body stated.
- Building approvals in November jumped 7.0% month-on-month, reversing an 11.8% decline in the month prior and exceeding the median estimate of a 4.5% gain.
- Spot gold continues to struggle to break above the key $1,180/Oz resistance, retreating back below it following strong US wage growth reported last Friday.
- Increased demand for the precious metal ahead of the Lunar New Year may provide further support for gold in the coming weeks.
- The metal may continue to experience some selling around $1,180/Oz, while $1,150/Oz and $1,125/Oz are likely to provide support.
- Silver was largely unchanged earlier today, continuing to hover just below the $16.5000/Oz handle.
- Crude oil futures expiring in February retreated 0.6% to $53.66/bbl this morning, halting its advance to $54/bbl last Friday, as an increase in US drilling negated the positive effects of OPEC members sticking to planned output cuts.
- Spot 1.4420
- USDSGD extended Friday’s rebound, gaining a further 0.2% to 1.4421 earlier today, after US jobs data boosted Treasury yields and the US dollar.
- The currency pair’s strong rejection of the 1.4300 handle could be a signal for further gains, with the 1.4500 handle likely to be tested again soon.
- Spot 0.7311
- AUDUSD retreated from a 3-week high reached last Friday, and is currently back at its 0.7300 handle.
- A break below 0.7300 should lead to a re-testing of the 0.7150 support level.
- Spot 1.3252
- USDCAD looks set to snap a 3-day losing streak after gaining up to 0.2% to 1.3263 this morning.
- The support of 1.3100 remains as the next key support as it coincides with the 200-day moving average as well.
- Spot 6.8878
- USDCNH rose for the second day, rising 0.6% to 6.8897, after the PBOC weakened its fixing by the most since June – 0.87% weaker to 6.9262 per US dollar.
- Yuan bears were confronted by a short squeeze last week, with soaring funding costs helping the offshore currency to a record weekly advance, below 6.8000 to the dollar.
- Spot 117.35
- USDJPY added upon Friday’s reversal, gaining 0.4% to 117.53 today.
- The 115 support proved to be a resilient one, and a renewed charge back to the recent high of 118.66 could be in the offing.
- Spot 1.2188
- GBPUSD slipped 0.9% to a 2-month low of 1.2181, following a stronger US dollar and PM May’s Brexit comments over the weekend.
- The next key support below comes in at 1.2090.