Stocks Fall Following Disappointing Trump Press Conference

European stock markets are under pressure, following on from losses in Asia and U.S. stock futures also heading south. Investors are disappointed that the first press conference of the incoming U.S. administration brought no real clarification of fiscal and economic policies and markets have returned to a wait and see mode, with risk aversion picking up, while the dollar is under pressure. Drug makers in particular seem to be under pressure in Europe this morning, after slumping in the U.S. following comments from Trump during his press conference which implied that Drug companies has a lot of lobbyists and the U.S. was paying too much for drugs it makes. Trump said he will force the industry to bid for government business going ahead. The FTSE is halting the record streak of 12 straight daily gains and is retreating slightly from record highs.

Crude rallied to four-session highs of $52.99, with gains driven by the sharp post-Trump presser dollar losses. In addition, OPEC members are reportedly keeping to their output cut agreements so far, with Kuwait and Iraq saying they are in-line with their cuts, while Saudi has apparently informed some of its customers of delivery reductions.

Italian yields drop in 2019 and 2023 auctions, but the overall result was mixed and while the shorter dated auction was underpinned by the ECB’s expansionary policy and ongoing QE purchases, the longer-term auction showed a rise in yields. Italy sold EUR 3 billion of 2019 bonds with a coupon of 0.05% at an average yield of 0.06%, down from 0.3% at the previous auction.

German 2016 GDP growth accelerated to 1.9% from 1.7%, above consensus of 1.8%. Adjusted for calendar factors growth accelerated to 1.8% from 1.5% in 2015. The Statistics Office said growth was driven by domestic demand, with private consumption up 2.0% and public consumption rising 4.2%, with the latter fueled predominantly by the refugee influx. Overall consumption rose 2.5% and remained the main driver of growth, although Destatis also reported an encouraging pick up in investment, with construction investment up 3.1% and machinery and equipment investment rising 1.7%. Stock changes and net exports meanwhile detracted from overall growth, which should go some way to quieten critics arguing that Germany is relying too much on exports to boost growth.

Eurozone November production jumped 1.5% month over month, more than expected and with October data revised up to 0.1% month over month from -0.1% month over month, the annual rate lifted to 3.2% from 0.8% in the previous month. More signs then that Q4 GDP growth was robust, which was already indicated by full year German GDP numbers this morning, which showed growth rising to 1.8% on a working day adjusted basis last year, from 1.5% in 2015.

The “News Conference”– Where did the Dollar Bulls go?

If the reaction of the FX World is anything to go by, Trump’s first news conference was far from convincing, the Dollar bulls running for the hills leaving the bears to savour the moment, having been torched back in November.

Well, the markets were quietly hoping for the president-elect to cover policy intentions going into office and the markets got quite the opposite, the anxiety in the run up to the news conference justified, the Dollar Spot Index was sliding 0.84% to 100.92 this morning, with more likely to come.

The FED’s crystal ball was clearly working well back in December, the economic outlook sound with uncertainty over Trump also justified, that victory speech back in November obviously written by someone whom is no longer a member of the Trump Team.

So, what went wrong? The lack of direction or guidance on policy intentions upon taking office was certainly the main issue, notwithstanding the president-elect’s inability to hold a news conference, clearly lacking and somewhat concerning, the Trump rally now in question, financial markets perhaps finally able to shift free from the Trump-effect.

The U.S economy is in a good place and this may have eased any immediate need for a fiscal stimulus package, punitive tariffs and the “Wall” being more relevant for Trump than the fiscal stimulus package, which had been more of a given for the markets than foreign policy, though its’ too early to write off a fiscal stimulus package just yet.

Just how much Dollar strength stemmed from Trump’s intentions to deliver a fiscal boost to the U.S economy is reflected in the Dollar this morning, the EUR gaining 0.45% to $1.0631, cable up 0.73%, recovering to $1.23 levels, Cable’s upside coming despite the negative sentiment towards Brexit, with the Dollar sliding a whopping 0.91% against the Yen, the Yen hitting levels not seen since early December, as concerns of a material shift in trade terms, a likely trade war with China and the lack of details on a fiscal stimulus package seeing Treasury yields on the slide, widening the yield differential in favour of the AUD, which is up 0.8% at $0.75008 at the time of the report, the AUD getting an extra boost from the rise in commodity prices, the Bloomberg Commodity Index up 0.75%, though there will need to be some caution, a trade war with China certainly a risk to the Australian economy and the AUD.

With the Dollar Bulls in hiding, it certainly makes for an interesting European session, the ECB monetary policy meeting minutes scheduled for release this afternoon expected to lead to some easing in the EUR, though with the Dollar on the back foot, the moves are unlikely to be as material, the only question being whether the Board tossed around the idea of any tapering to the asset purchasing program back in December, any hawkish commentary likely to drive the EUR to $1.07 levels and beyond.

Stats out of the U.S, which are limited to the weekly jobless claims numbers and December’s import and export price index figures, are unlikely to have a material impact on the Dollar, the markets now having to consider the possibility that the FED can settle back into its patient approach to rate hikes, which is a negative for the Dollar, though we do expect the Dollar to bounce back tomorrow afternoon, retail sales figures out of the U.S expected to draw some Dollar bulls from the hills.

Daily Economic Calendar – A Bit Light on the Data

We begin the economic agenda for the day with the CPI data from France which is expected to come in at 0.6% YoY. Then we have the German GDP where the consensus is that it would come in at 1.8% which should be easy for a large and strong economy like that of Germany. Then we have the Eurozone industrial production which is expected to come in at 1.6% YoY.

Then, later on, towards the beginning of the NY session, we have the Initial Jobless Claims which is expected to come in at 255,000 and this is a key figure that will be watched closely especially after the pounding that the dollar has received in recent times.

Trump Causes Chaos in the Markets

The market had been holding its breath for a large part of the Asian and the London session today in anticipation of the first press conference from Trump since last July. The market was expecting him to touch a lot of things ranging from the wall on the Mexican border to Russian intervention in the elections to the trade war against China. Trump is an unknown entity as far as the markets and the establishment are concerned and it was no surprise that his press conference was looked forward to with so much of anticipation in the hope that it would give some hints of what is going on in his mind and that of his administrative team.

In summary, the market was expecting a speech from a statesman. But what the market got was the speech from a businessman who seemed to be more worried about his image, his opponents and his own business than that of the country which he is going to lead. He seemed to be more concerned about the accusations against Russia and how he was clean, how he would rather take his business forward and rule the country but didnt want to, how the car companies had cooperated with his plans but the pharma industries did not etc. There was absolutely no mention of anything about the fiscal or economic policy, the foreign policy or how he and his team is going to go about fulfilling the dream of making America greater during the first part of his speech.

With the lack of support from its President and with the lack of vision and maturity of a statesman, the dollar floundered and was pounded against all the other pairs in the first round. The dollar had gained in anticipation before the press conference but post the meeting, the dollar fell hard and the pairs retraced their losses. But little did they know that there was to be a round 2 as well as Trump took the mic again during the press conference and made it clear that he was pushing through certain campaign promises like the wall on the Mexico border and that there was nothing to go back on that. Ultimately, all this resolved as dollar negative and the dollar fell hard and continues to fall hard as we write this.

The Pound Drops to Test the October Lows Driving the FTSE to Fresh Highs

European yields are mixed with Gilts underperforming, while the FTSE 100 hits fresh highs, as Sterling lifts from recent lows against the EUR. Still, Gilt cash yields are down and the FTSE 100 continues to tests new highs while the DAX is at levels last seen in 2015 as oil prices rebound from lows and with WTI holding above USD 51 per barrel. Investors are waiting for Trump’s press conference, the first since he has been elected. The European calendar focused on the U.K., which reported stronger than expected production growth for November, which was counterbalanced, however, by a widening of the trade deficit.

Eurozone institutes see steady growth of 0.4% quarter over quarter through to Q2. The joint forecast of the Ifo, Insee and Istat institutes sees growth of 0.4% quarter over quarter, in Q4 2016, as well as Q1 and Q2 this year. Investment is now expected to outperform consumption and annual rates are expected to be around 1.5% and inflation is expected to jump to 1.5% in Q1 and Q2 from 0.7% in Q4 2016. 1.5% is still below the ECB’s definition of price stability, but still, the marked uptick, and the fact that German rates are clearly above the Eurozone average, are reviving criticism of Draghi’s very expansionary policies.

UK production figures for November beat expectations, rising 2.1% month over month and 2.0% year over year, up from -1.1% month over month and -0.9% year over year. Expectations had been for growth of just 0.6% month over month and 0.3% year over year. Manufacturing output came in with growth of 1.3% month over month and 1.2% year over year, up from -1.0% month over month and -0.5% year over year in October.

Trade Figures Offset Solid Production Data

The encouraging production data was offset by an unexpected construction output and November trade data showing a GBP 3.3 billion leap in imports, which dwarfed a GPB 700 million rise in exports, leaving the trade deficit at a much wider than forecast GBP 4.2 billion. The trade data evidences that the weaker pound won’t be a one-way street. The pound tipped about 50 pips lower versus the dollar after an initial pop in the immediate wake of the data releases.

German machinery orders rebounded in November, climbing 5% year over year, after falling -10% in the previous month. Domestic orders recovered 3%, while foreign orders growth accelerated to 5%. Domestic orders though have recovered remarkably, with the trend rate now back at 2%, versus -6% in the three months to October and -12% in the three months to September.

Oil prices recaptured the 51 handle barely, after trading under pressure during the last 2-trading sessions. A larger than expected build in crude oil inventories along with robust increases in both gasoline and distillate inventories, appear to have been the catalyst that drove the markets lower early in the week. Traders now await the EIA data released later on Wednesday.

Trump and The Dollar Bulls

The markets remained gripped with Trump fever through the early part of the day, focus firmly on Trump’s first news conference since winning the presidential election on 8th November.

A lack of material macroeconomic data out of the U.S in the first half of the week has left the Dollar exposed before a bounce back in the Dollar through the European and U.S sessions on Tuesday, with the Dollar Spot Index recovering to 102 levels at the time of the report, the Index having struggled to hold onto the 102 handle as the markets continue to respond to last week’s stats and FOMC meeting minutes, with FOMC members providing little evidence of a shift in sentiment towards the projected rate path.

The U.S economy is certainly on the front foot, which suggests that Dollar strength is expected to ultimately prevail, while anxiety ahead of today’s news conference has pegged back the Dollar, the president-elect’s persistent Tweeting leaving an air of unpredictability to what the markets are to expect.

Asian markets managed to shake off some of the anxiety through the Asian session that had left the Dollar in the red through the Asian session on Tuesday, with the Dollar making up ground against the Yen, gaining 0.26% at the time of the report, though any major moves have been on hold ahead of the news conference, the level of impact by a president-elect on global financial markets quite unprecedented, leaving one to question at what stage will ordinary course of business resume, focus needing to return to the outlook towards FED monetary policy and the direction of the U.S economy and economies beyond.

With a lack of material economic data out of the U.S through the day, there really is nothing else for the markets to consider, raising the stakes later today, with the Dollar and equity markets likely to see some sizeable moves through the news conference.

We will be looking for Trump to outline his policy goals upon taking office, which would clear up the uncertainty over foreign policy and intentions domestically, a view echoed by the FED in the December FOMC meeting minutes, concerns over punitive trade tariffs weighing heavily on Asian markets in particular.

A detailed outline of a fiscal stimulus package largely in line with market expectations will certainly be a positive for the Dollar and European and U.S equity markets, though whether this is where the markets are suffering the greatest degree of anxiety remains to be seen, foreign policy likely to have more of an impact on the global markets, the fiscal stimulus package largely priced in, notwithstanding the usual rally should more concrete details be provided.

The question now is really whether Trump will be able to draw a similar response from the markets as seen on November 8th?

Recent tweets and commentary suggests otherwise, but it would be a dangerous game to bet against the underdog who took office, surprising, not just the markets, but governments around the world.

The Dollar Spot Index is sitting at 102.11, a gain of just 0.10% on the day, though 103 levels are more than likely should Trump deliver a positive message for the U.S and global economy later today, other beneficiaries likely to be commodity currencies, the AUD outperforming through the early part of the day, up 0.2% to sit just shy of $0.74 levels at the time of the report.

Daily Economic Calendar – Its all About the UK today

To begin the economic agenda for the day, we have the Manufacturing production data from the UK during the London session which is expected to come in at 0.6%. This is expected to show a big recovery from the 0.9% drop that was seen in the last month. We also have the goods trade balance and the industrial production data being released from the UK and all 3 pieces of data would be crucial for determining where the pound goes in the short term.

Later on in the day, we have the crude oil inventory data from the US during the NY session and this is expected to show a build of 0.9 million barrels against the 7 million barrel drop in the last month. The oil prices have suffered a hit over the last couple of days and a stronger build in the inventory could affect the oil prices negatively.

Oil Prices Stabilize Allowing Stocks to Gain a Foothold

European stock markets are mostly moving sideways, DAX and FTSE 100 are posting marginal gains and the Euro Stoxx 50 is up 0.01%. Sterling remains under pressure and the FTSE 100, which is dominated by large multinationals, continues to benefit and the index managed to reach new highs, amid ongoing modest outperformance, versus the DAX. Eurozone markets mostly managed to recover early losses as oil prices stabilized, but markets remain lackluster amid a lack of key data. The better than expected French production numbers early in the European session also didn’t have too much of an impact. U.S. same store sales bounced in the first week of January while Canadian housing starts continued to impress.

Oil prices have moved higher today, with WTI presently up 0.6% at $52.20, retracing some of the 4%-odd decline of Monday. A softer dollar has aided the rebound, though speculative positioning remains at extreme longs, which unwind if the market doesn’t stay strong. Market participants continue to scrutinize the compliance among the key oil producing nations who signed up to the output trimming accord, while U.S. production appears gearing up.

French IP Rose More than Expected in November

French industrial production rose 2.2% month over month in November, more than expected with October revised up to -0.1% month over month from -0.2% month over month reported initially. Manufacturing production rose 2.3% month over month, after falling -0.6% month over month in the previous month

After two consecutive week of declines, U.S. chain store sales bounced 2.2% in the week ended January 7, after a 2.9% drop at the end of December and a 0.9% slide the week before that. On an annual basis, sales slowed to a 1.1% year over year rate from 1.3% year over year clip. Cold weather, post-holiday promotions, and gift card redemptions pushed sales last week. Department store sales remained weak, however, as they were over the holiday season. In fact, the report said department stores contracted on a comp basis for an eighth consecutive quarter.

Canada housing starts jumped to a 207.0k unit pace in December from a revised 187.3k pace in November. The acceleration left starts running well above expectations in December compared to forecast of a 190.0k climb. Multi-unit starts surged 13.9% to a 120.8 growth rate in December from the 106.0k clip in November. Single unit detached starts grew 8.1% to a 66.9k pace from 61.9k. This is a firm report that suggests underlying momentum in Canada’s housing construction has yet to be impacted by the government housing measures that began in October.

Brexit Fears and Risk Off Dominate the Markets

The day so far has witnessed a lot of volatility in the various instruments as there is no clear direction in the markets as yet. The data from the US has been generally good and the bankers and fund managers agree that the dollar would be strengthening in the short and medium term but that is not something that we have been seeing in the markets so far. Over the last 24 hours, we did not have much economic news and even the Fed members who chose to speak have been generally hawkish with the rate hikes and the dollar but still, we have been seeing the dollar weakening across the board since yesterday evening.

This has been especially seen in the euro and the USDJPY as the global fears over the Brexit process and the oil prices have led to a general risk off mood in the markets which has translated into yen strength and dollar weakness. So, we have the EURUSD shooting up through 1.0600 and gold prices also nearing 1200. The only currency that has not been able to join the party has been the pound which has been having a difficult time of late.

The Brexit fears continue to swirl around the markets as the possibility of a hard Brexit has been increasing every day. The markets had been hoping for a soft Brexit where the negotiations between the stakeholders would be easy and straightforward and the UK would continue to get free access to the markets around the Eurozone, as it was getting when it was part of the Euro. But the latest signs are that it may not get such free access. It will either be no access or it will be that it has to spend a lot of money to get that kind of access again. This is likely to hit the UK economy severely and the UK also has its own internal issues with regard to getting Parliament approval and also dealing with the anger from the Scottish government and all this is going to make the situation even worse for the UK and this is reflected in the value of the pound which has not been able to make a run despite the weakness in the dollar. We believe that the pound is set to move lower today and in the short term as well.

Caution is required while trading in such volatile conditions and it is important that the traders don’t fix up any specific trends and not to trade with any specific bias. It is important to be nimble and adjust to how the market conditions change.

Daily Economic Calendar – Australian and Chinese Data Disappoint

We begin the economic agenda for the day with the Australian retail sales data which came in at a worse than expected 0.2% against the expected value of 0.4%. This put into perspective the recovery of the Australian economy and shows that more needs to be done. This was followed by the Chinese CPI which slightly missed its mark by coming in at 2.1% against  the expected value of 2.2%.

On the European side, we have the Swiss unemployment rate coming in followed by the French Industrial production. During the NY session, we have the final wholesale industries which is expected to come in at 0.9%. Though this is not a biggie, the market will hope to see good data coming through to continue the trend of strong US data.

Check out our real-time Economic Calendar

The FTSE Outperforms and Sterling Slumps Following May’s Comments

European stock markets are mostly down, with Eurozone markets underperforming and broadly heading south, while the FTSE 100 managed to outperform and post slight gains. Sterling is under pressure as comments from the UK’s May about Brexit has roiled the currency markets. The FTSE 100 seemed to shrug off suggestions from Prime Minister May that she would risk single market access to regain control over immigration and the U.K.’s borders.

U.S. stock futures are slightly down, after Friday’s push higher on Wall Street that saw the Dow Jones testing the 20K mark once again. Japan was closed for a holiday, but other Asian markets managed to move higher, with the ASX 200 closing with a 0.90% gain. The resulting weakness in Sterling may have helped to underpin the FTSE 100 that is heavy with large multinationals. In the Eurozone, peripheral markets are underperforming but the DAX is also down -0.46% on the day, against a 0.17% gain in the FTSE 100. Lufthansa in particular came under pressure after some negative notes on the airline, which countered demand for Volkswagen shares after better than expected sales numbers for last year. Strong German orders numbers and exports failed to give the DAX a lasting lift.

Eurozone Unemployment was Steady at 7-year Lows

Eurozone unemployment held steady at 9.8%, a 7-year low that highlights that the improvement in economic activity also has reached the labor market. Disparities across countries remain very high with the German rate of just 4.1% contrasting with 19.2% in Spain, although even their jobless rates are slowly coming down. Greece, which hasn’t released data for October and November yet, continues to top the league with rates clearly above 20%. Youth unemployment also remains a major concern, with the overall rate of those under 25 without a job actually rising in November to 21.2% from 20.9% in October. This is still below the 21.8% seen a year ago, but the renewed uptick clearly is a concern also for social stability.

Statement from UK Prime Minister May this past week reflecting her view that the UK would exit the EU’s market and pursue deals have not been taken well by the capital markets.  Investors are concerned of a time lag which will create a disruption in trade as the terms of the breakup are unknown.

German November industrial production rose 0.5% month over month, a tad less than expected, but with October revised higher and the numbers not really a surprise, after the up and down of orders numbers in the October/November period, which made it difficult to pinpoint production as much depended on when orders would be realized. The annual rate came in higher than expected and rose to 2.1% year over year from 1.6% year over year and while the three-month average trend rate fell back in November, it remains on a robust path and consistent with a pickup in overall growth in the fourth quarter, with orders data and confidence indicators indicating that the recovery remains intact.

Steady Trading in The Morning

It has been some steady trading during the course of the morning with a bit of volatility around with the yen continuing to weaken during the course of the morning. It is a holiday in Japan today but that has not caused any kind of slumber in the markets and they have been fairly active today morning.

We did have a bit of news over the weekend with the Scottish PM threatening to go ahead a vote of Independence to show their displeasure over the Brexit vote. The Scottish people had voted to stay in the Eurozone but the rest of the UK had voted to move out and Scotland did not have a choice but to follow suit. This has caused a bit of unrest among the people of Scotland and this is slowly beginning to show through. This is a large risk event surrounding the Brexit process and this is likely to keep the pound under pressure during the course of the day and going forward as well.

On Friday evening, we saw the release of the NFP and average wages data from the US. The NFP showed a slightly less than expected number but the average wages rose by a lot which helped to keep the dollar supported. This was in turn reflected in the stock markets as well and that is the reason why the yen has been weakening today morning as there is a general risk on mood today. This mood is likely to continue for the rest of the day as we are likely to see the dollar continue to strengthen, especially in the absence of any major economic news from any part of the world today. The USDJPY and the euro are the ones that are likely to lead the rally in different directions. Take care and trade safe !

 
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Weekly Economic Calendar – Trump, Yellen and China

After a first volatile week in 2017, markets will continue to focus on economic news and speeches in order to get further indications of global policy makers.

In the second week of the year, traders and investors will be closely watching on Donald Trump’s press conference on Wednesday. Trump will hold his first post- election conference and traders will attempt to get any details about the economic plans of the new US president that will enter the White House on January 20.

Additionally, on Thursday, Fed chair Janet Yellen will speak in Washington. After Friday’s weak non farm payrolls and a vague minutes protocol of December meeting, investors will continue to seek any details of US central Bank rate hike predictions.

Last week, rumors indicate China’s US Dollar sell-off pushed the greenback down. The question for the upcoming week is if the trend continue as the Chinese leadership concerned by Trump’s trades restrictions plan.

China will publish its CPI data on Tuesday at 1:30 GMT and its Trade Balance on Friday at 03:00 GMT.

On Thursday, ECB minutes will be published at 12:30 GMT and can shed lights of the European central bank decision to extend its quantitative easing program.

Solid U.S. Jobs Data Keeps Fed on Track for Future Rate Hikes

The U.S. Dollar rose against a basket of currencies on Friday as traders reacted to a solid U.S. Non-Farm Labor report. Despite the strong comeback, the Greenback is still in a position to close lower for a second consecutive week. Earlier in the week, the dollar caved from pressure caused by mixed U.S. economic data and heavy selling in China.

The March U.S. Dollar Index gained ground in reaction to the U.S. jobs report that showed the economy added fewer jobs than expected in December, but an improvement in wages. The data was strong enough to convince investors that the economy was strong enough to raise interest rates later this year.

According to the Labor Department, the headline number showed the economy added 156K jobs in December. Traders were looking for 175K. The Unemployment Rate rose from 4.6% to 4.7% as expected. Average Hourly Earnings rose 0.4%, up from -0.1% and better than the 0.3% estimate.

There were also revisions in the report. October and November figures were revised to show 19,000 more jobs were added than previously reported. Finally, the government said the U.S. economy created 2.16 million jobs in 2016 with the year-on-year increase in average hourly earnings rising to 2.9%.

The jump in Average Hourly Earnings was most impressive because a 2.9% annual increase is higher than the 2.0% Fed inflation target. This will encourage the Fed to raise rates perhaps as many as three times in 2017.

Gold and Other Metals

February Comex Gold futures closed lower on Friday amid profit-taking by investors who bought earlier in the week as a hedge against a bearish jobs report. Gold was still in a position to close higher for the week by about 2.2 percent. It was primarily helped by a weaker U.S. Dollar and weaker U.S. Treasury yields.

On Friday, the dollar rallied, pressuring the dollar-denominated gold market. We don’t know if this will turn into a new down trend, but investors reacted as if taking profits was the right thing to do at this time.

March Palladium futures hit a five-week high as investors continued to react the news from earlier in the week that showed U.S. sales of new cars and trucks hit a record high in 2016. Palladium is a key component in the manufacturing of automobile catalytic convertors.

U.S. Equity Markets

The three major U.S. stock indices rose on Friday with the cash S&P 500 and cash NASDAQ Composite Indexes reaching new all-time highs. The cash Dow Jones Industrial Average was up, but missed hitting the historical 20,000 level by only a fraction.

U.S. Payrolls Miss Expectations; But Canada Employment Surges

U.S. December nonfarm payrolls rose a modest 156k, compared to the 180K expected,  after an upwardly revised 204k gain in November and a downwardly bump in October to a 135k increase. The net October, November revision was 19k. The unemployment rate ticked up to 4.72% from 4.65% which was revised from 4.640%. The labor force jumped 184k versus the prior -187k, while household employment edged up 63k from 146k in November. Average hourly earnings surged 0.4% versus -0.1%. As for details, private payrolls were up 144k versus ADP’s 153k, with the goods producing sector adding 12, with manufacturing up 17k, while construction dipped 3k. The service sector added 132k jobs, with education climbing 70, with government jobs up 12, while temporary help dropped 16k.

Canada posted a much better number than the U.S. with employment surging 53.7k in December, contrary to expectations that the recent run of sizable gains would end with expectations of -2.5k. The 10.7k gain in November was not revised. Full time employment grew 81.3k after an 8.7k decline while part time jobs fell 27.6k following a 19.4k gain. The unemployment rate ticked higher to 6.9%, as expected (median 6.9%) from 6.8% in November. The participation rate rose to 65.8 from 65.6.

The Dollar Bounce

What a difference a day makes…

The Dollar was under the cosh over the last two days of trading, the markets continuing to react to the FOMC meeting minutes from December and the disappointing ADP Nonfarm Employment Change numbers released on Thursday, which saw the Dollar Spot Index slide 1.64% from Tuesday’s high of 103.21 by the close on Thursday.

The ADP numbers certainly got the markets into a jittery mood ahead of tonight’s nonfarm payroll numbers, sensitivity stemming from the FOMC meeting minutes that were perhaps not as dovish as some considered, as how Trump will ultimately perform remains an unknown and which policies will be a priority are also an unknown, the markets having taken pretty much all the positives and dived in.

We’re essentially back to whether the U.S economy is going to continue performing through the 1st quarter to justify a sooner rather than later rate hike, the markets all too aware of how cautious the FED can be.

Despite the negative sentiment towards the ADP number of 153k, the weekly initial jobless claims is certainly an alternative indicator of labour market conditions, expectations of 200k plus numbers perhaps over-optimistic, particularly when considering the fact that 150k plus nonfarm payrolls will likely continue to support full employment, or close to it.

The reality remains however, that tonight’s nonfarm payroll numbers are going to lead to a material move on the Dollar and the number is going to have to be in line with or better than the forecasted 175k increase for the Dollar to get a bounce, though it’s not just the nonfarm that the markets are concerned with, wage growth having eased in November, another factor to consider this afternoon.

So what’s likely to be good enough for the Dollar to recapture some of that vim? Wage growth will need to see at least a 0.2% gain, with nonfarm payrolls at 170K plus, labour market data coming back into market focus, with macroeconomic data out of the U.S likely to be the only catalyst for the FED to make a move in the 1st quarter, the FOMC’s clear uncertainty over how Trump will deliver removing any immediate moves on Trump taking office.

As of this morning, the Dollar Spot Index has managed to stop the rot, gaining 0.14%, with the EUR down 0.19% at $1.05872 at the time of the report, the markets largely ignoring weak factory order and retail sales figures out of Germany ahead of the European session, focus now on this afternoon’s nonfarm payroll and wage growth figures out of the U.S. though the Dollar may be under some pressure ahead of the data, the markets likely to be wary of a weak number following the ADP figures released yesterday.

Despite the current volatility, we continue to take a bullish view on the Dollar, while acknowledging that this afternoon’s figures will play a part in the short-term, the U.S private sector continuing to perform, with the Trump euphoria that has driven consumer confidence to post-crisis highs a key consideration for the FED, with inflation beginning to stir and this is all ahead of any fiscal stimulus package that could shift the economy into a higher gear, though caution is needed as the FED has wisely pointed out.

Volatile Day leads to another Day of Volatility

Yesterday, we saw the waxing and waning of the dollar strength all through the day which pushed the various currency pairs this way and that. Day traders would have loved these kind of moves while it would have been a very difficult day for positional traders to make any kind of decision about the underlying trends during the course of the day.

Most of these moves could probably have been due to the fact that large orders might be going through as the traders and the bankers have returned from their holidays and they have started opening positions in anticipation of the larger trends to prevail. They may also be establishing positions in line with the expectations for the upcoming economic news from the different parts of the world. But the overall theme over the past 24 hours has been the weakness in the dollar which has helped to push the euro towards 1.06 and we have also seen some yen strength which has caused the USDJPY pair to plummet towards 115 but they have stabilised as of this morning.

Looking ahead to today, we have the NFP report which generally sets the tone for the rest of the month. This month, this report will be looked forward to as the market would like to see some strong data which would support the case for quicker hikes ahead. So, if the data comes out strong, expect the dollar strength to return while a failure in the data would cause the dollar weakness to continue even more. Traders are advised to stay on the sidelines till the dust settles down so that they will be able to see the underlying trend after all the noise and then start establishing their positions. Good luck for what promises to be a highly volatile day ahead.

 
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ADP Jobs Data Comes in Below Expectations, Crude Oil Data Mixed

U.S. Economic data was mixed on Thursday with U.S. weekly jobless claims falling to a 43-year low last week, but data from payrolls processor ADP showing the private sector added fewer jobs than estimated. Other data included the December IHS Markit Services PMI and the ISM Non-manufacturing Index.

ADP said private employers added 153,000 jobs last month, well below the 170,000 estimate. Weekly jobless claims came in at 235,000, under the consensus estimate of 262,000. Trader reaction was mixed because some read this as slow, but steady job growth and others saw the ADP number as a sign of weakness. This report is often used as a precursor to Friday’s U.S. Non-Farm Payrolls report.

The December IHS Markit services PMI came in at 53.9, higher than the 53.4 estimate, but below the previous read. ISM Non-Manufacturing PMI was 57.2, the same as the previous, but above the estimate.

On Friday, investors will get the opportunity to react to the latest U.S. Non-Farm Payrolls report at 1330 GMT. Early estimates show that the U.S. economy may have added 178,000 jobs in December. The Unemployment Rate is expected to come in at 4.7%, higher than the previous 4.6%. Average Hourly Earnings are expected to rise 0.3%, better than the previous minus 0.1%.

The report is important because labor is a key component in the Fed’s decision to raise interest rates.

Energy

The crude oil market posted a two-sided trade on Thursday before moving higher. Two factors contributed to the choppy, but better price action. Firstly, the market was underpinned by news that Saudi Arabia had cut production to meet OPEC’s agreement to cut output. According to a Gulf source, Saudi Arabia cut oil output in January by at least 486,000 barrels a day to 10.06 million barrels. This puts it in compliance with the agreement reached at the end of November to reduce output in an attempt to trim the global supply surplus and stabilize prices.

Secondly, traders responded to government data that showed a surprisingly large increase in U.S. gasoline and distillate inventories.

The government data caused prices to decline, but the news about Saudi Arabia brought prices back up again.

According to the U.S. Energy Information Administration, U.S. crude inventories fell sharply by 7.1 million barrels in the week ending December 30. Traders were looking for a decline of about 2.2 million barrels. The EIA said the drawdown was caused by a hike in refinery output.

While the crude oil number may have been bullish, gains were capped by a surge in gasoline and distillates. Gasoline stocks rose by 8.3 million barrels. Traders were looking for a 1.8 million-barrel gain. Distillates rose by 10.1 million versus expectations for a 1.1 million-barrel increase.

Topsy Turvy Day in the Markets Throws Traders Off Balance

It has been a highly volatile day in the markets today right from the start of the Asian session as the new year in trading is well and truly underway. It all began with the FOMC meeting minutes that was released yesterday late into the NY session which showed that the Fed members were not as hawkish as the markets had expected them to be. This triggered a round of USD weakening and all led to a general risk off mood in the markets.

The ADP employment report rose by 153,000 jobs below expectations of 170,000. The data can shed lights on tomorrow’s non-farm payrolls report.

This risk off mood helped the yen to gain and the USDJPY pair fell through 117 and then later on fell through 116.27 in a jiffy at the start of the London session. It has since recovered somewhat and trades above 116 as of this writing. This also helped the EURUSD pair to skyrocket through 1.0518 and go as far high as 1.0574. The stock markets also took a hit as the Nikkei closed lower for the day by 0.37%. The European stock markets have also opened lower in general but as the London session wears on, we have been seeing a recovery in the dollar strength and in the stock markets as well.

It is clear that the traders have started returning back to their desks after the holidays and this has led to opening up of new trades and positions by them and this is the major reason for the volatility and the markets being moved this way and that.

The German construction PMI has come in at a better than expected value of 54.9 and so has the Eurozone retail PMI which came in at 50.4.  The UK Services PMI also came in better at 56.2 which continues the trend of the UK to throw up good data despite the risks and the confusion surrounding the Brexit process. It should be an interesting day ahead as we have seen both weakness and strength in the dollar today and we look ahead to another set of data later on in the day which is likely to set the tone for the US session.

The FED, the ECB and the EUR

So, did the Dollar overshoot?

The Dollar’s taken a bit of a beating since the release of the FED minutes on Wednesday, the Dollar Spot Index fell 0.79% to $101.89 ahead of the European open and currently trading at 102.33.

If the Dollar bulls were hoping for a bounce on the European open, they certainly got it with the Dollar Spot Index regaining 102 levels on the open, the markets shifting focus away from the FOMC to the scheduled release of the ECB monetary policy meeting minutes.

We’ve seen the FED disappoint the markets, the continued reference to a lower and slower rate path weighing on market sentiment towards monetary policy through the year and we’re about to see how the ECB fares against the FED.
It would be a surprise if ECB’s December meeting minutes suggest any further tapering to the Asset Purchase Program beyond the December move, the Board having reduced the quantum to €60bn in December, while extending the tenor of the program to the end of the year, but central banks are quite capable of catching the markets off-guard despite plenty of forward guidance, the markets having just gotten a sharp reminder of just how dovish certain members of the FOMC actually are, a far cry from the interpretation of the FOMC economic projections released last month.

While economic data out of the U.S continues to impress, inflationary pressures have certainly picked up in the Eurozone through December and it’s only going to be a matter of time before the markets begin to consider the possibility that the ECB will begin to pull back on the monetary policy easing that the markets have enjoyed.

There had been some noise on a tapering to the asset purchase program late last year and, should the minutes contain any reference to the need to further taper, we would certainly see a bounce in the EUR, though our view is that considerable headwinds persist for the Eurozone economy and the ECB will need to take the more cautious path through the first half of the year, with concerns over elections in the Netherlands and France coupled with the British government invoking Article 50 in March weighing, all of which should limit any material upside over the near-term, though we can expect a bounce once it becomes clear that populist political parties across key EU member states have yet to attract support levels needed to take office.

We would expect the minutes to maintain a relatively dovish tone adding pressure to the EUR, which is currently in reverse, sitting up 0.19% at $1.05094, pulling the EUR back to $1.04 levels, with December’s ADP Nonfarm Employment Change, the weekly initial jobless claims and service sector PMI figures out of the U.S this afternoon key drivers for the Dollar, though for a sustained rebound in the Dollar through to the close, we would need to see the December PMI figures to come out ahead of forecasts, forecasts currently negative from a Dollar perspective, the markets unlikely to respond to the nonfarm barring numbers that see a significant shift from forecast, tomorrow’s government figures of more relevance to the markets and the Dollar.