Main market themes
- Unrest in both Iraq and Libya has resulted in disruptions to oil supply market, with crude prices starting the week higher. However, moves have been limited so far, with front-month Brent prices briefly touching $66/barrel before backing off. The feed-through to equity markets has been limited, with most exchanges, particularly those in China, trading higher.
- Today’s observation of Martin Luther King Jr Day in the US, and the lack of any key data releases across the Eurozone and in the UK, means we may see a slow start ot the week.
- China’s economy stabilized in Q4, according to GDP figures released overnight. YOY growth was steady at 6.0%, following deceleration in the prior two quarters. Full‑year growth for 2019 was 6.1%, within the government’s target range of 6.0-6.5%. The December figures for Chinese industrial production, retail sales and fixed asset investment beat expectations. That supported risk sentiment in the Asian market session.
- US stocks rallied and hit record highs again on Friday, finishing the week on a strong note as investor optimism soared over upbeat US data and overall favourable China data. The Dow Jones Industrial Average picked up slightly by 0.2% to continue its second back-to-back record setting session while S&P 500 and NASDAQ also rose 0.3 to 0.4% to close at their respective highest level. Bonds yields barely moved as treasuries lost appeals.
- Gold prices picked up a little to $1,557.24 a troy ounce while crude oil generally rose with Brent crude last trading on Friday at $64.85/barrel.
- US housing starts jumped to 13-year high: Housing starts surged by a whopping 16.9% MOM to a 13-year high of seasonally adjusted annual rate of 1.61mil in December (Nov: 1.38mil), driven by both single and multi family unit starts, that was exaggerated by the unusually warm weather in the final month of last year. On a less positive note though, building permits declined by 3.9% MOM (Nov: +0.9%) to an annualized rate of 1.42mil units (Nov: 1.48mil), pointing to a pull-back in housing starts in the months to come. Nonetheless, the overall data suggest that the US housing market is indeed on track to recover in 2020 as demand turns stronger in a low interest rates environment.
- US industrial production slipped on lower utilities output: US industrial production resumed contraction in December after brief upturn in November, recording a decline of 0.3% MOM (Nov: +0.8%). The growth in November was also revised lower from 1.1% to 0.8% MOM. The modest fall in output reflects the 5.6% (Nov: +1.0%) decrease in utilities that outweighed the gains in manufacturing (+0.2% vs +1.0%) and mining (+1.3% vs -0.2%) as demand for heating dropped in an “unseasonably warm weather” according to the Federal Reserve.
- US consumer sentiment was virtually unchanged in early January: The University of Michigan Consumer Sentiment Index slipped to 99.1 in January (Dec: 99.3) according to preliminary reading that indicates virtually unchanged and thus favourable consumer sentiment in early January. The stability was observed in both current assessments and future economic prospects with impeachment barely mentioned in the survey. The University of Michigan said that ” the current expansion has established a new record length largely due to consumer spending. Consumers will continue to sustain the expansion due to their favorable judgements about their current and prospective financial situation”.
- Eurozone inflation rose in December on higher energy cost: The final reading of December Eurozone HICP inflation rate was unchanged at 1.3% YOY in December (Nov: +1.0%) driven by higher cost of energy alongside consistent contribution by food, alcohol & tobacco as well as services. Core CPI posted a steady 1.3% YOY gain (Nov: +1.3%), as services inflation remained largely unchanged. The higher inflation was welcoming to the ECB but remained below its target of just below 2%.
- UK retail sales dropped in December, adding to signs of economic weakness: UK retail sales volume dropped by 0.6% MOM in December (Nov: -0.8%), led by the fall in sales at both non-food stores and food stores that offset the positive contributions from fuel and online sales. The total amount spent also slipped by 0.3% MOM reflecting weak consumer spending even in the month of festivity. The latest retail sales print joined a trove of recently weak UK data from CPI to industrial production, adding to signs of economic weakness in a country plagued by years of Brexit worries. This, alongside the dovish remarks from BOE policy makers have driven up expectations that the BOE will indeed cut bank rate to 0.5% at the end of this month.
- On the CFTC front, non-commercial and leveraged accounts continue to pare their net implied long USD positions again this week. In particular, note that the short-term players have boosted their implied JPY shorts significantly in the latest week. Asset managers, however, reduced their net implied short USD bias.
- President Trump’s impeachment trial will get underway in the US Senate on Tuesday. Given that the Upper House of Congress is Republican controlled it is unlikely that he will be found guilty. Consequently, the key issue for markets may be whether the process has any impact on voting intentions ahead of November’s elections. Opinion poll evidence on how ‘floating’ voters view developments is still ambiguous. So perceptions may be shaped by whether or not the process is seen as fair.
Today’s Options Expiries for 10AM New York Cut (notable size in bold)
- EURUSD: 1.1015 (EUR979mn); 1.1100 (EUR756mn); 1.1105 (EUR692mn); 1.1135 (EUR280mn); 1.1200 (EUR796mn)
- GBPUSD: 1.3000 (GBP320mn)
- USDJPY: 108.75 (USD500mn); 109.40 (USD1.1bn); 110.00 (USD431mn)
- AUDUSD: 0.6850 (AUD415mn); 0.6920 (AUD962mn)
EURUSD (Intraday bias: Bearish below 1.1120 Bullish above)
From a technical and trading perspective, with the optionality in th e1.11/1.1150 area expiring, prices took out the 1.11 support, as 1.1120 caps corrections look for a test of pivotal 1.1040/60, look for daily reversal patterns from this level as an opportunity to take on long exposure. If bids fail to emerge here bears will press for a test of bids towards 1.10 and stop below.
GBPUSD (Intraday bias: Bearish below 1.3050 Bullish above)
From a technical and trading perspective, as 1.3035 caps corrections to the upside look for a test of bids and stops below 1.2950. A close above 1.31 would suggest a delay to downside objectives opening a retest of range resistance, with offers and stops above 1.32 targeted.
USDJPY (intraday bias: Bullish above 108.65 targeting 110.50)
From a technical and trading perspective, the breach of 109.50 provides a window for upside extension to challenge the 110.50 equidistant swing objective. Only a failure back below 109.80 would suggest a period of consolidation/correction. Note significant sentiment divergence developing which will likely be addressed over coming sessions.
AUDUSD (Intraday bias: Bullish above .6910 Bearish below .6885 below)
From a technical and trading perspective, the failure to establish ground above .6940 has seen the anticipated freshly minted long liquidation opening another test of .6840 bids. If bids fail to emerge here look for a test of ascending trendline support to .6800.
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