European Outlook: The global stock market rally that was sparked by President Trump’s reference to “something” on the tax cut front in the next 2-3 weeks that would be “phenomenal”, continued in Asia overnight. The Nikkei closed with a more than 2% gain as a lower Yen gave an additional boost, especially to automakers. Markets have also welcomed a perceived softening of Trump’s rhetoric on tariffs on imports from China. The Abe-Trump meeting remains in focus today. U.S. and European stock futures are also moving higher after Trump’s remarks also underpinned closing gains yesterday. Today’s data calendar focuses on the December round of production numbers from the U.K., France and Italy, too backward looking to really change the outlook, leaving the focus on the political arena. Meanwhile the BoE announced that hawk Kristin Forbes, who recently said the BoE may have to hike soon, will leave the MPC after a single term on June 30.
US: Trump signed 3 more executive orders aimed at crime including measures to crack down on transnational crime and drug cartels, reduce crime domestically and prevent violence against law enforcement. This coincided with Sessions being sworn in as Attorney General. The dollar is still higher, however, after Trump’s reference to tax cut announcements in 2-3 weeks, which the markets have been braying for. Additionally, U.S. reports revealed robust wholesale trade and initial claims reports alongside a spike in the weekly Bloomberg consumer comfort index to a new cycle-high that lifted prospects for GDP and payrolls. For wholesale trade, a 2.6% December sales surge that was only partly price-related, and the inventory-to-sales (I/S) ratio plunged to 1.29 after a prior recession-sized climb from 1.20 in mid-2014 to a 1.37 expansion-high in January of 2016. For claims, a 12k drop to 234k in the first week of February left a super-tight path over the three weeks since the end of holiday volatility, with a reading that challenges the 43-year low of 233k in the Veteran’s Day week.
FX Update: USDJPY led the broader dollar rally sparked by Trump’s hint yesterday that “something” on the tax cut front in the next 2-3 weeks that would be “phenomenal,” which was followed-up by an unexpected phone all between Trump and his Chinese counterpart Xi, where Trump said that he would respect the “One China” policy, helping ease tensions. This sparked a risk-on trade and a dollar rally, and USDJPY extended in Tokyo to a nine-day peak of 113.80, which is over two big figures up on Tuesday’s 10-week low at 111.59. Japanese stocks, liking the weaker yen and risk-on vibe, surged; the Nikkei 225 closing with a 2.6% gain. Focus will now turn to the meeting between Trump and Abe, later today, which comes little more than a week after Trump accused Japan, along with China, of currency manipulation. In theory, the risk of fresh vitriol from Trump on exchange rates presents downside risk to USDJPY, though his diplomatic tone with China’s Xi may well be repeated with Abe. Elsewhere, EURUSD consolidated in Asia after tumbling back under 1.0700.
Canada: New housing price index improved 0.1% m/m in December after the 0.2% gain in November. By region, gains in Ontario and Alberta led the way higher for the total index. The new housing price index grew at a 3.0% y/y pace in December, matching the 3.0% rate in November and October. The index saw a cycle low 1.1% y/y growth rate in April of 2015, and has tracked higher since as sales and prices have gained momentum. Moreover, the 3.0% growth rates in the final three months of last year were the strongest annual gains since June of 2010’s 3.3% rise. The government housing measures implemented late last year will eventually temper sales and construction, but the impact should be gradual.
Main Macro Events Today
- GBP Man. Production & NIESR GDP Estimate – December round of production numbers from the U.K are coming out, with manufacturing production for December to fall by 1% (i.e. forecast at 0.3%) after the 1.3% in November. Industrial production on the other hand expected to be 3.2% y/y, and 0.2% m/m.
- Canada Employment Rates – Net Change in Employment, Participation rate and unemployment rate will be out today. Employment gains for January expected to be out today, after the 53.7k surge in December. Canada posted employment gains from August to October of last year, and saw a decline in November.
- US Trade price data & Budget Statement – January’s import prices expected to be up 0.1%, with export prices unchanged. This compares to December figures which had import prices up 0.4% and import prices up 0.3% for the month. Oil prices continue to climb which should lend support to the headline however the pace of gains slowed in January. The Monthly Budget statement by FMS is also out today.
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