European Outlook: Asian stock markets were down, with Japan under pressure (closed down -0.79%at 19,301) as the Yen strengthened. The ASX is also in the red, while the Hang Seng outperformed ahead of economic data out of China later in the week. U.S. and European stock futures are heading sound after already being under pressure yesterday while oil prices are little changed, with the front end USOil future trading around the USD 52 per barrel mark. Bond futures remain supported as stock markets correct and while the drop in Sterling has for now underpinned the multinational dominated FTSE it may not be long before inflation concerns pick up again and weigh on Gilt futures. There is nothing in today’s calendar to shake up markets, with only inflation data out of Norway, French production and Swiss unemployment.
FX Update: The dollar has traded steady-to-softer, losing moderately versus the euro and yen, but gaining versus a still-underperforming sterling. USDJPY logged a two-session low of 115.19 as Tokyo markets returned to the fray following a long weekend in Japan. The conjecture in the market is that higher oil prices and recent weakness in the yen have eroded BoJ easing expectations, which has shifted the relative yield dynamic. USDJPY’s low from last week at 115.07 is in the frame. A breach below here would put the pair in one-month low territory, and a daily close below here would signal a shift to a downside bias. Supports are at 114.77-80 and 114.40, the latter of which is the present situation of the 50-day moving average. EUR-USD clawed out a 12-day peak at 1.0627, before ebbing back under 1.0600 to the upper 1.05s. Cable traded softer versus yesterday’s closing levels, but remained above yesterday’s 10-week low at 1.2124 ,while EUR-GBP clocked a fresh eight-week high at 0.8735. Weakness in the pound was sparked by weekend remarks form PM May, who suggested that a “hard” Brexit is the course being set.
Overnight Data: UK Shop price index rose more than expected to 1.0% in December as UK shoppers spent significantly more on food in the week before Christmas. Poor Retails sales figures for Australia failed to den the AUDUSD rally; Retail Sales grew only 0.2% in November against expectations of a 0.4% rise. Mixed data from China as PPI index beat expectations at 5.5% (4.5% expected) and CPI missed expectations at 0.2% MoM and 2.1% YoY when 0.3% and 2.3% were expected respectively. Better news from Japan as consumer confidence grew to 43.1 from 40.9 last time and beat expectations of 41.3 (consumer confidence in the US is expected at 98.5 on Friday)
US Data Yesterday: US consumer credit surged $24.5 bln in November, stronger than expected, after a $16.2 bln increase in October (revised from $16.0 bln). Non-revolving credit paced the rise, jumping $13.5 bln versus $13.8 bln in October (revised from $13.7 bln). But, revolving credit was up a solid $11.0 compared to the prior $2.4 bln gain (revised from $2.3 bln) — it’s the largest increase in this measure since February 2001, with the record $19.5 bln increase set in April 1998.
Fedspeak: Lockhart said it’s too early to estimate fiscal policy effects, in his written remarks. That’s a contrast from some of his colleagues who priced in some upside risk due to fiscal expectations. And he added it is unclear whether the economy is positioned for markedly higher growth. GDP is forecast at around 2% over the next few years, less optimistic than several others on the Committee, and below the markets’ hopes. Inflation is projected to move to 2.0% this year or next. He still looks for a gradual pace of rate hikes. It’s time for the FOMC to shift to “more of a support role” as the new administration comes into play.
Main Macro Events Today
- US Wholesale Trade – Wholesale trade data for November is out today and should reveal a 0.4% sales headline for the month with inventories up 0.9% as indicated by the advance economic indicators report. This follows respective October figures of 1.4% for sales and -0.1% for inventories. Data in line with forecasts would leave the I/S ratio ticking up to 1.31 from 1.30 in October.
- Canada Housing Starts – Housing starts are expected to improve to a 190.0k unit rate in December from the 184.0k pace in November. The ever volatile multi-unit category was the source of the decline in total starts during November: multi-unit starts fell 7.7% to 105.9k in November while singe-detached units were steady at 60.9k. Underlying starts growth remained steady in November, as the six-month moving average was 199.1k from 199.6k in October. Permits, also due Tuesday, are expected to reveal a 5.0% drop in value during November after the 8.7% gain in October.
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