Macro Watch: 10 Key Events That Could Impact Crypto This July

Key Points

  • Crypto markets will watch data out of the US, Eurozone and UK for signs that inflation has peaked this month.
  • Traders will also be watching growth data, with analysts increasingly expecting a US (and UK/EU) recession.
  • The Fed and ECB will both lift interest rates this month, with central bank tightening still a key crypto theme.

Crypto Weighed By Macro Concerns

A deterioration of the macroeconomic environment has been the main driver of the latest downturn in cryptocurrency markets that began at the end of 2021, analysts now unanimously agree. Central bankers at the likes of the Fed, ECB and BoE were all wrong-footed in their assumption in 2021 that the burst in global inflation pressures would prove temporary. In fact, inflationary pressures worsened in the first half of 2022, forcing an abrupt about-turn in their respective monetary policies.

The Fed has already lifted interest rates by 150 bps this year (to a 1.50-1.75% range) and is signaling rates rising above 3.0% by the year’s end. The BoE has already lifted interest rates by 115 bps (to 1.25%). Meanwhile, the normally ultra-dovish ECB has signaled its intention to raise benchmark interest rates from current -0.5% levels to above zero by the end of Q3. All three, and many other central banks around the world, are scrambling to catch up with inflation and preserve credibility.

The sudden scramble to (first) end risk asset pumping quantitative easing programs and (second) to rapidly raise interest rates has delivered a hammer blow to risk assets such as tech/growth stocks and crypto. When the macroeconomic backdrop becomes more uncertain, speculative risk assets such as these are amongst the first that nervous investors will shed in favor of safer assets.

And the macro backdrop is very uncertain indeed. No one really knows how long it is going to take for the Fed and other major central banks to get inflation under control. Many fear that they may fail to do so, as happened back in the 1970s/80s.

That is why markets, including risk-sensitive stocks and crypto, have been very sensitive to macroeconomic data and central banks this year.

Recession to the Rescue?

Inflation isn’t the only economic worry playing on investors’ minds. Growth also appears to have slowed across major economies in recent months, according to a variety of data including consumer and business surveys, consumer spending reports and business sentiment data.

Investors have recently been upping bets that a recession in the US, Eurozone and UK (as well as other regions) will bring inflation under control. That’s why, in the last few weeks, global commodity prices have been collapsing, bond yields have been dropping, long-term inflation expectations have been falling back to central bank targets and central bank tightening bets have been wound down.

The idea that a global recession could snap inflation and lead to the eventual return of more accommodative central bank policy has not yet lifted crypto prices substantially above this year’s lows. Bitcoin is still near $20,000, for example.

But if macro events in July feed into the narrative that 1) inflation is peaking/has peaked already 2) growth is weakening and 3) central banks won’t have to be so hawkish in 2023, crypto could be in for a relief rally.

Here are 10 key macro events to keep an eye on this month that could shift the macroeconomic narrative:

Friday, 9 July – US Labour Market Report (June)

This Friday’s official US Labour Market Report for June will tell us how many jobs were added to the economy last month, what the unemployment rate was and how much wages went up. Yes, inflation is high and growth appears to be slowing.

But the labor market remains a bright spot in the US economy for now. Its strength has been one of the factors behind why the Fed is being so aggressive with its rate hikes – because it thinks the US economy, underpinned by its strong labor market, can “handle” them.

Strong labor market numbers on Friday won’t come as a surprise and probably wouldn’t impact markets too much, as they wouldn’t affect Fed thinking too much. The Fed is already expected to hike rates by 75 bps later this month, and a strong labor market report won’t change that.

Anything that damages the perception of a strong US labor market would have much more market impact. Signs of weakness would likely result in recession bets being further extended, coupled with increased bets that 1) inflation will come down in the coming quarters and 2) the Fed won’t have to hike as aggressively.

Depending on how you view it, this could be bullish for crypto.

Wednesday, 13 July – US Consumer Price Inflation Data (June)

Aside from the Fed policy announcement later in the month, this will be the most important data point. May Consumer Price Inflation data released in June surprised to the upside and forced the Fed’s hand to accelerate the pace of rate hikes to 75 bps from 50 bps back in May.

Another upside surprise could further increase Fed tightening bets and, as happened back in June, trigger severe selling pressure in crypto markets. Meanwhile, crypto bulls want to see signs that inflationary pressures have eased, after an alternative measure of May inflation released at the end of June (PCE inflation data) showed this.

Friday, 15 July – US Retail Sales Data (June)

Recent US Retail Sales reports have shown that inflation-adjusted spending growth in the US is negative. If this trend continues in June, it will only support growing recession bets.

Friday, 15 July – US University of Michigan Consumer Sentiment Survey (July)

The preliminary University of Michigan Consumer Sentiment survey for July provides another, slightly timelier insight into US consumer health. One of the most widely watched parts of this survey at the moment is the Consumer Inflation Expectations index, given uncertainty about inflation.

An upside surprise on this data point back in June was another reason why the Fed accelerated the pace of rate hikes last month.

Wednesday, 20 July – UK Consumer Price Inflation (June)

Whilst cryptocurrency markets are most interested in US economic trends, traders also pay attention to global trends. UK Consumer Price Inflation will show the extent of the inflation problem in the UK, the fifth-largest economy in the world.

Thursday, 21 July – ECB Policy Announcement

The Fed is the most important central bank for cryptocurrency markets right now. But if the ECB was to surprise later this month with a larger than expected hike of 50 bps versus the 25 bps move it has previously signaled, that could weigh on crypto sentiment.

Wednesday, 27 July – Fed Policy Announcement

Alongside US Consumer Price Inflation data, the Fed’s policy announcement will be the most important macro event this month. Markets expect another 75 bps rate hike taking the target interest rate range to 2.25-2.5%.

Crypto traders will closely scrutinize what Fed Chair Jerome Powell has to say in the post-meeting press conference. Will the Fed hike rates by 75 bps rate again in September? Will the Fed slow rate hikes if there is a recession? How bad does Powell think the economy has gotten? How high might interest rates go next year?

Thursday, 28 July – US GDP Growth Data (Q2)

Negative trends in consumer spending in the last few months risk pushing US GDP lower for a second successive quarter, which would confirm a technical recession. If the US economy has already shrunk in H1 2022, can the Fed and other institutions continue to credibly forecast positive growth in the US for the full-year 2022?

Friday, 29 July – US PCE Inflation Data (June)

PCE inflation data, particularly the core component, is the Fed’s favored measure of inflation. May PCE data showed YoY core PCE price pressures falling to a six-month low, contributing to hopes that US inflation has now peaked. This month’s PCE data will be viewed in that context.

Friday, 29 July – Eurozone Consumer Price Inflation (July)

Eurozone Consumer Price Inflation will show the extent of the inflation problem in the world’s second economic zone this July.

Israel and Hong Kong to Test New Digital Currency

Key Insights:

  • The joint Sela project is set to launch in the third quarter of this year.
  • A two-tier retail CBDC model could potentially lessen financial risks for customers.
  • 90% of central banks are exploring a CBDC and half are actively developing a digital version of their fiat money.

In our current financial climate, there is growing discussion of a new payment technology that could become the go-to instrument for settlement between individuals and businesses in a way that facilitates faster cross-border payments – central bank digital currencies (CBDC). Two of the latest economies to enter the fray are Israel and Hong Kong.

Namely, Israel’s central bank is working with the Hong Kong Monetary Authority and the Bank of International Settlements (BIS) Innovation Lab to test a central bank digital currency for retail.

The so-called Sela project, set to launch in the third quarter of this year, will feature a two-tier distribution model, such that it will be implemented using public-key cryptography. Central banks will act as the root certificate authority for generating digital signatures.

Importantly, findings from the retail CBDC test will be published by the end of this year as the Bank of Israel continues to step up its research for the potential issuance of a digital shekel. However, the country has been considering issuing a CBDC since late 2017.

Two-tier Retail CBDC Architecture

In accordance with a two-tier model, intermediaries involved in the transaction can handle the new CBDC with no financial exposure to their customers, unlike traditional ways of central bank funds being provided to the public via commercial banks.

According to the Bank of Israel, the CBDC enables “less financial risk for the customer, more liquidity, lower costs, increased competition, and wider access.”

The Deputy Governor of the Bank of Israel, Andrew Abir expressed that he believes the CBDC will increase overall efficiency in the Israeli payments sector.

CBDCs Around the World

This news comes as the People’s Bank of China (PBOC) tests its digital RMB (e-CNY) with around 140 million citizens, as well as at the recent Winter Olympics in Beijing.

What’s more, Jamaica became the first country in the world to officially recognize its central bank digital currency, Jam-Dex as legal tender, in a move to provide an alternative to its cash-based economy.

According to the Bank for International Settlements (BIS), 90% of central banks are exploring a central bank digital currency and half are actively developing a digital version of their fiat money. The top reasons cited were making domestic payments more efficient, with emerging markets and developing economies prioritizing financial inclusion.

Retail CBDCs are known to increase access and usability for unbanked or underbanked citizens while also lowering barriers to entry for new firms in the payments sector. By fostering innovation, retail CBDCs accelerate the globalization of services.

CBDCs, in general, can enhance monetary policy by streamlining the distribution of government benefits to individuals and improving control over transactions for tax purposes.

A broader survey by PricewaterhouseCoopers (PwC) has found that at least 80% of all central banks are considering a CBDC.

Russia: Tougher Sanctions Widen Disconnect Between Rouble and Economy, Increasing Retaliation Risk

The EU’s proposed new sanctions are likely to inflict further damage on the Russian economy depending on details of a final agreement, with increasing risk of retaliatory measures from Russia.

To take stock of Russia’s economic fortunes in the third month of its full-scale war in Ukraine, I address several questions around prospects for growth with the sanctions in place, the factors explaining the rouble’s recovery, what impact new aEU sanctions might have and what the Russian authorities could do in response. Download the full report

Rouble recovery – Is it sustainable?

Two main factors explain the recovery of the rouble. First, high foreign-currency inflows from oil and gas exports – as energy prices have soared – create steady demand for the Russian currency.

Secondly, efforts of the Central Bank of Russia to prevent capital flight through capital controls and higher interest rates, while they are working for now, come at cost of tighter financial conditions than before the sanctions due to elevated credit spreads and low market liquidity, decoupling economic and financial-market activity from the currency’s fortunes.

Russia: rouble exchange rate vs sovereign credit default swap (CDS) spreads

Source: Central Bank of the Russian Federation, Refinitiv Eikon, Scope Ratings

What are Russia’s near- and medium-term growth prospects?

We project Russia’s economic output to contract by at least 10% this year – the steepest decline since 1994 – and stagnate in 2023, knocking the economy back to levels last seen on the eve of the global financial crisis of 2008. To blame are the collapses in private consumption, in investment and in imports as sanctions have taken hold.

Russia’s important non-extractive industries – machinery and electrical equipment, computers, cars, pharmaceuticals – are reliant upon imported components. The share of foreign value added exceeds 50% in these industries, with about half coming from the EU, the US, the UK, Canada and Japan, much of which cannot be easily replaced, by imports from China or local alternatives.

In the absence of significant economic restructuring, and assuming sanctions remain in place, Scope Ratings expects Russia’s medium-run growth potential to moderate to 1-1.5% a year (from 1.5-2.0%), far below that of most of central and eastern Europe where living standards are far higher.

The EU proposes new sanctions – How tough are they?

In the short term, possibly higher energy prices should help offset the impact of an EU embargo on Russian oil imports.

In the longer term, an EU boycott of Russian oil is likely to imply significant costs for the Russian energy sector and real economy in terms of rouble convertibility, depending on the details of a final agreement, with some EU member states objecting to a full boycott of Russian oil, suggesting the final agreement might be softer than initially expected.

Countermeasures: What steps might Russian authorities take?

Russia is likely to expand economic retaliation against EU members as it seeks alternative buyers of its energy in Asia, but a complete replacement of the European market is out of reach any time soon due to significant transport and logistical constraints.

Russa’s energy infrastructure is predominantly geared to the west. Immediate expansion of pipeline oil supply to China is limited due to capacity constraints. As for oil supplied by tanker, while China’s independent refiners may be attracted by Russian oil at discounts, state-owned commodity traders may be less so due to concerns around secondary sanctions.

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Senior Analyst in Sovereign and Public Sector ratings at Scope Ratings GmbH.

When Will S&P500 Find Direction?

I’ve heard a lot of technical talk that the S&P 500 could slosh around in this 4,200 to 4,600 range until it finds new direction.

Ukraine is still in the focus

The focus lately has been the war in Ukraine and the Federal Reserve, both of which continue to exacerbate investor uncertainty. While Russia shows no signs of backing off in Ukraine, there hasn’t been too much change on the ground as Putin’s assault seems to have stalled on several fronts.

In fact, some reports indicate Russia has actually lost a bit of ground in some areas. A few military and political experts say they see hopeful signs in a prisoner exchange that Ukraine and Russia conducted this week, though others remain skeptical that Putin is no where ready to strike a peace deal.

Many experts in the space say the biggest worry is with Putin’s army failing to meet his objectives, he could turn to other even more deadly tactics. The U.S. and EU have been more vocal with their warnings to Russia this week that the use of chemical or biological weapons will bring a strong response from the West. No details have been provided on what that might be and officials behind the scenes have said they are being “deliberately ambiguous” in order to keep Putin off-guard.

Can Fed control the inflation?

As for the Fed, fears are again rising that the central bank will not be able to cool inflation without damaging the economy, particularly with the additional challenges the war has created.

Fed watchers will get a slew of new data to chew on next week, including the PCE Pries Index next Thursday, which is one of the Fed’s favorite inflation gauges. The year-over-year rate in January rose to +5.2% from a previous +4.9% and most expect it will rise again in the February read.

With the Russia-Ukraine conflict compounding the raw materials crunch and Covid lockdowns in China showing signs of jamming up supply chains again, whatever the gauge shows next Thursday, it will likely climb higher in the months ahead. Investors get a look at the U.S. labor market next Friday with the March Employment Report. Consensus is calling for a gain of around +500,000 jobs after a gain of over +675,000 in February.

Investors will be focused more on the wage component which came in flat in January. That helped bring the year-over-year rate down a bit but wages were still up more than +5% vs. February 2021.

Wage inflation is very “sticky” so the higher labor costs climb, the more it limits how much price gains can ultimately moderate.

Data to watch

Other data next week includes advance reads on International Trade, Retail Inventories, and Wholesale Inventories on Monday; the S&P Case-Shiller Home Price Index and Consumer Confidence on Tuesday; the ADP Employment Change and final estimate of Q4 GDP on Wednesday; Personal Income and Outlays and Chicago PMI on Thursday; and ISM Manufacturing and Construction Spending on Friday.

On the earnings front, highlights next week include Chewy, Concentrix, Lululemon, and Micron Technology on Tuesday; BioNTech and Paychex on Wednesday; and Walgreens on Thursday. Russia’s war in Ukraine and the Fed’s war against inflation should remain in the spotlight…

The Big Food Worry… There’s no question food-importing nations are going to feel some major pain. In the USA prices at the grocery store more than likely continue even higher. The world is screaming for more acres and more production but supply chain dislocations along with Russia’s war in Ukraine has fertilizer and input prices sky-high and in some nations in extremely short supply.

Concerns About the Ukraine War and Global Inflation Increase Bullish Sentiment for Gold

As of 4:30 PM EDT gold futures basis, the April 2022 contract is up by $6.50 and fixed at $1935.90. April gold has become spot pricing with a first-day delivery notice on Friday of this week.

Gold daily chart

The most active contract month in gold switches every two-month increments, so the next front month for gold will be the June 2022 contract. Currently, the spread between April and June gold futures is approximately five dollars, with the June futures contract currently trading up $6.90 and fixed at $1940.80.

Both U.S. equities and the precious metals saw volatility in the market as it first reacted to statements by the Federal Reserve Chairman Jerome Powell at the National Association for Business Economics today. In his speech today, Chairman Powell said, “We will take the necessary steps to ensure a return to price stability. In particular, if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so.”

This statement, of course, reinforces the idea that the Federal Reserve is committed to reducing the current level of inflation through the use of interest rate hikes. It underscores the real possibility that the next rate hike announced and implemented will occur during the May FOMC meeting and most likely will be a rate hike of ½% rather than the anticipated hike of ¼%. This is also reflected in the Fed watch tool.

Fedwatch 3-21-22

The CME’s FedWatch tool reflected the extremely hawkish statement made by Chairman Powell today. This tool currently indicates the probability of a ½% rate hike which would put the Fed Funds rate to 75 – 100 basis points (3/4% to 1%) is now 57.2% up from 43.9% on Friday. This probability calculator also indicated that the probability of a ¼% rate hike has declined from 56.1% to 42.8%.

The challenge that the Federal Reserve faces is to combat the high level of inflation effectively. To successfully combat inflation, they would need to raise interest rates to approximately the current level of inflation, with the CPI index at 7.9% in February and the PCE at 6.1% in January.

That would be an impossible task to accomplish. The PCE index will be updated on March 31 and reflect February’s inflationary level. Concurrently the Federal Reserve expects to raise interest rates to 1.9% this year and 2.8% in 2023. With interest rates at that level, it would slow the economy down but have a very small impact on the high level of inflation that exists.

Inflationary pressures will most certainly increase in the United States. However, inflationary pressures in the United States will be dwarfed when compared to the inflation rate of Europe. This is because Ukraine and Russia export the largest percentage of wheat in the EU. The EU also imports the vast majority of the oil and gas from Russia.

In other words, inflationary pressures will continue to rise both in the United States and Europe, and central banks raising interest rates will not be enough to lower that pressure dramatically.

For those who would like more information simply use this link.

Wishing you as always good trading,

Gary S. Wagner

Political Fragmentation and Polarisation in France Could Frustrate Pursuit of Economic Reform

President Emmanuel Macron’s re-election prospects in the 2022 ballot remain strong. According to opinion surveys (from 1 March), he had a comfortable lead and is likely to secure a second mandate regardless of which candidate runs against him in a second round. Also helping his chances are pro-Russian sympathies of some far-right and far-left presidential candidates, which could easily cost them politically amid a context of the Russian invasion of the Ukraine.

But a scenario in which the incoming president has to contend with lower parliamentary support for his/her political agenda has become more likely as political fragmentation in the National Assembly has reached an elevated stage, while polarisation, reflected in rise of extreme political forces, has increased. This could constrain the next administration’s ability to deliver on structural reform and address outstanding credit challenges (France is rated by Scope AA/Stable).

France elections 2022: Potential political configuration and expected impact on reform momentum

Source: Scope Ratings GmbH.

High levels of political fragmentation

With nine different political groups, the National Assembly has reached some of its highest levels of political fragmentation in the history of the Fifth Republic. But while politics have become more polarised, tail risks related to major policy shifts have been reduced since gradual moderation of far-right and far-left positioning with regard to ‘Frexit’, which none of the major candidates today support, despite Eurosceptic inclinations.

France’s mainstream parties on the right and left were diminished by the launch of President Macron’s party at time of 2017 general elections but the initial dynamic behind Macron and his party has weakened over the run of his presidential term. These factors have increased the risk of the next French President having to form alliances or a coalition in response to a weaker standing in the National Assembly or ending up with an antagonistic National Assembly and governing only via co-habitation.

Broad similarities between the centre-right and mainstream right agendas

Although the centre-right and mainstream right agendas diverge in some areas, there are broad similarities, such as a deep attachment with pro-European policies, ambitious reform plans to support business-friendly conditions and pursuing a modernised but relatively significant social policy agenda. The moderate tone of their proposals in comparison with that of other extreme candidates could render the impact on reform momentum somewhat similar and increase their ability to secure political alliances.

Our view is that more moderate candidates are the most likely to either secure a standalone majority in the National Assembly or maintain a minimum level of reform momentum thanks to presumed abilities to build alliances with other political forces.

Download the report here.

Thomas Gillet is an Associate Director in Sovereign and Public Sector ratings at Scope Ratings GmbH. Thibault Vasse, Senior Analyst at Scope Ratings, contributed to writing this commentary.

 

Further Russian Conflict Escalation Could Pressure Ukraine Sovereign Credit Rating

On 28 January 2022, we published B first-time sovereign credit ratings of Ukraine, with a Negative credit Outlook – reflecting potential for escalation of conflict.

A deepening of a long-standing conflict between Russia and Ukraine is likely after Russia’s recognition of self-declared ‘republics’ in the Donbas region. Russian forces entering eastern Ukraine places them closer to direct confrontation with Ukrainian forces – potentially creating grounds and pretext for more expansive conflict over time.

Russia may seek to pressure Ukraine and the West to force a moratorium of Ukraine’s NATO accession objective as well as diplomatic concessions from the West if not coerce a change in the pro-Western government of Ukraine.

Further escalation that undermines an outlook for Ukraine’s macro-economic stability could pose severe credit implications for the nation. A scenario of hryvnia loss if reserves were depleted, an acceleration of capital outflows, higher inflationary pressure as well as growth decline and/or wider budget deficits are possible outcomes.

In our January credit rating announcement, we noted that under an adverse scenario of equivalent severity to a 2014-15 geopolitical crisis, Ukrainian government debt could rise to 92.2% of GDP by 2024 (from circa 50% as of end-2021), before moderating to 80.6% by 2026.

Scope Ratings’ assessment of Ukraine reflects substantive efforts made by authorities to bolster economic resilience

Our B credit rating of Ukraine reflects the substantive efforts made by authorities to bolster economic resilience since the 2014-15 crisis. Nevertheless, existing buffers remain inadequate under a more severe or prolonged crisis given ultimately modest reserve coverage of 56% of short-term external debt.

The Ukrainian state debt portfolio remains highly exposed to currency risk: foreign-currency-denominated public debt accounts for 65% of the aggregate portfolio. This is broadly unchanged from an outstanding composition prior to the 2015 Eurobond restructuring and represents a central vulnerability. This means any scenario under which the hryvnia drops severely represents a core risk to the sovereign’s creditworthiness.

The hryvnia has weakened by a manageable 9% against the euro since November 2021, although the central bank has been selling foreign exchange to ease currency volatility.

Ukraine has rebuilt foreign-exchange buffers in recent years – with reserves of a bolstered USD 27.7bn as of January 2022, although trimmed USD 1.7bn since Dec-2021’s post-2012 peak. The US government has made available USD 1bn of loan guarantees, and the European Council has approved EUR 1.2bn of additional macro-financial assistance. Ukraine has an IMF programme until (at least) June 2022 that has USD 2.2bn in undisbursed funding. The government is likely to seek further IMF assistance alongside an extraordinary vehicle of transfer of Special Drawing Rights.

Western economic support has come as Ukraine lost international market access

Western economic support has come as Ukraine momentarily lost international financial-market access. Ukraine’s five-year dollar bond has of recent traded near 1,000bps over US treasuries, from around 400bps in September 2021.

There is still a number of available scenarios, including those observing de-escalation as long as negotiations continue. However, such scenarios have narrowed in view of Russia’s most recent actions.

Whatever occurs over the coming months, the return of a more prolonged confrontation between the West and Moscow looks likely.

For a look at all of today’s economic events, check out our economic calendar.

Dennis Shen is a Director in Sovereign and Public Sector ratings at Scope Ratings GmbH.

Will the Recent Inflation Signal a Rate Hike?

Fed’s Tightening Agenda Remains Vague

Federal Reserve officials reinforced in January’s FOMC meeting that they would start raising rates in March, according to the minutes released on Wednesday. The central bank is open to the idea of a faster interest rate hike but they would still rely on future economic data to determine whether a faster pace of tightening is justified. Receive the latest news update here

“Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the committee to remove policy accommodation at a faster pace than they currently anticipate,” the minutes say.

The Fed is hesitant and less hawkish than expected. Even when the economic data released before the January meeting is encouraging, there is no explicit mention of the exact date to begin the process or the possibility of a 50 basis point hike.

A month after the meeting, both the producer price index and consumer price index results revealed that inflation continues to soar, suggesting a need for steeper tightening. Will the Fed announce the first interest rate rise in the next scheduled meeting?

Inflation Is Getting Higher

According to the data released on Tuesday, the producer price index was up 1% in January, the biggest increase in eight months. The PPI jumped 9.7% over the past 12 months ending in January 2022. The results are much worse than anticipated. The Wall Street forecasted the monthly increase and the 12-month PPI to be 0.5% and 9.1%.

The prices for final demand goods rebounded by 1.3% in January, compared to a 0.1% decline in December. According to the press release, over 40% of the broad-based increase can be traced to a 0.8% rise in the index for final demand goods less foods and energy.

A similar situation happened to retail inflation. Driven by a surge in the cost of shelter, food and energy, the consumer price index climbed 0.6 in January and 7.5% over the past 12 months. The 7.5% increase marked the biggest increase since 1982. Stripping out the price volatility of food and energy costs, the CPI rose 6%, still above the market estimate of 5.9%.

The Fed previously indicated in December 2021 that inflation would fall sharply this year. Considering the current situation, market expects the Fed to act more swiftly and aggressively to tame inflation. Market does not rule out the possibility of the Fed raising hike before the next FOMC meeting.

Upcoming events to watch:

  • Feb 17 (Thurs) 8:30 (GMT-5) – Initial Jobless Claims
  • Feb 24 (Thurs) 8:30 (GMT-5) – US GDP
  • Mar 4 (Fri) 8:30 (GMT-5) – Nonfarm Payrolls
  • Mar 4 (Fri) 8:30 (GMT-5) – Unemployment Rate
  • Mar 9 (Wed) 8:30 (GMT-5) – JOLTs Job Opening

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Draghi’s Continued Premiership Prolongs Political Stability, but Risks Remain After 2023 Elections

However, uncertainty looms after the 2023 elections – representing one core challenge to the economic outlook.

A continuation of Draghi’s national unity government to at least 2023 – as we have assumed – is expected to further advancement of crucial reform regarding public procurement and competition law, underpinning economic recovery and ensuring a continued inflow of vital funding from the EU’s Recovery and Resilience Facility.

Italy front loaded reforms, upon which receipt of funding from the 2021-26 EU Recovery Fund is conditional, to 2021 and 2022 – Draghi’s assumed window as prime minister. This includes overhaul of public administration, the judiciary, budgeting and pensions.

Draghi’s space for significant reform is finite, given 2023 elections

Nevertheless, Draghi’s space for significant reform is finite, given the support he requires in parliament to govern might weaken as parties step up electoral campaigns before 2023 elections, although he possesses a possible trump card of threatening to pull the plug on government should parliament become gridlocked.

Even so, the credit rating relevance for Italy and the EU more broadly of even a single additional year of Draghi as prime minister ought not be understated. Draghi could leave a lasting mark upon European economic governance by adding his respected voice to EU deliberations around changes of the Stability and Growth Pact and regional budgetary rules.

Still, the re-election of Sergio Mattarella as president in the absence of any other candidate with a majority backing of electors did illustrate how difficult consensus-building remains in Italy, which might foreshadow possible complications in formation of a government after elections of 2023.

Coming elections are one risk due to possibility of a skew to the political right

The forthcoming 2023 election remains, moreover, a risk due to possibility of a skew to the political right after the election – were Italy to elect a (first) far-right prime minister (of the post-war era). This said, especially under an alternative scenario in which the right were to come up short, we also do not rule out possibility of Draghi being called on to prolong a prime ministership under scenario of a hung parliament.

For now, the Draghi administration has been responsible for comparatively stable and prudent policy, boosting domestic economic sentiment, anchoring a recovery that has as well benefitted from pent-up demand and raised public- and private-sector investment.

An official estimate of 2021 economic growth at an above-consensus 6.5%

An official estimate with respect to 2021 economic growth was printed of an above-consensus 6.5% – near Scope’s December estimate for 6.6% for last year. In 2022, Scope expects growth of a robust 4.5%, prior to 2.1% during 2023.

Prudent policy making is especially significant given the recent increase in yields on Italian government bonds to a nevertheless still accommodative 1.4% – equivalent to 134bps spread to Germany – from a low of around 0.5% last August. Minimising unnecessary sovereign risk premia associated with domestic politics is crucial for the state’s long-run debt sustainability, as the ECB pulls back on support in debt capital markets amid a sharp pick-up of inflation.

An upward government debt trajectory over the long haul

We assess Italy’s debt trajectory as remaining on an upward trend over the long run (factoring in rises during future crises).

Enhanced stability of the national government and momentum behind a robust programme of reform supported our announcement of a revision of an Outlook concerning Italy’s BBB+ sovereign credit ratings to Stable, from Negative, in August of 2021.

For a look at all of today’s economic events, check out our economic calendar.

Dennis Shen is a Director in Sovereign and Public Sector ratings at Scope Ratings GmbH. Giulia Branz, Analyst at Scope Ratings, contributed to writing this commentary.

 

Wall Street Week Ahead Earnings: Alphabet, PayPal, Exxon Mobil, Meta, Qualcomm and Amazon in Focus

Investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion will hit the stock market hard next week, making the big tech earnings that much more critical. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant to see how it impacts earnings in 2022.

Earnings Calendar For The Week Of January 31

Monday (January 31)

TICKER COMPANY EPS FORECAST
CBT Cabot $1.06
CRUS Cirrus Logic $1.91
FN Fabrinet $1.28
HLIT Harmonic $0.09
NXPI NXP Semiconductors $2.67
PCH PotlatchDeltic $0.48
RYAAY Ryanair Holdings $-0.15
SANM Sanmina $0.91
TT Trane Technologies $1.31
WWD Woodward $0.83

 

Tuesday (February 1)

IN THE SPOTLIGHT: ALPHABET (GOOGLE), PAYPAL, EXXON MOBIL

ALPHABET: The parent of Google and the world’s largest search engine that dominates internet search activity globally is expected to report its fourth-quarter earnings of $26.71 per share, which represents year-over-year growth of about 20% from $22.3 per share seen in the same period a year ago.

The Mountain View, California-based internet giant would post revenue growth of nearly 27% to $72.133 billion from $56.9 billion a year ago. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“Key Alphabet (GOOG) ’22 Ad Buyer Survey conclusions: i) Google Search remains highest ROI platform; ii) YouTube expected to gain ad share ’21-’23; & iii) GOOG Search & YouTube are the top platforms for ad buyers reallocating budget due to iOS changes. We est. GOOG’s share of WW Digital adv. (x-China) goes from 41% to 37% ’22-’27. We extended model to ’27, PT to$3,500 vs. prior $3,360, reiterate Outperform,” noted John Blackledge, equity analyst at Cowen.

PAYPAL: The digital payments company is expected to report its fourth-quarter earnings of $0.86 per share, which represents year-over-year growth of about 15% from $0.75 per share seen in the same period a year ago. The San Jose, California-based company would post revenue growth of over 12% to around $6.9 billion.

EXXON MOBIL: The oil company will see its earnings rise multi-fold in the fourth quarter thanks to higher energy prices and a waning pandemic that helped it bounce back after a tough period in 2020.

The Irving Texas-based company is expected to report its fourth-quarter earnings of $1.73 per share, which represents year-over-year growth of over 5,666%, up from $0.03 per share seen in the same period a year ago.

The U.S. largest publicly traded oil company is expected to report a 97.3% increase in revenue to $91.845 billion from $46.54 billion a year ago. On Dec 30, the Irving Texas-based company in its regulatory filing said that higher oil and gas prices would enable it to achieve annual profitability starting in 2021 with an operating profit increase of up to $1.9 billion.

The U.S. largest publicly traded oil company hinted that oil and gas earnings could decrease by up to $1.2 billion as a result of one-time charges for asset impairments and contractual costs. Exxon announced late last year announced that a sharply higher operating profit in oil and gas, prompting Credit Suisse, Scotiabank, and JPMorgan to raise their fourth-quarter earnings estimates.

“Improving FCF outlook and dividend sustainability. With a more constructive commodity price outlook, lower capital spending, and additional cash operating cost savings, the dividend is covered in 2021 and averages >100% over the next 5-years on our estimates. Improving dividend sustainability supports yield compression for Exxon Mobil (XOM) relative to CVX,” noted Devin McDermott, Equity Analyst and Commodities Strategist at Morgan Stanley.

“Cost cuts defend the dividend. In 2020, Exxon Mobil (XOM) reduced 2022-25 spending plans to $20-25B from $30-35B (recently extended to 2027), improving dividend sustainability while limiting further pull on the balance sheet. Additionally, Exxon Mobil (XOM) is targeting $6B in structural operating cost reductions by 2023 which should put upward pressure on consensus FCF estimates.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 1

TICKER COMPANY EPS FORECAST
AMD Advanced Micro Devices $0.69
AMCR Amcor $0.18
ASH Ashland Global Holdings $0.93
CTLT Catalent $0.79
CB Chubb $3.34
EA Electronic Arts $2.81
XOM Exxon Mobil $1.73
GM General Motors $0.84
NMR Nomura Holdings $0.2
SBUX Starbucks $0.8
UBS UBS Group $0.24
UPS United Parcel Service $3.05

 

Wednesday (February 2)

IN THE SPOTLIGHT: META PLATFORMS (FACEBOOK), QUALCOMM

META PLATFORMS (FACEBOOK): The world’s largest online social network is expected to report its fourth-quarter earnings of $3.78 per share, which represents a year-over-year decline of over 2% from $3.88 per share seen in the same period a year ago.

The Menlo Park, California-based social media conglomerate would post revenue growth of over 30% to around $33.04 billion. The social media giant has consistently beaten consensus earnings estimates in most of the quarters in the last two years, at least.

QUALCOMM: The world’s biggest mobile phone chipmaker is expected to report its fiscal first-quarter earnings of $2.77 per share, which represents a year-over-year decline of over 40% from $1.97 per share seen in the same period a year ago.

The chip manufacturer would post revenue growth of nearly 27% to $10.45 billion. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

Qualcomm forecasts GAAP revenue in the first quarter of fiscal 2022 to be between $10 billion and $10.8 billion. On a non-GAAP basis, earnings will likely range from $2.90 to $3.10 per share, while GAAP earnings will likely range from $2.53 to $2.73 per share, according to ZACKS Research.

“After underperforming the SOXX for most of 2021 until a sharp rally late in the year, we see a strong setup for a now Apple-overhang-free Qualcomm in 2022 as investors begin to appreciate the diverse revenue drivers beyond Wireless. Expect solid print and guide, with focus on execution and growth in the connected intelligent edge and update our estimates accordingly,” noted Matthew Ramsay, equity analyst at Cowen.

“We reiterate our price target of $210 based on 17.5x our F2023 EPS estimate of $12.0 and our Outperform rating.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 2

TICKER COMPANY EPS FORECAST
EAT Brinker International $0.5
CHRW C.H. Robinson Worldwide $1.85
CPRI Capri Holdings $1.67
CTSH Cognizant Technology Solutions $1.03
RACE Ferrari $1.08
FB Meta Platforms $3.78
MET MetLife $1.63
TMUS T-Mobile $0.2

 

Thursday (February 3)

IN THE SPOTLIGHT: AMAZON

The e-commerce leader for physical and digital merchandise, Amazon, is expected to report its fourth-quarter earnings of $3.9 per share, which represents a year-over-year decline of over 70% from $14.09 per share seen in the same period a year ago.

However, the Seattle, Washington-based multinational technology giant would post revenue growth of about 10% to around $138 billion. The company has beaten earnings per share (EPS) estimates most of the time in the two years.

“We are reiterating our BUY rating and our price target to $3,900. Our price target is based on our updated discounted cash flow model, including our long-term adj. EBITDA margin forecast of 22.0% versus 13.7% in 2020,” noted Tom Forte, MD, Senior Research Analyst at D.A. DAVIDSON.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 3

TICKER COMPANY EPS FORECAST
ABB ABB $0.38
ALL Allstate $2.72
COP ConocoPhillips $2.23
LLY Eli Lilly $2.37
HON Honeywell International $2.09
PRU Prudential Financial $2.44
SU Suncor Energy $0.95
SYNA Synaptics $2.63

 

Friday (February 4)

TICKER COMPANY EPS FORECAST
APD Air Products & Chemicals $2.51
AON Aon $3.33
BMY Bristol Myers Squibb $1.85
CBOE Cboe Global Markets $1.41
ETN Eaton $1.73

 

Will Stagflation Lead To Higher Gold Prices In 2022?

That is starting to raise fears of “Stagflation” – a period of high inflation accompanied by a slowdown in economic growth.

Early signs of Stagflation are beginning to emerge.

On Tuesday, the New Yorker Federal Reserve reported a negative turn in its manufacturing activity for first time in 20 months.

The New York Empire State Manufacturing Index nosedived to -0.7 points in January from a reading of 31.9 in December. The data indicates that growth is beginning to stall after a period of significant expansion.

Stagflation presents a major problem for policymakers at the Fed and around the rest of the world. There are few tools to combat both inflation and a slowdown at the same time. The strongest fix for an economic slump is to lower interest rates, but those have been at near zero for almost two years.

The other option is to raise interest rates as the Fed and other central banks have signalled they may soon do. However, tightens too much too quickly makes the risk of a recession almost unavoidable.

For traders, all of this means one thing: Gold prices this year will be driven by inflation and the risk that policymakers will call the post-COVID recovery wrong.

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

For a look at all of today’s economic events, check out our economic calendar.

Wall Street Week Ahead Earnings: Goldman Sachs, Procter & Gamble, United Airlines, and Netflix in focus

The following is a list of earnings slated for release January 17-21, along with a few previews. A number of big companies will report earnings in the week ahead, including Goldman Sachs and Bank of America, Procter & Gamble, Netflix, and a number of transportation companies. Investors will carefully monitor the latest news on the rapidly spreading Omicron coronavirus variant to see how it affects earnings in 2022.

Earnings Calendar For The Week Of January 17

Monday (January 17)

No major earnings are scheduled for release. The stock market in the U.S. will be closed in observance of Martin Luther King, Jr. Day.

Tuesday (January 18)

IN THE SPOTLIGHT: GOLDMAN SACHS

The New York-based leading global investment bank Goldman Sachs is expected to report its fourth-quarter earnings of $11.89 per share, which represents a year-over-year decline of about 2% from $12.08 per share seen in the same period a year ago.

The world’s leading investment manager would see a decline in revenue of nearly 1% to $11.65 billion from a year ago. It is worth noting that in the last two years, Goldman Sachs has surpassed market consensus expectations for profit and revenue most of the time.

“We expect Goldman Sachs to report mixed results, with revenues outperforming the consensus estimates and earnings missing the expected figure. The investment bank reported better than expected results in the last quarter, with the top-line increasing 26% y-o-y. This was driven by significant growth in the investment banking business, followed by higher global markets and consumer & wealth management revenues,” noted analysts at TREFIS.

“While investment banking grew on the back of growth in mergers &acquisitions (M&A) and equity underwriting deal volumes, global markets benefited from higher equity trading revenues. Similarly, the consumer & wealth management segment gained from an increase in outstanding loan balances. That said, the top-line was partially offset by negative growth in the asset management division, primarily due to lower equity investment revenues. We expect the same trend to continue in the fourth quarter. We estimate Goldman Sachs’ valuation to be around $447 per share which is 14% above the current market price.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 18

TICKER COMPANY EPS FORECAST
BAC Bank of America $0.78
SCHW Charles Schwab $0.83
CNXC Concentrix $2.54
HWC Hancock Whitney $1.33
IBKR Interactive Brokers $0.74
JBHT J.B. Hunt Transport Services $2.0
MBWM Mercantile Bank $0.85
ONB Old National Bancorp $0.38
PNFP Pinnacle Financial Partners $1.56
PNC PNC Financial Services $3.62
PRGS Progress Software $0.62
SBNY Signature Bank $3.92
TFC Truist Financial $1.27
UCBI United Community Banks $0.63

 

Wednesday (January 19)

IN THE SPOTLIGHT: PROCTER & GAMBLE, UNITED AIRLINES

PROCTER & GAMBLE: The world’s largest maker of consumer-packaged goods, is expected to report its fiscal second-quarter earnings of $1.66 per share, which represents year-on-year growth of just over 1% from $1.64 per share seen in the same period a year ago.

The Cincinnati, Ohio-based consumer goods corporation would post revenue growth of over 3% to $20.4 billion from a year ago. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“We believe strategy changes can sustain Procter & Gamble (PG) LT topline growth in the 4% range. In the US, a strong breadth of performance and share gains give us confidence that market share momentum is sustainable and supports LT topline growth above HPC peers. While near-term pressures from commodity/freight inflation will impact margins, we believe PG has stronger pricing power than peers, particularly with share gains,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

PG trades at ~22.5x CY22e EPS, an HSD% discount to HPC peers CLX, CL and CHD, and looks compelling given our call for higher LT PG growth.”

UNITED AIRLINES: The major U.S. airline company is expected to report a loss for the eight-consecutive time of $-2.12 in the holiday quarter as the aviation service provider continues to be negatively impacted by the ongoing COVID-19 pandemic and travel restrictions.

However, that would represent a year-over-year improvement of about 70% from -$7.0 per share seen in the same period a year ago. The Chicago, Illinois-based airlines would post revenue growth of over 130% to $7.94 billion.

“Despite some headwinds around staffing issues, we expect United Airlines (UAL) to guide to a continued sequential improvement with capacity guided to be down in the 17-18% range in Q1, which incorporates domestic capacity down in the 1% range, while international capacity remains down 27%,” noted Sheila Kahyaoglu, equity analyst at Jefferies.

“Remaining in a Net Loss Position into Q1. We expect a continued sequential decline in CASM-ex to 11.63¢, which reflect a 9% increase vs. 2019 levels, which compares to the 13% increase we expect in Q4. Nonetheless, UAL will remain in a net loss position in Q1, before turning positive in Q2.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 19

TICKER COMPANY EPS FORECAST
AA Alcoa $2.5
ASML ASML Holding $4.3
CFG Citizens Financial Group $1.16
CMA Comerica $1.6
DFS Discover Financial Services $3.48
FAST Fastenal $0.36
FUL H.B. Fuller $1.06
KMI Kinder Morgan $0.27
MS Morgan Stanley $1.83
PACW PacWest Bancorp $1.06
PG Procter & Gamble $1.66
STT State Street $1.93
USB U.S. Bancorp $1.13
UAL United Airlines $-2.12
WTFC Wintrust Financial $1.56

 

Thursday (January 20)

IN THE SPOTLIGHT: NETFLIX

The California-based global internet entertainment service company NetFlix is expected to report its fourth-quarter earnings of $0.82 per share, which represents a year-over-year decline of over 30% from $1.19 per share seen in the same period a year ago.

However, the streaming video pioneer would post revenue growth of over 16% to $7.71 billion. It is worth noting that the company has beaten earnings per share (EPS) estimates just thrice in the last two years.

“We believe share performance is highly dependent on increasing global membership scale. Proven success in the US and initial international markets provides a roadmap to success in emerging markets, and scale should allow Netflix (NFLX) to leverage content investments and drive margins,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“Higher global broadband penetration should increase the Netflix (NFLX) addressable market, driving member growth and providing further opportunity given NFLX’s global presence. Longer-term, we see the ability to drive ARPU growth, particularly given increased original programming traction.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JANUARY 20

TICKER COMPANY EPS FORECAST
AAL American Airlines $-1.72
CSX CSX $0.42
FITB Fifth Third $0.91
ISRG Intuitive Surgical $1.01
KEY KeyCorp $0.56
MTB M&T Bank $3.24
NTRS Northern Trust $1.82
OZK Bank OZK $0.98
PPBI Pacific Premier Bancorp $0.85
PPG PPG Industries $1.2
RF Regions Financial $0.49
SASR Sandy Spring Bancorp $1.1
SIVB SVB Financial $6.29
TRV Travelers $3.77
UNP Union Pacific $2.66
WBS Webster Financial $1.11

 

Friday (January 21)

TICKER COMPANY EPS FORECAST
ALLY Ally Financial $2.0
FHB First Hawaiian $0.47
HBAN Huntington Bancshares $0.37
INFO IHS Markit $0.71
SLB Schlumberger $0.39

 

Equity Bulls Jittery, Dollar Sinks as Investors Digest Inflation Data

The U.S. consumer price index (CPI) jumped 7% year-on-year, matching the median forecast from economists surveyed by Bloomberg and up from 6.8% in November. Core inflation, which strips out volatile items like food and energy, rose 5.5%, well above the 4.9% reported in the previous month.

Markets initially offered a calm reaction to the hot report with Wall Street closing modestly higher on Wednesday. The most notable price action was seen in FX markets, with king dollar breaking down as Treasury yields pulled back, while gold bugs were injected with renewed confidence. The December CPI report has presented further evidence of persistent price pressures, especially with inflation registering its biggest annual gain since 1982.

As expectations intensify over the Fed raising interest rates as soon as March, this may weigh more heavily on global stocks. while supporting the dollar and Treasury yields in the medium term. Given how markets remain sensitive to comments from Fed officials, today could see more volatility with numerous Fed speakers on the roster.

Dollar Index (DXY) slams into 95.00

The dollar tumbled to a two-month low against a basket of currencies yesterday after the inflation figures for December matched expectations. Investors may have seen this data as bearish for the world’s reserve currency as they were possibly expecting the figures to be even hotter. Nevertheless, the headline surged 7% last month, its biggest year-on-year increase since June 1982 and seven of the last nine releases have now come in above consensus. Traders are currently pricing in an 84% probability of at least one rate hike by mid-March 2022.

Looking at the technical picture, the Dollar Index remains under pressure on the daily charts. A breakdown below 95.00 could open the doors towards 94.56 and 94.00, respectively.

Commodity spotlight – Gold

After notching its sharpest weekly loss since November, gold bulls have returned with a vengeance this week.

The precious metal continues to draw strength from a weaker dollar and slight pullback in Treasury yields with prices trading around $1826 as of writing. Inflation risks could also be supporting upside gains for gold which has often been considered a hedge against rising prices. With inflation in the United States jumping in December, this could encourage some investors to hold onto their gold investments.

However, the precious metal is certainly not out of the woods yet. The zero-yielding asset tends to perform poorly in a high interest rate environment. So, with the Fed expected to hike as soon as March, the road ahead for gold bugs could be filled with bumps and obstacles. On top of this, the dollar may regain its mojo on rate hike bets with Treasury yields pushing higher. Should this become a reality, gold could be in store for fresh pain down the road.

Technically, the precious metal has the potential to push higher towards $1845 if a daily close above $1831 is achieved. Alternatively, a decline back below $1810 could prices move lower towards $1800, $1786 and $1770.

For a look at all of today’s economic events, check out our economic calendar.

By Lukman Otunuga Senior Research Analyst

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Chairman Powell Admits, “Inflation is running very far above target”

While it seemed obvious to most economic analysts as well as everyday citizens that inflationary pressures have been running rampant, out-of-control continuing to spiral to higher levels, the Federal Reserve for too long maintained its stance that rises in inflation were transitory and would quickly subside. To add insult to injury Chairman Powell in testimony during a congressional hearing to confirm his confirmation earlier today for a second term, continued his doctrine that inflationary pressures will ease by the middle of this year.

Economic forecasts for tomorrow’s core CPI index (Consumer Price Index) are expecting that the core CPI, which strips out food and energy costs, will gold from 4.9% in November to 5.4% in December. More alarming is the CPI index which contains data for rising energy and food costs are anticipating that the current level of inflation in December will reach 7% year-over-year, a 0.2% increase from November’s actual numbers of 6.8%.

During his testimony, Powell said that policymakers were still analyzing different approaches to reducing the Federal Reserve balance sheet and said that inflation is “running very far above target and it is a long road to anything close to a restrictive policy.” In other words, the chairman of the Federal Reserve is still riding both sides of the fence, walking a tight rope in which he believes that the Federal Reserve can curtail the spiraling level of inflationary pressures without causing great economic hardship to the recovery from the recession that has lasted almost two years.

The truth of the matter is that the only tool within the Federal Reserve’s toolbox to curtailing the rise in inflation is to raise interest rates, and rising interest rates intrinsically will curtail any economic expansion that is needed for the United States to achieve a full economic recovery.

Just as the Federal Reserve maintained a stance that the levels of inflation were transitory. They are now trying to convince the American public that the U.S. economy can withstand interest rate normalization and Federal Reserve tightening without affecting job growth which has been tepid at best.

The bottom line is that the Federal Reserve got it wrong and incorrectly diagnosed spiraling inflation as a short-term event. With inflationary pressures near a 40 year high, the balancing act to get inflation under control in a relatively short period is an impossible task without slowing the economic expansion that is currently underway.

Analysts and market participants have already factored in the real potential for three or four rate hikes, raising the fed funds rate by ¼%. By Chairman Powell saying that Fed actions “should not have a negative impact on the employment market” is a statement one might expect to hear from PT Barnum and not the chairman of the Federal Reserve. Traders and market participants are acutely aware of the dilemma faced by the Federal Reserve and moved gold substantially higher today, anticipating that inflation will continue to run at these historically high levels for an extended time.

Gold January chart

As of 5:17 PM EST gold futures basis, the most active February Comex contract is currently up $22.70, a net gain of 1.2% percent, and is fixed at $1821.50. Our technical studies see the next level of resistance should gold continue to rise at $1828.60, with major resistance occurring between $1851 and $1880.

Wishing you as always good trading and good health,

For those who would like more information, simply use this link.

Gary S. Wagner

 

Weak Payrolls Saved Gold. For How Long?

On Thursday (January 6, 2022), I wrote that “the metal may find itself under hawk fire in the upcoming weeks”. Indeed, gold dropped sharply in the aftermath of the publication of the FOMC minutes. As the chart below shows, the hawkish Fed’s signal sent the price of the yellow metal from $1,826 to $1,789.

This is because the minutes revealed that the Fed would be ready to cut its mammoth holdings of assets later this year. Previously, the US central bank was talking only about interest rate hikes and the ending of new asset purchases, i.e., quantitative easing. Now, the reverse process, i.e., quantitative tightening, is also on the table.

What is surprising here is not the mere idea of shrinking the Fed’s assets – after all, they have risen to $8.7 trillion (see the chart above) – but its timing. Last time, the central bank started the normalization of its balance sheet only in 2018, nine years after the end of the Great Recession and four years after the completion of tapering. This time, QT may start within a few months after the end of tapering and the first interest rate hikes. It looks like 2022 will be a hot year for US monetary policy – and the gold market.

Consequently, markets have been increasingly pricing in a more decisive Fed, which boosted bond yields. As the chart below shows, the long-term real interest rates (10-year TIPS) jumped from -1.06% at the end of 2021 to -0.73 at the end of last week. The upward move in the interest rates is fundamentally negative for gold prices.

Implications for Gold

Luckily for the yellow metal, nonfarm payrolls disappointed in December. Last month, the US labor market rose, adding just 199,000 jobs (see the chart below), well short of consensus estimates of 400,000. This negative surprise lifted gold prices slightly on Friday (January 7, 2021). The latest employment report suggests that labor shortages and the spread of the Omicron variant of coronavirus are holding back job creation and the overall economy.

However, gold bulls shouldn’t count on weak job gains to trigger a sustainable rally in the precious metals. This is because the American economy is still approaching full employment. The unemployment rate declined further to 3.9% from 4.2% in November, as the chart below shows.

The drop confirms that the US labor market is very tight, so weak job creation won’t discourage the Fed from hiking the federal funds rate. As a reminder, in December, FOMC members forecasted the unemployment rate to be 4.3% at the end of 2021. What is crucial here is that disappointing job gains reflect labor shortages rather than weak demand. Additionally, wage growth remains pretty fast, despite the decline in the annual rate from 5.1% in November to 4.7% in December.

The key takeaway is that, despite disappointing job creation, the US economy is moving quickly towards full employment. The unemployment rate is at 3.9%, very close to the pre-pandemic low of 3.7%. Hence, the latest employment situation report may only reinforce arguments for the Fed’s tightening cycle. This is fundamentally bad news for gold, as strengthened expectations of the interest rate hikes may boost real interest rates further and put the yellow metal under downward pressure.

Some analysts believe that hawkish sentiment might be at its peak. I’m not so sure about that. I believe that monetary hawks haven’t said the last word yet, and that the normalization of the interest rates is still ahead of us. Anyway, Powell will appear in the Senate today, so we should get more clues about the prospects for monetary policy and gold this year.

If you enjoyed today’s free gold report, we invite you to check out our premium services. We provide much more detailed fundamental analyses of the gold market in our monthly Gold Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. In order to enjoy our gold analyses in their full scope, we invite you to subscribe today. If you’re not ready to subscribe yet though and are not on our gold mailing list yet, we urge you to sign up. It’s free and if you don’t like it, you can easily unsubscribe. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Effective Investment through Diligence & Care

 

January 11th 2022: $1.36 Appears Fragile on GBP/USD

Charts: TradingView

(Italics: Previous Analysis Due to Limited Price Change)

EUR/USD:

Weekly timeframe:

Since mid-November (2021), buyers and sellers have been squaring off around support at $1.1237-1.1281—made up of a 61.8% Fibonacci retracement at $1.1281 and a 1.618% Fibonacci projection from $1.1237. ‘Harmonic’ traders will acknowledge $1.1237 represents what’s known as an ‘alternate’ AB=CD formation (extended D-leg).

Any upside derived from current support will likely be capped by resistance at $1.1473-1.1583; navigating lower, on the other hand, throws light on Quasimodo support as far south as $1.0778.

Interestingly, despite current support, the pair took out 2nd November low (2020) at $1.1603 in late September (2021), suggesting the early stages of a downtrend on the weekly timeframe. This is reinforced by the monthly timeframe’s primary downtrend since mid-2008.

Daily timeframe:

Quasimodo support drawn from mid-June at $1.1213 (positioned beneath the weekly timeframe’s Fibonacci structure) made an entrance on 24th November (2021) and remains committed. Trendline resistance, extended from the high $1.2254, is also seen overhead.

Analysis out of the relative strength index (RSI) reveals the value attempting to establish support from the 50.00 centreline: positive momentum. Indicator resistance resides at 63.66, tucked just under the overbought threshold of 70.00.

Trend on this scale has been lower since June 2021.

H4 timeframe:

Key levels to be mindful of on the H4 scale are:

  • Quasimodo support from $1.1272.
  • Resistance at $1.1379, accompanied by a 38.2% Fibonacci retracement at $1.1381.
  • Beyond the above, a 100% Fibonacci projection is visible at $1.1422, followed by Quasimodo support-turned resistance at $1.1438. Lower on the curve, support falls in around $1.1235.

H1 timeframe:

Dipping a toe south of NFP pre-announcement levels on Monday, short-term flow whipsawed through $1.13 to touch a low of $1.1285. As you can see, two neighbouring Quasimodo supports at $1.1278 and $1.1280 were left unchallenged.

Limited technical resistance is visible to the upside. Traders, however, may be drawn to $1.1364ish, located a handful of pips below H4 resistance underlined above at $1.1379.

As for the relative strength index (RSI), a popular momentum oscillator, the indicator’s value discovered a floor around oversold territory and is, as of writing, shaking hands with the lower side of the 50.00 centreline. Climbing the latter informs short-term players that average gains exceed average losses (over the pre-determined 14-day period): positive momentum.

Observed Technical Levels:

Weekly Fibonacci support between $1.1237 and $1.1281 interacting with price may be enough to pull daily action to trendline resistance, extended from the high $1.2254. In view of the daily timeframe trending lower since June 2021, traders are urged to pencil in the possibility of a bearish attempt from the noted trendline resistance.

Shorter term, H1 Quasimodo supports between $1.1278 and $1.1280 could soon make an entrance, joined by H4 Quasimodo support priced from $1.1272. In the event of higher prices, the area between H4 resistance at $1.1379 and H1 resistance at $1.1364 might be targeted.

AUD/USD:

Weekly timeframe:

Prime support at $0.6968-0.7242 continues to play a crucial role on the weekly timeframe. Bulls, as you can see, welcomed a bullish phase into the close of 2021, though appetite for higher prices subsided last week. Should buyers regain footing, resistance is formed at $0.7501; manoeuvring beneath $0.6968-0.7242 reveals support at $0.6673 and a 50.0% retracement at $0.6756.

Since mid-Feb 2021, a downside bias has been seen, following higher prices since pandemic lows of $0.5506 (March 2020). However, from the monthly timeframe the unit has been entrenched within a large-scale downtrend from mid-2011.

Daily timeframe:

Resistance—made up of a 61.8% Fibonacci retracement at $0.7340, a 100% Fibonacci projection at $0.7315, an ascending resistance, drawn from the low $0.7106, and trendline resistance, drawn from the high $0.7891؅—offers healthy (technical) confluence on this chart. Support at $0.7021 calls for attention to the downside in the event sellers track lower price levels.

The relative strength index (RSI) elbowed beneath the 50.00 centreline at the tail end of last week, movement informing traders and investors this market is beginning to produce negative momentum (average losses exceeding average gains).

H4 timeframe:

Two key zones stand out on the H4 scale.

Upstream, trendline support-turned resistance, taken from the low $0.6993, and a 61.8% Fibonacci retracement at $0.7222 merging forms modest confluence to be mindful of. Additionally, if price maintains Friday’s session low at $0.7130, an AB=CD bearish formation may emerge within the aforementioned zone (black arrows).

To the downside, support is visible between $0.7097 and $0.7121 (composed of a 1.618% Fibonacci projection, a 61.8% Fibonacci retracement and horizontal price support).

H1 timeframe:

Supply at $0.7195-0.7207, sharing chart space with the $0.72 psychological figure and a 50.0% retracement at $0.7202, proved an effective ceiling Monday, guiding the currency pair to within striking distance of demand from $0.7126-0.7141 (held during Friday’s NFP release).

Above noted supply, the technical radar points to Quasimodo support-turned resistance at $0.7229, dovetailing closely with the H4 61.8% Fibonacci retracement at $0.7222.

The relative strength index (RSI) currently explores territory beneath the 50.00 centreline, telling short-term traders that we’re seeing negative momentum in this market. Oversold space, therefore, may be in the line of fire.

Observed Technical Levels:

Technically, we are in a prime support zone on the weekly timeframe at $0.6968-0.7242, unlocking the possibility of a run higher on the daily chart until crossing swords with resistance around the $0.7340ish point (see above). It is here, in light of the downtrend seen on the daily scale and the long-term downtrend on the monthly timeframe, long-term sellers could emerge.

With H1 supply at $0.7195-0.7207 perhaps weakened on Monday’s test, short-term traders might be watching H1 Quasimodo support-turned resistance at $0.7229 overhead, which, as noted above, overlaps closely with H4 resistance around $0.7222 (red area).

USD/JPY:

Weekly timeframe:

After touching gloves with a 1.272% Fibonacci projection from ¥116.09, bearish flow is on the verge of reconnecting with resistance-turned support from ¥114.38, a level capping upside since early 2017.

Also of technical note is the currency pair recently refreshing multi-year pinnacles, reaching levels not seen since January 2017.

In terms of trend, the unit has been advancing since the beginning of 2021, welcoming a descending resistance breach, drawn from the high ¥118.61.

Daily timeframe:

Quasimodo resistance at ¥116.33 made a show early last week, powering four back-to-back daily bearish closes. Taking the market’s current trend into account, the ¥116.33 reaction may prompt a dip-buying phase from ¥114.97, a Quasimodo resistance-turned support.

Together with the above price analysis, the relative strength (RSI) is fast approaching support between 40.00 and 50.00 (a ‘temporary’ oversold range since 10th May offering an oversold region on this timeframe).

H4 timeframe:

Support at ¥115.38 was taken on Monday which could serve as resistance going forward. According to the H4 scale, further underperformance is possible to as far south as support from ¥114.50, closely shadowed by trendline support, taken from the low ¥112.56. Consequently, ¥114.50 will likely be closely watched as a downside objective going forward and may trigger dip-buying activity, in line with the underlying trend.

H1 timeframe:

Monday’s bearish narrative pulled short-term price action through ¥115.48 and came within a handful of pips of retesting the lower side of the (now) resistance level, before further selling unfolded.

The ¥115 figure deserves notice, working closely with a 1.618% Fibonacci projection and a Quasimodo support (left shoulder [black arrow]). Also of importance is ¥115 benefitting from the daily Quasimodo resistance-turned support at ¥114.97.

Note also that just south of the psychological number, Quasimodo support is stationed nearby at ¥114.83.

Observed Technical Levels:

Technically, support is seen between daily Quasimodo resistance-turned support at ¥114.97 and ¥115 on the H1 (and associated H1 confluence). Traders are urged to pencil in the possibility of price whipsawing through ¥115 to H1 Quasimodo support at ¥114.83, before a bullish attempt takes shape.

GBP/USD:

Weekly timeframe:

Resistance at $1.3629-1.3456 made a show in recent weeks, following a pullback from December lows of $1.3160 just ahead of the double-top pattern’s ($1.4241) profit objective around $1.3093 (red boxes).

Could the recent bid be the beginning of a dip-buying phase, in line with the weekly timeframe’s current uptrend? Still, it’s important to recognise that while the trend on the weekly timeframe demonstrates an upside bias, the monthly timeframe’s long-term trend has been lower since late 2007.

If resistance at $1.3629-1.3456 fails to deliver, ‘consumed supply’ (blue area) is visible between $1.4001 and $1.3830. Considering this, a resistance breach might guide the currency pair as far north as resistance from $1.4371-1.4156.

Daily timeframe:

Sandwiched between trendline resistance-turned support, taken from the high $1.4250, and neighbouring resistance from $1.3602, this is a critical juncture for the pair.

A breakout above resistance not only shows scope to approach the 200-day simple moving average at $1.3734, a breach also informs chartists that weekly resistance highlighted above from $1.3629-1.3456 is on the brink of giving way. Conversely, navigating lower from current daily resistance (and taking out trendline support) helps confirm bearish intent from the said weekly resistance.

The relative strength index (RSI) is hovering nearby overbought levels and is in the early stages of hidden bearish divergence.

H4 timeframe:

Little change visible on the H4 chart.

Supply coming in at $1.3665-1.3625 is recognised as a viable upside objective, with subsequent buying perhaps reaching resistance at $1.3710.

Demand is equally important to note at $1.3428-1.3444. As a result, if sellers regain consciousness from, traders may witness a dip back to the aforementioned demand zone.

H1 timeframe:

$1.36 served well as resistance Monday, hauling price to a session low of $1.3532 and whipsawing through trendline support, etched from the low $1.3173.

$1.36, however, remains in a vulnerable position. Above, a Quasimodo support-turned resistance ($1.3627) is seen within the walls of H4 supply at $1.3665-1.3625, opening the door to a possible whipsaw (stop run) above $1.36.

The relative strength index (RSI) recently made its way north of the 50.00 centreline (positive momentum), suggesting further upside in this market until overbought space is seen.

Observed Technical Levels: 

The combination of weekly resistance at $1.3629-1.3456 and daily resistance at $1.3602 casts a bearish cloud over price action. In conjunction with higher timeframe resistances, a (bearish) whipsaw north of $1.36 is a possibility on the H1 timeframe to test H4 supply at $1.3665-1.3625 and the H1 Quasimodo support-turned resistance from $1.3627.

Conservative sellers will likely watch for a test of $1.3665-1.3625 and a subsequent close back under $1.36 to form before pulling the trigger.

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

 

Key Events This Week: Inflation Data Ahead

Here are the scheduled economic data releases and events that could trigger even more volatility in the coming days:

Monday, January 10

  • EUR: Eurozone November unemployment rate
  • USD: Atlanta Fed President Raphael Bostic speech

Tuesday, January 11

  • AUD: Australia November external trade and retail sales
  • USD: Fed Speak – Kansas City Fed President Esther George, St. Louis Fed President James Bullard

Wednesday, January 12

  • CNH: China December CPI and PPI
  • JPY: BOJ Governor Haruhiko Kuroda speech
  • EUR: Eurozone November industrial production
  • USD: US December CPI and Fed Beige Book

Thursday, January 13

  • USD: US initial weekly jobless claims and December PPI
  • USD: Fed Speak – Richmond Fed President Thomas Barking, Philadelphia Fed President Patrick Harker, Chicago Fed President Charles Evans

Friday, January 14

  • CNH: China December external trade
  • GBP: UK November industrial production and trade balance
  • USD: US December retail sales, industrial production, and January consumer sentiment
  • USD: New York Fed President John Williams speech

US CPI the must-watch data

Hot inflation will no doubt grab the headlines this week with the release of the latest US CPI figures for December on Wednesday. Numerous analysts expect a headline print above 7% with the usual suspects continuing to drive prices higher ie. shelter costs, wage inflation and vehicle prices.

With the labour market pretty much inline with the Fed’s maximum-employment goal, any surprises in the data could reinforce or reverse some of the year’s market momentum, depending on their direction. Also out of the US, the University of Michigan Sentiment survey and retail sales might attract some attention. The consumer inflation expectations part in the former will be key for economists, with all the market’s current attention on price pressures.

Pace of rising rates hits markets

A first rate hike by the Fed in March is now priced in at around 90% with a total of four 25bps moves for the whole of the year. It is not so much the level of where bond yields are, but the speed at which they are rising that has shocked some areas of the market. Equities, and tech stocks in particular, have taken a hit as investors rotate out of growth companies and into value stocks like financials, which generate cash flows now rather than yet-to-be proven cash flows.

This environment should be supportive for the dollar given that the Fed is now fully behind the more hawkish narrative and in lift-off mode. Rising real rates and the risk-off environment have so far cancelled each other out in EUR/USD this year.

EUR/USD Daily

Commodity and high yield FX should also be bid, but this might be easily undone if stock markets start to selloff more sharply than just a wobble.

By Lukman Otunuga Senior Research Analyst

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

2022 Market Outlook

In this short and comprehensive analysis of the current market situation, you will find answers to the following questions:

  • What can we expect from the global economy this year?
  • How will the market react amid tighter monetary policies?
  • When will the Fed raise interest rates?

Don’s miss our latest market update: Watch now!

 

For a look at all of today’s economic events, check out our economic calendar.

Jobs Reports Come in Well Below Forecasts and Support Gold Prices

Economists polled by various news sources predicted that there would be an additional 400,000 jobs added to payrolls last month. The actual number was roughly half of the projected forecast revealing that only 199,000 additional jobs were added.

MarketWatch reported that “The U.S. created a lackluster 199,000 new jobs in December, signaling that persistent labor shortages and another major coronavirus outbreak are holding back the economy. The increase in employment was well below Wall Street’s expectations. Economists polled by The Wall Street Journal had forecast 422,000 new jobs. The U.S. jobless rate, meanwhile, slipped to 3.9% from 4.2% and drifted to a new pandemic low. The rate stood at 3.5% right before the pandemic.”

The United States continues to see the number of daily infections of Covid-19 grow exponentially. The new variant “Omicron” has raised the daily infections in the United States to 1 million daily cases on Monday. This new surge of infections is a major component that continues to create job shortages. It clearly illustrates that the high level of infections is still a major force that is disrupting new job creations which are stifling the economic recovery in the United States.

The current economic undertones continue to keep inflationary pressures high. Speaking with MarketWatch Jeff Wright, chief investment officer at Wolfpack Capital said, “The headline number was a “big miss. The biggest concern for me is wage inflation. Looking at the sum of parts, if the Federal Reserve is most concerned about inflation, then this report is problematic. If the Fed is valuing higher levels of employment and getting labor participation rates back above 62.5%, then the report isn’t.”

Gold daily chart

As of 5:00 PM EST gold futures basis, the most active February 2022 contract is up $7.30 and fixed at $1796.50 a net gain of 0.41%. Our technical studies indicate that the first level for minor support occurs at $1785. The studies indicate major support occurs at $1770. There continues to be resistance between $1800 and $1805 per ounce, with major resistance at $1815 and $1833.

After reflecting on the extremely hawkish undertones in the minutes of the December FOMC meeting, market participants will wait to hear what the Federal Reserve says during the January FOMC meeting which will begin on January 25 and conclude the following day on the 26th.

Wishing you as always good trading and good health,

For those who would like more information simply use this link.

Gary S. Wagner

 

US Employment Situation Report: December

Release: 7th January—08:30 AM EST – 1:30 PM GMT

Reading time: 8 minutes

Welcome to 2022. Happy New Year.

It’s that time of the month again.

Two comprehensive surveys provide economists, investors and traders a snapshot of the employment situation in the United States at the beginning of each month, measuring employment trends and current levels. Due to its timeliness, accuracy and importance within the broader economy, the employment situation report is closely monitored across the investment space.

The Household Survey, or Current Population Survey, calculates labour of the civilian noninstitutional population.

The Establishment Survey, often referred to as the Payroll Survey, measures employment, hours and earnings in the non-farm sector.

  • The Household Survey derives data from approximately 60,000 households, led by the Bureau of Census for the Bureau of Labour Statistics, or BLS. The survey includes farm, non-farm, self-employed (unincorporated) and domestic helpers.
  • The Establishment Survey tends to capture the spotlight. Through the Current Employment Statistics (CES), each month the program contacts approximately 144,000 businesses—representing nearly 700,000 worksites—targeting the payroll of non-farm businesses, non-profit groups and government organisations across the United States.

In most cases, the non-farm payrolls report (derived from the establishment survey) attracts the majority of attention, often vibrating financial markets. A favourable number (generally considered USD positive) reveals additional jobs were added to the economy, while a negative value (often viewed as USD negative), displayed as -100k or -90k, for example, informs that jobs were lost in non-farm business.

Non-Farm Payrolls Employment Change

Employment is considered a leading indicator of consumer spending.

The non-farm payrolls release is a measure of new payrolls added by private and government organisations in the US, reported each month by the Bureau of Labour Statistics (BLS[1]).

425,000 non-farm payrolls are to be added to the US economy in December, according to Bloomberg’s median estimate. However, the current range is between 850,000 and 150,000, with an average of 438,000.

 

Unemployment Rate

The unemployment rate, also referred to as ‘joblessness’, is a closely followed economic indicator. The unemployment rate is derived from a monthly survey called the Current Population Survey (CPS), made up of approximately 60,000 households[2].

The US unemployment rate dropped to 4.2 percent in November 2021, sliding from 4.6 percent in the previous month. Unemployment is to tick lower again in December to 4.1 percent, according to Bloomberg’s median estimate. The average estimate is 4.1 percent with a high-low range set between 4.4 percent and 4.0 percent.

Average Hourly Earnings

Calculated by the BLS (establishment survey data), average hourly earnings measure the amount employees make each hour in the US. Average hourly earnings for US non-farm employees is a leading indicator of consumer inflation and also the earliest data in terms of labour inflation.

Average hourly earnings increased 8 cents, or 0.3 percent, to $31.03 in November 2021, a touch under market estimates of 0.4 percent (and just below October’s 2021 0.4 percent print).

December’s 2021 release, however, is anticipated to tick higher to 0.4 percent, according to Bloomberg’s median estimate. The average estimate is also 0.4 percent with a high-low range set between 0.5 percent and 0.2 percent.

Focus is likely to be on other components of the US Employment Situation report, rather than the headline non-farm payrolls number: the unemployment rate, the labour force participation rate and also wages—average hourly earnings. This is largely due to the hawkish minutes of the US Federal Reserve’s December session.

The minutes indicated the bulk of FOMC members feel an accelerated pace of interest rate hikes may be in the offing sooner than expected, closely followed by a runoff of the Fed’s balance sheet. FOMC participants also underlined that the omicron variant is unlikely to modify the economic recovery.

Private sector employment in the US jumped 807,000 in December, according to the ADP National Employment Report[3] on Wednesday. The chart below emphasises the gain.

‘December’s job market strengthened as the fallout from the Delta variant faded and Omicron’s impact had yet to be seen’, said Nela Richardson, chief economist, ADP. ‘Job gains were broad-based, as goods producers added the strongest reading of the year, while service providers dominated growth. December’s job growth brought the fourth quarter average to 625,000, surpassing the 514,000 average for the year. While job gains eclipsed 6 million in 2021, private sector payrolls are still nearly 4 million jobs short of pre-COVID-19 levels’.

It’s important to note that while some consider ADP a forerunner to today’s headline NFP event, the correlation between the two indicators can be sub-standard at times.

Unemployment Claims out of the US on Thursday totalled 207,000, up from the previous week’s 200,000 reading. While not an entirely positive report, initial filing remains under levels prior to the Covid-19 pandemic. According to the Department of Labour[4], the 4-week moving average was 204,500, an increase of 4,750 from the previous week’s revised average. The previous week’s average was revised up by 500 from 199,250 to 199,750.

FP Markets Technical Outlook

US Dollar Index (ticker: DXY)

Daily Timeframe:

Support at 95.86—boasting a strong historical significance—has served immediate flow well since mid-November 2021. What’s also technically relevant is current price action forming either an ascending triangle or flag pattern, both of which echo a bullish ‘flavour’.

Underpinning current support and the aforementioned pattern structure is the relative strength index (RSI) shaking hands with support between 40.00 and 50.00. Note that within trending environments, the RSI tends to produce a ‘temporary’ oversold region between the said points, and by extension offers a clear form of indicator support.

A breakout to the upside has Quasimodo resistance to target at 97.45. Alternatively, 95.86 support giving way unlocks the door to a decision point from 94.96-95.26 and a trendline support, extended from the low 89.84.

H1 Timeframe:

Harmonic traders are likely to be draw, to the H1 chart, offering a well-defined harmonic Gartley formation with a potential reversal zone set between 95.75 and 95.81.

In addition to forming around daily support at 95.86, whipsawing beneath the 95.89 low (5th January) could stir enough bearish flow to fill harmonic bids within the PRZ and generate a reaction to the upside. Therefore, should a positive NFP number emerge, as forecasted, a spike into the aforesaid PRZ could come about before pursuing higher levels.

  1. https://www.bls.gov/news.release/empsit.nr0.htm
  2. https://www.bls.gov/cps/cps_htgm.htm
  3. https://adpemploymentreport.com/2021/December/NER/docs/ADP-NATIONAL-EMPLOYMENT-REPORT-December2021-Final-Press-Release.pdf ↑
  4. https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20220006.pdf ↑