Daily Market Analysis and Forex News

As the world gets used to the new calendar year, global markets are wasting no time in getting things moving.

Risk-on sentiment is kicking off 2022 with a bang, with European equities and US stock futures looking up on the first trading day of the year.

Investors and traders will also have an eventful week with an OPEC+ decision, FOMC minutes, and the latest US nonfarm payrolls report to be taken into consideration along with other economic data releases and scheduled Fed speak:

Monday, January 3

• EUR: Eurozone December Markit manufacturing PMI (final)
• USD: US December Markit manufacturing PMI (final)

Tuesday, January 4

• CNH: China December Caixin manufacturing PMI
• Brent: OPEC+ meeting
• USD: US December ISM manufacturing

Wednesday, January 5

• EUR: Eurozone December services and composite PMIs (final)
• US crude: EIA weekly US crude oil inventory report
• USD: FOMC minutes

Thursday, January 6

• CNH: China December Caixin services and composite PMI
• EUR: Germany December CPI and Eurozone November PPI
• USD: Fed speak – St. Louis Fed President James Bullard, US weekly jobless claims

Friday, January 7

• EUR: Germany November industrial production and Eurozone December CPI
• USD: US December nonfarm payrolls
• USD: Fed speak – Atlanta Fed President Raphael Bostic, San Francisco Fed President Mary Daly, Richmond Fed President Thomas Barkin

Oil prices to take cues from OPEC+

Oil prices have just come off a year to remember. Brent futures climbed over 50% in 2021, while WTI futures advanced by 55%. This was the best year for these benchmarks since 2009.

But even with the new year, the same event risks remain. OPEC+ is set to decide on Tuesday whether to raise their collective output levels by another 400k barrels in February. Initial reports show that Omicron’s impact on global demand on oil has been relatively mild, which has fueled the double-digit recovery in oil prices in December.

This suggests that OPEC+ should be comfortable enough to press ahead with the intended output hike, though their commentary surrounding the oil market’s outlook and their plans to gradually restore supplies could dictate whether oil prices can climb significantly higher past $80/bbl.

The shocker would be for OPEC+ to say ‘no’ to a February hike, which was what markets had expected for last month’s meeting, leaving oil bulls to gleefully capitalize potentially on such a surprise decision.

Better-than-expected US jobs report to help DXY retain 96 handle?

Despite Omicron’s threat, markets are currently forecasting the December US nonfarm payrolls to come in around 400k, with the unemployment rate easing lower to 4.1% from November’s 4.2%.

These headline figures could still joly markets, even though the labour market’s recovery has taken a back seat to fears over the US inflation outlook, at least in terms of motivating the Fed to raise interest rates.

Given this obsession over the inflation outlook, perhaps the market’s attention will be focused more on wage growth, which is forecasted to have moderated down from 4.8% in November to 4.2% last month. If wage growth rises higher than expected, that could reinforce the notion that US inflation is likely to stay, especially with added demand-pull forces in play. That could then strengthen market expectations for Fed rate hikes this yearand keep the DXY above 96.0.

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.

The first Friday of every month brings the highly-anticipated US nonfarm payrolls data. Here are some of the other potential market-moving events scheduled for the first trading week of August:

Monday, August 2

• Manufacturing PMIs for China, Eurozone, UK, US
• US ISM manufacturing

Tuesday, August 3

• RBA policy decision
• Eurozone PPI
• Alibaba earnings

Wednesday, August 4

• Eurozone retail sales
• Composite/services PMIs for China, Eurozone, UK, US
• EIA crude oil inventory report

Thursday, August 5

• BOE rate decision
• Germany factory orders
• US initial jobless claims

Friday, August 6

• Germany industrial production
• US nonfarm payrolls

For the US nonfarm payrolls print that’s due on 6 August, markets are forecasting that 900,000 jobs were added last month. Anything higher than 850,000 would be the highest NFP print since August 2020 and would score a third consecutive month of faster jobs growth.

A larger-than-expected July jobs increase (think closer to one million jobs added) could translate into more upside for the equally-weighted US dollar index, and put it on a path back towards its year-to-date high.

Otherwise, a lacklustre print this Friday could ensure that this dollar index remains below its 200-day simple moving average for a while longer and pare more of its gains since the hawkish surprise at the June FOMC meeting.

Markets still guided by Fed’s tapering predictions

Arguably, the biggest theme in play across global financial markets right now is the predictions over the Fed’s tapering.

Considering the robust US economic recovery, the US central bank is expected to ease up on its bond purchases that have supported financial markets since the pandemic. Exactly when the Fed will embark on such a process, at what pace (how quickly it will unwind its bond purchases), and under what economic conditions – all those remain vague at this point in time.

What we do know is that, following last week’s July FOMC meeting, the Fed reiterated that it wants to see “substantial further progress” in the ongoing US economic recovery before it will taper. However, it remains unknown exactly what constitutes “substantial” enough for the Fed.

Conflicting tapering cues within FOMC and markets

This past Friday (30 July), Fed Governor Lael Brainard reminded global investors that the US jobs market is still a long way off from pre-pandemic levels. She highlighted the “shortfall of 6.8 million jobs” that needs to be restored before the Fed tapers.

On the other hand, there was the famed hawk, Federal Reserve Bank of St. Louis President James Bullard, who also on Friday expressed his desire for the tapering to begin this fall and wrapped up by March 2022. Most economists expect the tapering to only commence next year.

Amidst all these conflicting views, it remains to be seen how the forthcoming economic data guides, not just the consensus within the FOMC, but also investors’ predictions for when the tapering will actually commence.

'Markets Extra' podcast: Confused by the Fed? So were markets.

More gains for stocks likely until tapering draws closer

As long as the Fed’s ultra-accommodative stance remains intact, that should allow for more upside for US equities in the interim. The S&P 500 is striving to carve out a sustainable presence above the psychologically-important 4400 mark, a feat made more achievable considering that bond yields have been relatively subdued of late.

However, a stellar US jobs report this Friday would shorten the runway for equity bulls, as an NFP print that far exceeds the media forecast (900k) would ramp up markets expectations that the Fed would have to ditch its dovish stance sooner rather than later.

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.

• The US did not confirm plans to ban Chinese companies’ listings
• Investors awaiting NFP report to assess the Fed’s next move
• Reserve Bank of Australia expected to lower interest rates
• Sterling volatility to increase in the weeks ahead

Equity markets in Asia kicked off the week mixed after the S&P 500 posted a 0.5% decline on Friday following the latest developments in politics and trade. Reports suggesting the US administration is considering measures to limit flows into China, through delisting Chinese companies from US stock exchanges and restricting pension funds investments in Chinese markets, hit sentiment. While no confirmation was received on this front, the idea of the trade war moving into a war on capital flows will lead to a risk-off environment. Whether the White House would implement such restrictions or just use them as a tool to gain leverage in the upcoming trade negotiations, the message sent was not received well by financial markets.   

US capital markets are considered some of the most open markets globally. Any signs of restricting access to foreigners would indicate that Chinese companies may need to consider alternative options to raise capital. This gives the US a disadvantage against its competitors and will eventually lead to less financial capital inflows.

The week ahead

Investors have a busy week to digest with Friday’s non-farm payrolls report likely to be the main risk event of the week. Having cut interest rates for a second time this year, the Federal Reserve is watching economic data very closely to decide its next move. Last month, US jobs growth slowed to its lowest level since May and came up short of expectations. However, when looking at the overall report it wasn’t terribly bad. Wage growth continued to expand at 3.2% and the unemployment rate remained steady at 3.7%. Another miss on the headline number may send a warning sign to Fed policymakers, who have so far ruled out further rate cuts in 2019 and 2020. However, markets are still convinced that another cut is on the way this year, so any positive or negative surprise readings will likely lead to big moves in the US Dollar.

Euro traders will keep a close eye on manufacturing PMIs which dropped to the lowest level in a decade in Germany last week. The ongoing US-China trade dispute has clearly hit global manufacturing and if the PMI release confirms the flash figures, we may see further pressure on the Euro.

Currency traders are also watching the Australian Dollar closely with the Reserve Bank of Australia expected to cut interest rates to a new record low of 0.75% on Tuesday. The slowdown in China appears to be a major factor impacting growth and employment in Australia;  though policymakers may be worried that cheap credit will fuel a new bubble in the housing market. This is likely to complicate the RBA’s decision which means if the bank decides to stay on hold, we would expect to see a bounce in the Aussie.

The Pound was the worst-performing G10 currency last week, declining 1.3% against the Greenback. After a sharp fall on Wednesday, Sterling continued to move lower towards the end of week driven by comments from MPC member Michael Saunders who suggested the Bank of England may have to cut interest rates even if there is a Brexit deal. Sterling is likely to be the most difficult currency to trade in the weeks ahead as Brexit newsflow will be the dominant factor. However, expect to see bigger swings either way as we approach the October 31 deadline.

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.

Dollar bulls have been showing signs of nervousness this week, with the US Dollar index (DXY) testing the 96.8 support level in recent days. Recent rhetoric by Fed officials have cracked open the door for policy easing this year, as markets pile on bets that a US rate cut could come as soon as July, all of which is putting downward pressure on the Greenback.

Given the Dollar’s sensitivity of late, traders may parrot the Fed’s claims of being “data-dependent”, whereby Friday’s US non-farm payrolls could prompt an outsized move in DXY. A much weaker-than-expected jobs report could see the Dollar index opening up a path towards the lower bounds of the 96-handle, while justifying calls for a US rate cut.

Euro gains as ECB indicates willingness to continue supporting EU economy

The EURUSD pair has been resisted at the 1.13 level this week, as ECB President Mario Draghi signaled continued policy support for the EU economy amid heightened uncertainties on the global stage. Although appearing less dovish than expected, the European Central Bank has pledged to hold rates at historic lows until at least early 2020, as the EU economy contends with persistent uncertainties on the global stage.

According to Draghi, incoming data point towards weaker growth in Q2 and Q3, even as growth projections were revised downwards for both 2020 and 2021. Headline inflation is also likely to decline over the coming months. With risks in the form of Italy’s budget conflict, Brexit uncertainties, and persistent trade tensions exposing the Eurozone to negative shocks, the outlook for the Euro remains tilted to the downside, which makes any meaningful gains for the bloc’s currency that much harder to come by.

Asian markets cast watchful eye over US-Mexico negotiations

Asian stocks took cues from Wall Street to eke out gains on Friday, although market liquidity may be tepid with China and Hong Kong closed for a holiday. Markets are holding out hope that the five percent US tariffs set to be imposed on Mexican imports by June 10 could be delayed, as already heightened barriers to global trade cast a very dark cloud over the global economic outlook.

In the event that President Trump holds off on imposing the tariffs come Monday, that should allow some breathing space for risky assets to notch limited gains. However, should those US tariffs be imposed next week, safe haven assets such as Gold and Yen could climb another leg higher, while global stocks and EM currencies could see another selloff.

Markets are clearly nervous about the potential fallout from the intensifying US-led trade conflict against its major trading partners, with a full-blown US-China trade war threatening to fuel fears of a recession. Such a backdrop may lead to a new 2019 high for Gold, with Bullion having gained over 2 percent this week, while the Yen threatens to strengthen past the 108 psychological mark against the US Dollar.

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.

Any hopes that the Dollar could continue its rebound with an encouraging US jobs report, appears to have been thrown out the window, following a "hat-trick" of losses in the recently released jobs report for August. The number of jobs created in August, earnings and the unemployment rate, all fell short of expectations. The negative news doesn't conclude there, the figures for number of jobs created in both June and July, were also revised lower.

The headline figures coming out the Non-Farm Payroll report do not look encouraging for those investors who were looking to purchase the Dollar, at what could be argued as oversold levels - after the Dollar Index touched its lowest level since January 2015 earlier this week. I still feel that in terms of price action, the Dollar is oversold. However the employment sector has been one of the star performers for the US economy over the past two years and this news does not look encouraging for the jobs sector.

It's possible that this report could just be a one-off, but the headline news may encourage sellers re-entering the market to short the Dollar.

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.