Intraday Market Thoughts Archives

German retail sales rose; Spanish and Italian services PMI improved; Eurozone CPI steady and services PMI unrevised; British services PMI declined and precious metals continue to fall. Market turns to labor market data from US and Canada and to ISM non-manufacturing with factory orders.

The greenback is stronger across the board and European equities are losing around 0.4%.

European data were positive failed to stage any recovery of the common currency. German retail sales rose solid 1.2% in November after falling 1.3% in October, Spanish and Italian services PMI beat expectations and improved m/m; Eurozone CPI was steady at 2.2% and the final reading of Eurozone services PMI was unrevised at 47.8. EUR/USD trades near session lows just a few points above 1.30.

British service sector contracted in December for the first time in nearly two years as the PMI index fell to 48.9 from prior 50.2. This was the fifth decline in a row. New business volumes fell for the second month, employment declined marginally and confidence was unchanged at 11 month low. GBPUSD is weaker trading near 1.6020 and EURGBP is slightly higher around 0.8115.

Precious metals extended their declines that started yesterday. Gold trades around 1632, which is over $60 from Wednesday's highs. Silver lost $2 since Wednesday and trades around 29.40.

The highly anticipated December NFP is due at 8:30 am ET and it is expected to rise to 150K from prior 146K. The unemployment rate is seen steady at 7.7%. ISM non-manufacturing will flash on screens at 10:00 am and it anticipated to decline marginally in December to 54.2 from previous 54.7. Finally, factory orders are expected to rise 0.3% in November from prior 0.8%.

Canadian labor market data is also due at 8:30 am. The employment is expected to rise only 4K after soaring 59.3K in the prior month and the unemployment rate is forecasted to rise to 7.3% from 7.2%.

A hint the Fed might taper QE programs later this year sparked a rebound in the USD dollar on Thursday. The yen was the best performer on the day while EUR and GBP lagged. The China services PMI is the lone item on the Asia-Pacific calendar.

The Dec 12 FOMC minutes sparked half-cent moves in the dollar. The minutes said several FOMC members wanted to end or scale back Fed bond purchases by the end of the year.

The moves knocked the euro out of its two-week range to 1.3050 and cable to 1.6100 after hitting a two-year high above 1.6381 yesterday. We warned about the potential for cable declines yesterday after the failure to break a long-term triple top.

Earlier euro and pound weakness came as a result of profit taking in EUR/JPY and GBP/JPY after the recent parabolic moves in those pairs.

The focus now shifts to non-farm payrolls on Friday. Analysts have been hiking forecasts after the ADP jobs report hit 215K compared to 133K forecast. That enthusiasm was tempered by jobless claims at 372K compared to 355K expected. The ‘consensus’ still reads 150K but the market is now likely priced for a reading around 170K.

In Asia, the highlight will be the Chinese services PMI from HSBC at 0145 GMT. The prior reading was 52.1. Japanese officials continued to talk down the yen overnight and say fighting deflation is their top priority.

USD and JPY gain; UK construction sector contracted; German unemployment rose less than expected; Swiss KOF declined but PMI rose. Market turns to ADP, jobless claims and the latest FOMC minutes.

Despite the strong rally in US equities yesterday, the optimism from the fiscal cliff deal disappeared and risk aversion returned to markets during Asia. USD and JPY buying intensified during the London session, European equities declined over 0.5% and JPY pairs broke sharply lower.  

UK construction sector remained in contraction in December as the PMI index deteriorated to a six month low at 48.7 from prior 49.3. The housing activity declined at the fastest pace in two years and total new business fell at an accelerated pace. GBPUSD weakened to 1.6170 but EURGBP remained steady around 0.81.

German unemployment positively surprised as it rose only 3K in December, which is less than the market anticipated. The unemployment rate remained steady at 6.9%. Nevertheless, EURUSD declined to below 1.32.

Swiss KOF economic barometer declined in December to 1.28 from previous 1.5 but SVME PMI was above expectations at 49.5 from prior 48.5.

The US session begins at 8:15 am ET with the ADP report that is expected to rise in December to 134K from prior 118K. Jobless claims at 8:30 am are seen higher at 356K from previous 350K.

The key event will be the release of the latest FOMC minutes at 2:00 pm. The decision to announce QE4 seems to imply that the commission is more concerned about the labor market than price stability so it will be interesting to read details of the discussion that led to the decision.

Cable Breaks & Settles

Cable broke a triple-top to the highest since mid-2011 but quickly reversed in a potential false breakout. The commodity currencies were the top performers while the yen lagged. Overseas holidays will minimize Asia-Pacific volatility. ASHRAF’s PRE-NFP WEBINAR is on THURSDAY 17:00 EST, 22:00 GMT/London time. See registration link below.

Risk trades surged on the first trading day of 2013 but a round of USD buying stifled the pound and euro. The fiscal cliff deal led to a 2.5% rally in the S&P 500 and that translated to 100 pip gains in the commodity currencies.

The euro made a similar gain in early trading but reversed on a failure to break the December 1.3308 high. On the day, EUR/USD closed slightly lower at 1.3186 – touching both a two-week high and two-week low on the same day.

Cable took out 1.6315, which is a massive level that capped the three most recent rallies. The break sparked a squeeze to 1.6380 but the market wasn’t prepared to move into a new range and the pair dropped back to 1.6250.

The turnaround in cable could be a breather before a second push higher, or a false breakout. The direction isn’t clear yet but whichever way it breaks is likely to be lasting.

Part of the answer will come in the remainder of the week as a number of key US economic indicators are released, including non-farm payrolls . Manufacturing is slowly improving, according to the ISM survey. It climbed to 50.7 compared to 50.3 in November.

ASHRAF’S JOINT WEBINAR on "Currency, Debt & Equity Markets Timing Webinar" with Fari Hamzei and George Cavaligos is on - THURSDAY, JAN 3, 2013 - 16:00 Chicago, 17:00 NY, 22:00 London. LINK TO REGSITER: https://www1.gotomeeting.com/register/498780401  MORE BELOW on the FISCAL CLIFF DEAL.

Fiscal cliff measure approved but negotiations in February to be even more difficult; UK manufacturing PMI improved; German and Eurozone manufacturing PMI revised lower. Focus turns to ISM manufacturing. ASHRAF’s PRE-NFP WEBINAR is on THURSDAY 17:00 EST, 22:00 GMT/London time. See registration link below.

Risk trades pushed higher after both the House of Representatives and the Senate approved the bipartisan fiscal cliff measure. The bill now only needs to be signed by the president. EURUSD nearly touched 1.33 but later lost a part of its gains. JPY pairs surged higher during Asia and still trade near session highs.

The fiscal cliff can was merely kicked down the road. The negotiations that are coming in two months time are likely to be even more difficult and have the potential to be even more disruptive as the debt limit will need to be raised at the same time.

UK manufacturing PMI bested expectations as it rose in December to a 15 month high at 51.4 after seven months of sub 50 readings. Production and new orders expanded at accelerated rates, employment decline was negligible and both input and output inflation hit multi-month highs. Nevertheless, GBP ignored the release and continued to trade around 1.63 against USD and 0.8125 against EUR.

German December manufacturing PMI was revised lower to 46.0 from initial estimates of 46.3. German CPI is still being collected and the preliminary result for December is due later during the session. Eurozone final manufacturing PMI for December was revised lower to 46.1 from 46.3.

The US data calendar is limited to ISM manufacturing at 10:00 am ET that is expected to rise in December to 50.2 after falling to 49.5 in November.   

ASHRAF’S JOINT WEBINAR on "Currency, Debt & Equity Markets Timing Webinar" with Fari Hamzei and George Cavaligos is on - THURSDAY, JAN 3, 2013 - 16:00 Chicago, 17:00 NY, 22:00 London. LINK TO REGSITER: https://www1.gotomeeting.com/register/498780401  MORE BELOW on the FISCAL CLIFF DEAL.

Wishing you a healthy, prosperous & peaceful New Year, filled with continuous learning & triumph over challenges.  Jan 1st is already here, but the December release of the US Non-Farm Payrolls is just around the corner on Friday. Open the year with my JOINT WEBINAR "Currency, Debt & Equity Markets Timing Webinar" with Fari Hamzei and George Cavaligos on - THURSDAY, JAN 3, 2013 - 16:00 Chicago, 17:00 NY, 22:00 London. LINK TO REGSITER: https://www1.gotomeeting.com/register/498780401  MORE BELOW on the FISCAL CLIFF DEAL.

The FISCAL CLIFF deadline is averted using the minimum AGREEMENT ON TAX CUTS, but not yet resolving the problem of SPENDING CUTS, which may take 2-3 months. The SENATE has agreed to extend Bush-era tax for family incomes below $450,000, a threshold well above Obama's preferred $250,000, yet it will be the FIRST TAX HIKE AGRRED upon by Republicans in nearly 20 years. THE KEY REMAINING ISSUE include the composition of the $110 billion in 2013 SPENDING CUTS scheduled to start begin in Jan.

THE DEBT CEILING IS other key issue. A plan to link $1 trillion in entitlement savings (slashing Medicare, Medicaid, Social Security & using Chained CPI to lower Federal programs) to increasing the debt ceiling by the same amount of $1 trillion. Debt ceiling may be needed to be increase by legislation by March 15OTHER ISSUEs Others include estate taxes, alternative minimum tax, the Medicare reimbursement rates and unemployment benefits.