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Dollar Trying to Recover, Except Versus Yen

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Yen’s rally continues today on talks that BoJ could tweak the yield curve control again next week. It’s also supported by extended decline in US and European benchmark treasury yields. Meanwhile, Dollar is trying to fight back as US futures are taking dive, reversing some of yesterday’s post-CPI gains. But overall, the greenback remains the second worst performer for the week, following Swiss Franc, and followed by Kiwi. Yen is the best, followed by Euro and then Aussie.

In Europe, at the time of writing, FTSE is up 0.41%. DAX is flat. CAC is up 0.21%. Germany 10-year yield is down -0.017 at 2.107. Earlier in Asia, Nikkei dropped -1.25%. Hong Kong HSI rose 1.04%. China Shanghai SSE rose 1.01%. Singapore Strait Times rose 0.79%. Japan 10-year JGB yield rose 0.0067 to 0.512.

UK GDP grew 0.1% mom in Nov, avoided contraction

UK real GDP grew 0.1% mom in November, much better than expectation of -0.3% mom contraction. Services grew 0.2% mom. Production declined -0.2% mom. Construction was flat. Overall monthly GDP is -0.3% below its pre-pandemic levels.

In the three months to November, GDP fell -0.3% 3mo3mo. there was a -0.1% decline in Services, -1.4% decline in production, with the only growth coming from 0.3% in construction.

Also published, manufacturing production was down -0.5% mom, -5.9% yoy in November, versus expectation of -0.2% mom, -5.2% yoy. Industrial production was down -0.2% mom, -5.1% yoy, versus expectation of -0.1% mom, -2.8% yoy. Goods trade deficit widened to GBP -15.6B, versus expectation of GBP -14.9B.

NIESR expects 0.1% UK GDP growth in Q4, Q1 risk on the downside

After today’s UK GDP release, NIESR forecasts that GDP in December will fall relative to November. But overall, service-driven GDP growth of 0.1% in Q4 is estimated.

Paula Bejarano Carbo, Associate Economist, NIESR, said: “Given that PMIs for services, manufacturing and construction all posted below the neutral 50 for December, we expect to see a slight fall in GDP in December relative to November; but this means a rise in quarterly GDP, possibly a sign that households are enjoying a last hurrah before they tighten their belts in 2023.

” Looking towards the first quarter of 2023, the risks to GDP seem to remain on the downside, driven by anaemic growth in the major sectors, fragile consumer and business confidence and a widespread fall in real incomes.”

Eurozone industrial production rose 1.0% mom in Nov, EU up 0.9% mom

Eurozone industrial production rose 1.0% mom in November, above expectation of 0.6% mom. Production of capital goods grew by 1.0%, intermediate goods by 0.8% and durable consumer goods by 0.4%, while production of energy fell by -0.9% and non-durable consumer goods by -1.3%.

EU industrial production rose 0.9% mom. Among Member States for which data are available, the highest monthly increases were registered in Ireland (+6.4%), Luxembourg (+5.0%) and Malta (+4.6%). The largest decreases were observed in Estonia (-3.7%), Sweden (-3.3%) and Croatia (-1.9%).

Eurozone exports rose 17.2% yoy, imports up 20.2% yoy in Nov

Eurozone export of goods to the world rose 17.2% yoy to EUR 264.7B in November. Imports rose 20.2% yoy to EUR 276.3B. Trade deficit came in at EUR -11.7B. Intra-Eurozone trade rose 16.8% yoy to EUR 241.5B.

In seasonally adjusted term, exports rose 1.0% mom to EUR 251.5B. Imports dropped -3.8% mom to EUR 266.7B. Trade deficit narrowed from October’s EUR -28.1B to EUR -15.2B, versus expectation of EUR -20.0B. Intraday Eurozone trade dropped from October’s EUR 233.4B to EUR 232.2B.

ECB Kazaks: Core inflation currently a key gauge for inflation persistence

ECB Governing Council member Martins Kazaks pushed back on talks that the central bank would cut interest rates by the end of this year. He said he failed to see a “rationale” for that.

“It would take a deep recession with a sizeable jump in unemployment for inflation to sink and thus push for rate cuts,” the Latvian central bank governor said. “But that is not likely, given the current macro outlook.”

“It is possible for core inflation to continue trending up even as headline inflation is coming down, for instance, due to swings in energy prices,” he said. “In my view, core inflation currently is a key gauge for inflation persistence and policy decisions.”

He expects interest rate to rise “well into restrictive territory” but declined to estimate the terminal rate. “Uncertainty is too high, and we shall find it step-by-step,” he said.

China export plunged -9.9% yoy in Dec, imports dropped -7.5% yoy

China exports plunged -9.9% yoy in December in USD terms, worst drop since February 2020, but slightly better than expectation of -10.0% yoy. Imports fell -7.5% yoy, better than expectation of -9.8% yoy. Trade surplus widened from USD 69.8B to USD 78.0B, slightly above expectation of USD 77.9B.

In CNY term, exports declined -0.5% yoy while imports rose 2.2% yoy. Trade surplus widened from CNY 494B to CNY 550B, above expectation of USD 533B.

For 2022 as a whole, in US term, exports rose 7.2%, much worse than 2021’s 29.6%. Imports rose 1.1%, down sharply from 2021’xs 30.0%.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0766; (P) 1.0816; (R1) 1.0902; More

With 1.0729 minor support intact, intraday bias in EUR/USD stays mildly on the upside. Current rise from 0.9534 should target 61.8% projection of 0.9630 to 1.0733 from 1.0482 at 1.1164 next. On the downside, below 1.0729 minor support will turn intraday bias neutral again first. But near term outlook will stay bullish as long as 1.0482 support holds, in case of retreat.

In the bigger picture, current development suggests that the rally from 0.9534 low is a medium term up trend rather than a correction. Further rally is in favor to 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273 next. This will remain the favored case as long as 1.0482 support holds

Economic Indicators Update

GMT
Ccy
Events
Actual
Forecast
Previous
Revised
23:50
JPY
Money Supply M2+CD Y/Y Dec
2.90%
3.30%
3.10%
03:20
CNY
Trade Balance (USD) Dec
78.0B
77.9B
69.8B
03:20
CNY
Exports (USD) Y/Y Dec
-9.90%
-10%
-8.70%
03:20
CNY
Imports (USD) Y/Y Dec
-7.50%
-9.80%
-10.60%
03:20
CNY
Trade Balance (CNY) Dec
550B
533B
494B
03:20
CNY
Exports (CNY) Y/Y Dec
-0.50%
0.90%
03:20
CNY
Imports (CNY) Y/Y Dec
2.20%
-1.10%
07:00
GBP
GDP M/M Nov
0.10%
-0.30%
0.50%
07:00
GBP
Index of Services 3M/3M Nov
-0.10%
-0.40%
-0.10%
07:00
GBP
Manufacturing Production M/M Nov
-0.50%
-0.20%
0.70%
07:00
GBP
Manufacturing Production Y/Y Nov
-5.90%
-5.20%
-4.60%
-5.70%
07:00
GBP
Industrial Production M/M Nov
-0.20%
-0.10%
0.00%
-0.10%
07:00
GBP
Industrial Production Y/Y Nov
-5.10%
-2.80%
-2.40%
-4.70%
07:00
GBP
Goods Trade Balance (GBP) Nov
-15.6B
-14.9B
-14.5B
-12.3B
09:00
EUR
Italy Industrial Output M/M Nov
-0.30%
0.40%
-1.00%
10:00
EUR
Eurozone Trade Balance (EUR) Nov
-15.2B
-20.0B
-28.3B
-28.1B
10:00
EUR
Eurozone Industrial Production M/M Nov
1.00%
0.60%
-2.00%
-1.90%
12:00
GBP
NIESR GDP Estimate (3M) Dec
0.10%
-0.30%
13:30
USD
Import Price Index M/M Dec
0.40%
-0.90%
-0.60%
15:00
USD
Michigan Consumer Sentiment Index Jan P
61.6
59.7

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