Daily Market Analysis | HotForex

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MACRO EVENTS & NEWS

FX News Today

Bullard: four rate hikes may still be about right after the strong US jobs number, though inflation remains uncertain. He said that neither the markets nor the Fed are thinking about a January hike, while more information is needed before making a call on March. He would be more inclined to put weight on inflation if expectations continue to decline, though he still thinks the economy is set to grow 2.5-3.0% this year. Bullard doesn’t think the Fed needs to “re-litigate” China concerns, since the country should still grow around 6%. He does see some pick-up in wages beyond inflation and productivity as an indication that the labor market is tight. He doesn’t believe that oil prices need to stabilize before a second Fed hike, though still-weak oil would weigh on the committee’s deliberations. This has a more hawkish overtone relative to his earlier dovish remarks on oil and inflation risks.

The BoE did the expected and kept monetary policy on hold at the January meeting. The voting pattern, which saw a broad majority of 8 in favour of keeping rates steady, with one dissenter, was also as expected. The statement and especially the minutes show, however, that uncertainty is rising. Growth projections as well as near term inflation projections seem to have been revised down already and the doubts concerning the medium to long term inflation forecasts seem to be on the rise as well. The February Inflation Report is likely to bring more clarity.

Yesterday’s US reports revealed big December trade price drops with yet another round of surprisingly big export price declines, and a 7k (seasonally adjusted) initial claims pop that masked a hefty 99k (not seasonally adjusted) increase. The renewed trade price plunge predictably reflects historic declines in energy prices, sharp gains in the value of the dollar, a global growth slowdown, an inventory overhang that is depressing prices, and a shifting supply-demand dynamic in the global petroleum industry that has wacked the factory sector. The initial claims rise likely reflects the ongoing difficulties of seasonal adjustment, though claims have clearly trended higher since early December to remove some of the upside risk that claims have routinely provided for the job growth outlook. We peg January payroll growth at 200k.

Main Macro Events Today

US Retail Sales: December retail sales will be released today and should show a 0.1% (median 0.1%) headline increase with the ex-autos component up 0.3% (median 0.3%). This follows November figures of 0.2% for the headline and 0.4% for ex-autos. The report faces divergent forces from firm construction data and chain store sales but the slowdown in auto sales and continued declines in gasoline prices will likely weigh.

US Michigan Consumer Sentiment: The first release on January Michigan Sentiment is expected to show an increase in the headline to 92.8 (median 93.0) from 92.6 in December’s final release. The already released IBD/TIPP poll for January improved slightly with an uptick to 7.3 from 47.2 in December. Gasoline prices continued to decline in December and the first half of this month which could help lift the headline.

US Industrial Production: December industrial production is out Friday and should reveal a 0.2% (median -0.3%) decline for the month. This would be the fourth month of consecutive declines, following drops of 0.6% in November, 0.4% in October and 0.1% in September. The December employment report revealed another month of weak data in the mining sector which will likely continue to weigh as oil prices continue to decline. We expect the capacity utilization rate to fall to 76.7% from 77.0% in November.

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USDJPY, update

USDJPY, Daily

The JPY continues to strengthen on the back of lower commodities and outflows for China as the flight to safety trades remains open for the time being.

Since current USDJPY market price remains below the longer term (Monthly) chart trend-line, as well as negative MA analysis, along with the big picture macros, my conclusion is for further JPY strength.

This strength will lead the USDJPY pair lower over the medium term towards price targets 116.70 (Target 1), and 115.90 (Target 2).

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THE ECONOMIC WEEK AHEAD

Main Macro Events This Week

United States: After the holiday break today (Martin Luther King, Jr. Day), the U.S. economic calendar may offer only limited last-minute insight for the Fed ahead of its policy decision the following week. Not that the markets care, having already priced the Fed out of the picture near-term following the resumption of Asian influenza in the oil and equity markets. The NAHB housing market index is forecast to rise to 62 in January from 61 (Tuesday), while CPI is expected to be a tame at unchanged headline and 0.2% core (Wednesday) and housing starts should rise 0.4% to a 1,178k pace in December. The Philly Fed index may rebound to -7.0 in January (median -5.5) vs -10.2 and initial jobless claims are forecast (Thursday) to sink 15k to 269k for the January 16 week. Existing home sales may snap back 11.3% to a 5.3 mln pace in January relative the 10.5% plunge in December (Friday), with the leading indicators is set to dip 0.1% in December from 0.4%.

Canada: Economic data features manufacturing and wholesale trade (Wednesday). Those reports will be lost in the glare cast by the BoC announcement later that same day, but will provide another round of clues on how Canada’s economy performed in Q4. We expect a 0.7% gain in manufacturing shipments and a 0.5% rise in wholesale shipments, which would be suggestive of some growth in the total economy after the disappointing stall-out in October GDP. The week ends with CPI and retail sales (Friday). CPI is expected to accelerate to a 1.8% y/y pace in December from the 1.4% clip in November, but the pick-up is due to a more difficult annual comparison. CPI is seen falling 0.3% m/m in December, driven by falling gasoline prices. Core CPI is expected to pick-up slightly to a 2.1% y/y clip in December from 2.0% in November, although the index is expected to show a 0.3% m/m drop that is in line with seasonal trends. Retail sales are projected to rise another 0.1% in November after an identical anemic gain in October, with the ex-autos aggregate seen up 0.3% after the flat reading in October.

Europe: Data releases during the week will only fuel the fears of the doves. Final December inflation readings are likely to confirm the German HICP rate (Tuesday) at just 0.2% y/y and the overall EMU HICP number (Thursday) at the same level. Core inflation remains higher at 0.9% y/y, but even this is still far away from the 2% upper limit for price stability and against expectations for an uptick in the headline rate at the end of last year.

United Kingdom: A busy data week looms, which arrives with sterling underperforming and Gilts outperforming as markets push back BoE tightening expectations. We expect data this week will side with this theme, which will includes December inflation data (Tuesday), monthly labour market data, covering November and December (Wednesday), retail sales for December and monthly government borrowing numbers (Friday). We forecast headline CPI at 0.1% y/y in December (median same), unchanged from November. Core CPI is also expected unchanged, at 1.2% y/y (median same). Ebb in economic momentum, renewed energy price declines, and abating wage growth suggests the inflation outlook will remain a benign one for now. Labour data has us expecting an unchanged reading in the official ILO unemployment rate of 5.2% in November (median same). The December claimant count rate is seen rising by 2.9k, down from 3.9k in the previous month. Of particular interest will be average household income, as this is a metric being closely monitored by the BoE. We expect to see a further whittling in wages, to 2.1% y/y from 2.4% and to 1.8% y/y from 2.0% in the ex-bonus reading in data covering the three months to November. We anticipate retail sales to have fallen by 0.2% m/m in December (median -0.3%). The annual comparison is expected at +4.4% after 5.5% growth in the previous month.

China: In China, Q4 GDP (Tuesday) is seen at a 6.5% growth rate, slower than Q3’s 6.9% clip, and disappointing the government’s 7.0% projected pace. With all the recent concerns over growth, this data point will have potential to move global markets. The remaining releases all are due on Tuesday December industrial output will be important for the general outlook and expectations are for a 6.1% y/y growth rate, versus the 6.2% seen in November. December retail sales are penciled in at 11.1% y/y from the prior 11.2%, while December fixed investment likely inched down to 10.1% y/y from 10.2% in November. December foreign direct investment is seen sliding to 1.0% y/y from the previous 1.9% pace.

Australia: Australia’s calendar lacks nourishing top tier data this week, and the Reserve Bank of Australia (RBA) drought continues. However, some second tier economic reports are on the slate: the TD-MI inflation gauge (Monday) and November HIA new home sales (Thursday) may be of some interest. The RBA remains on its customary intermission from appearances or events during January, with the February 2 meeting the next event on their calendar. The RBA left rates at 2.00% in the December 1st meeting, and our base case is for steady policy to begin the New Year. As expected data this week would be supportive of no change in policy at the February meeting.

Japan: In Japan, revised November industrial production (Monday) is expected unchanged at -1.0%. The November tertiary index (Monday) is forecast to have fallen 0.7% m/m, after rising 0.9% in October. On Thursday, the November all-industry index is expected at 0.5% m/m from the 1.0% increase seen in October.

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Crude Oil hit Target 1 yesterday

Crude Oil, 240 min

I wrote (in my crude oil report two days ago) about hedge funds doubling their short term bets in oil and said: Market is trending lower which is a reason to look for low risk selling opportunities. Potential short entry levels are: 29.94, 30.72 and an area at 31.42-32.10. We are interested in shorts if market hits these levels and provides us with sell signals. The market being in the downtrend it makes sense to have both a short term target (Target 1) and a target that is a bit further away. My targets for WTI crude are: Target 1: 28.88 and Target 2: 25.20

Market rallied to $29.94 and gave us a sell signal yesterday during the European session. The T1 at $28.88 was hit three hours later while the T2 at 25.20 is still a valid target.

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MACRO EVENTS AND NEWS

FX News Today

Euro weakness and commodity currency strength has been the central theme in forex markets in the wake of the ECB’s dovish guidance yesterday. The biggest mover has been the Russian rouble, which is up 3% against the dollar, and by more than this versus the euro as a 4%-plus rebound in oil prices sparked a rebound from record lows. EURAUD, EURNZD and EURCAD are also down notably today. AUDUSD climbed back above 0.7000 for the first time in eight days. EURUSD has remained above yesterday’s post-ECB low at 1.0777, but has remained heavy, giving back most of the rebound gains to 1.0900 in unraveling to the low 1.08s. The yen has mostly traded lower, except in the case against the euro, as its safe haven premium unwound. Japanese stock markets led Asian markets higher, closing 5.88% for the better — its second biggest one-day gain in the last five years, according to Bloomberg.

Draghi gave markets what they wanted, a clear hint that the ECB may extend easing measures further in March when the QE program will be reviewed again and Draghi highlighted that this move towards an easing bias, was adopted unanimously, which means it is also backed by Bundesbank President Weidmann. Draghi said in the introductory statement that the downside risks that emerged since the start of the year mean that there is the “need to review and possibly reconsider” the policy stance in March, when the next set of forecasts are available. In the Q&A session he was keen to highlight this part of the statement, which confirms that Draghi’s message to markets is that the ECB can and will do more if necessary. The question is what the ECB can still do – and Draghi didn’t go into detail when quizzed about that, just reiterated again that the ECB is willing to use all “instruments available”. So we could see a further QE extension and in particular an extension to other papers, as the pool of eligible assets is limited under the current structure of QE.

BoC Outlook: Rate cut bets that were unfulfilled have been moved ahead to March and April, according to Bloomberg, which cities futures pricing in roughly 50% odds for a cut by April. The globeandmail.com spotlights the contrast between the Bank’s optimism and the increasingly weaker domestic growth outlook. To review, the BoC’s lack of cut day before yesterday was accompanied by a still constructive growth outlook. Granted, 2016 GDP was slashed to 1.4% from 2.0%, but the return to full capacity growth was only delayed to the end of 2017 from 2017. We see a 1.3% growth rate in 2016, but downside risks abound.

Main Macro Events Today

EMU PMI: We are looking for broadly stable PMI readings in January, with the Eurozone manufacturing reading seen steady at 53.2 (med same) and the services reading to 54.1 (med 54.2). Even German ZEW investor confidence, which naturally is much more sensitive for market moves, came in somewhat better than expected and French national business sentiment yesterday also showed a slight improvement. With Draghi sending the ECB on course for further moves in March, even a better than expected PMI reading may have limited impact, although it would underpin the recovery in stock markets.

Canada CPI Preview: We expect CPI to expand at a 1.8% y/y pace in December (median +1.7%), accelerating from the 1.4% rate in November. CPI is seen falling 0.3% month comparable basis in December after slipping 0.1% in November. Gas prices fell 5.0% in December compared to November, which is expected to weigh on month comparable CPI. The BoC’s core CPI index is seen falling 0.2% m/m in December after the 0.3% drop in November.

US Existing Home Sales Preview: December existing home sales data is out Friday and should reveal a 11.3% headline increase to a 5.300 mln (median 5.120 mln) pace following the 10.5% drop to 4.760 mln in November.

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Macro Events & News

FX News Today

Australia Q4 CPI came in a little hotter than expected, rising to 0.4% q/q, above the median forecast for 0.3%. This contrasted last week’s NZ inflation for the same period, which under shoot expectations in falling to 0.1% q/q, propelling AUDNZD to a seven-week peak at 1.0870. The CNY remained steady, while Chinese December data showed industrial profits contracting in December while consumer sentiment ticked up. Moody’s said that Beijing’s policy support in the pursuit of growth in 2016 will have a credit-negative effect of postponing deleveraging and the reduction of excess capacity.

German Feb GfK consumer confidence steady at 9.4, better than expected with Bloomberg consensus predicting a slight decline in the headline number. The full breakdown, available only until January, showed a further improvement in economic expectations to 4.2 rom 2.9 in the previous month, and a marked rise in the willingness to buy, despite a dip in income expectations. This is likely related to a renewed decline in the willingness to save, which is hardly a surprise considering the low interest rate environment. With the government trying to urge consumers to build up private pension portfolios, this can also have negative long term consequences, however, even if for now the numbers suggest ongoing support from consumption to domestic demand and overall growth. Price expectations remain firmly in negative territory, but are unchanged from the previous month.

China industrial profits sank 2.3% y/y for the Jan-Dec period according to China’s Statistics Bureau, while December industrial profits fell 4.7% y/y due to high costs and tight liquidity curbing companies’ production and operations. Though interest rate cuts had a positive effect in reducing companies’ operating costs, weak demand caused slow growth in production and sales in 2015. That contrasted 3.3% growth in 2014. This is about par for the course after GDP growth slowed to 6.9% last year.

Main Macro Events Today

EIA Crude Oil Stocks Change: the oil inventories are expected to have decreased to 3.452 M from 3.979M. Yesterday The Wall Street Journal reported that Petroleum Institute data showed crude oil inventory had a larger than usual weekly build. This contradicts the consensus expectation.

US New Home Sales: December new home sales are out Wednesday and should reveal a 2.0% headline increase to a 500k (median 505k) pace after the 4.3% November climb to 490k. Other housing measures have been mixed for the month with starts easing to 1,149k from 1,179k in November and existing home sales climbing 5.460 mln from 4.760 mln.

The FOMC meeting: FOMC began its meeting yesterday, and will release its policy decision today at 14:00 ET. The Fed won’t announce another rate hike after last month’s liftoff. And there’s unlikely to be any explicit forward guidance in terms of the March meeting. It will be important, though, to gauge the tone of the policy statement for clues on the timing of the next move. We doubt the Committee will follow the more dovish lead from the ECB, BoJ, and BoE. However, the poor start to 2016 for equities and commodities, the downward revisions to global growth, and the likely delay in inflation reaching the 2% inflation target could give weigh on the confidence of the more dovish policymakers.

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The EUR/USD Should climb to 1.09600 then fall back down after hitting resistance.

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GBPAUD Update, Trades within the Downward Price Channel

GBPAUD, Daily

UK data isn’t likely to change the new dovish bias of the BoE. The GBP has moved up in recent days as concerns over a Brexit have been reduced for now. However, the GBP should get a boost of volatility as we get closer to the U.K. and the E.U. summit next week.

The main risk for the AUD is a weakening China and the fact that future intervention from the RBA to devalue the AUD is still in the cards.

Technically, the GBPAUD trades systematically within the multi month downward sloping price channel; current price also trades below its long term moving average with no clear signs of a price reversal. My conclusion for GBPAUD traders is to trade within the downward direction of the channel. Entering short positions near the top of the channel line for a medium term target around the June 2015 lows ( 1.9660’s); provided price can break below the January lows (1.9980). However, traders should remain on alert to abort short positions upon any potential upward channel line price penetration.

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Macro Events & News

FX News Today

Fed Chair Yellen said policy is not on a preset course and is data dependent, in her prepared testimony. She expects the economy to warrant only gradual rate increases. Some slack remains in the labor market, but it continues to show solid improvement. Job and wage gains should support spending going forward. Financial conditions have become less supportive of growth and they could weigh on the outlook if they persist, she said. Additionally, there are risks from economic developments abroad, she acknowledged. She specifically noted uncertainty over China’s FX policy and consequently the prospects for growth as a factor behind the drop in oil and other commodity prices, adding that could trigger financial stresses in vulnerable commodity exporting countries. There was one small sentence on the risks that growth could exceed expectations. Meanwhile, inflation should remain low over the near term but she held on to the view the rate will pick up to the 2% objective over the medium term. The general tone is pretty much as expected and she hasn’t given anything away over the likely timing over the next rate hike.

NYMEX crude recovered nearly $1/bbl to $28.73 highs overnight, with prices helped by reports that Iran would be willing to negotiate with Saudi Arabia to curb production. Following the IEA’s assessment of the market on Tuesday, where it said oversupply would continue through 2016, the modest rally may be short lived. Crude spiked up briefly to $29.20 from $28.10 following the EIA inventory data which showed a 750k bbl fall in crude stocks. The street had been expecting a 3.5 mln bbl increase. The market quickly sold into the rally, resulting in a return to $27.92 lows. Meanwhile, gasoline supplies, seen up 1.0 mln bbls actually rose 1.3 mln bbls, while distillate stocks were up 1.3 mln bbls, versus expectations for a 1.0 mln bbl fall. Refinery usage fell to 86.1% from 86.6%.

US MBA mortgage market index surged 9.3% in data released earlier, along with an 0.2% rise in the purchase index and a 15.8% jump in the refinancing index for the week ended February 5. The drop in the average 30-year fixed mortgage rate by 6 basis points to 3.91% certainly didn’t hurt, as it marked the lowest level since April of 2015. Rates fell last week as Chinese equities resumed their volatile ways and the PBoC was forced to intervene on the offshore yuan again. That was followed by a weak headline payrolls report, which was underpinned by its components.

Main Macro Events Today

Fed Chair Yellen’s Testifies. Yesterday there were no major tape bombs or curve balls from Fed Chair Yellen; neither in her semi-annual Monetary Policy Report to Congress, nor in Q&A. Indeed, she didn’t give anything away in terms of the timing of the next rate hike. Today markets look forward for further clarification and details on the Fed’s future policy.

RBA Governor Glenn Stevens’ Speech. In the February 2nd meeting governor Stevens was largely constructive on domestic growth, saying that the expansion in the non-mining parts of the economy strengthened in 2015 while GDP was below average. Inflation is expected to remain low over the next year or two. Accommodative policy is appropriate, he said, given these conditions.

US Unemployment Claims: are due today and are expected to remain pretty much unchanged with a small uptick to 287K from last week’s number of 285K.

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THE ECONOMIC WEEK AHEAD

Main Macro Events This Week

United States: economic data will resume after today’s Presidents Day holiday, starting with the Empire State index (Tuesday) forecast rebound to -12.0 in February (median -10.0) from -19.4 in January. The NAHB housing market index is also set to tick up to 61 in February from 60, while the Treasury International Capital (TIC) flow release is due late in the session. The MBA mortgage market report (Wednesday) is on tap and headline PPI should come in tame at -0.1% (median -0.2%) vs -0.2%, or +0.1% for core vs +0.2%. Housing starts are expected to increase 1.8% to a 1,170k unit pace in January, while permits may rise to 1,210k. Industrial production is forecast to be flat for January (median 0.3%) vs -0.4% in December, while capacity use may dip to 76.4% (median 76.6%) from 76.5%. FOMC minutes to the January meeting (Wednesday) aren’t likely to get the usual scrutiny they would otherwise receive, primarily since Chair Yellen’s testimony last week provided a more up-to-date dovish outline of Fed thinking. The Philly Fed index is set to remain damp (Thursday) at -3.0 in February (median -2.8) vs -3.5, while initial jobless claims may tick up 5k to 274k and leading indicators rise 0.2% (median -0.2%) vs -0.2. CPI rounds out the week on its lonesome (Friday), set to sink 0.1% headline and rise 0.1% core. Fedspeakers pile up starting this week (Tuesday) with Philly Fed’s Harker will discuss the economic outlook at the University of Delaware. Minneapolis Fed president Kashkari will analyze the lessons of the financial crisis at a Brookings event. Note, Kashkari was instrumental in implementing the TARP program while at the Treasury Department during the crisis, which could make this speech especially informative. Boston Fed dove Rosengren will mull the economic outlook as well. St. Louis Fed dove Bullard (Wednesday) will discuss the economic and monetary policy outlook at a Fed forecast dinner. SF Fed dove Williams will take a look at the economic outlook (Thursday) at a town hall meeting in L.A. Wrapping it all up will be Cleveland Fed hawk Mester (Friday), who will mull the economic outlook before the Global Interdependence Center.

Canada: a holiday-truncated calendar has a steady schedule of key economic reports. Markets are closed today for Family Day. Manufacturing (Tuesday) is expected to rise 0.5% m/m in December after the 1.0% bounce in November. Wholesale shipments (Thursday) are seen growing 0.2% m/m in December after the 1.8% rise in November. Retail sales (Friday) are projected to fall 1.0% m/m in December after the 1.7% surge in November. Sales excluding the autos aggregate are projected to fall 0.7% following the 1.1% gain in November. Total CPI (Friday) is expected to pick-up to a 1.7% y/y rate in January from the 1.6% clip in December. The BoC’s core CPI is seen growing at a 1.9% y/y pace in January, matching the 1.9% in December. Existing home sale for January are due on Tuesday. There is nothing from the BoC this week.

Europe: ECB’s Draghi speaks today. Market volatility has increased, with large swings in peripheral stock and bond markets reminding the ECB that especially peripherals remain vulnerable and that Draghi’s promise has not solved the Eurozone’s fundamental problems. Draghi will have to pull quite a rabbit out of his hat in March and will have a first chance to try and placate investors on Monday, when he speaks at a European Parliament Committee. Data releases this week are unlikely to take any pressure off the ECB. The focus is on German ZEW Investor Sentiment (Tuesday), which we expect to fall into negative territory, thus highlighting that pessimists now outnumber optimists. We are looking for a sharp drop to -0.5% from 10.2 in January, a decline that will only add to mounting growth concerns. Similarly Eurozone Consumer Confidence (Friday) is seen falling further into negative territory at -6.5, despite the fact that at least so far the labour market continues to improve and reflecting mainly concerns about the general economic outlook. The Eurozone also has trade data today and BoP and Current Account data on Thursday, both for December. With Q4 GDP numbers already released the numbers are too backward looking to change the outlook and will bring mainly background information. German releases producer price inflation for January and France has the final reading of January inflation numbers, which are not expected to hold any surprise.

United Kingdom: The calendar this week brings January inflation data (Tuesday), labour market numbers covering December and January (Wednesday), and retail sales (Thursday). Monthly government borrowing numbers are also (Friday). Last week brought unambiguously weak UK production data, while we expect this week’s releases to be a mixed bag, with unemployment expected to hit a new cycle low of 5.0%, retail sales expected to be perky, but inflation likely to remain benign, which, along with the backdrop of global market turmoil, should leave the BoE a no-hike-for-the-foreseeable policy standing. Markets have now priced out any chance of the BoE hiking rates before next year following last week’s publication of the BoE’s quarterly Inflation Report, which detailed lower growth and inflation projections.

China: In China, the markets reopen after the week long holidays and will have a lot of catching up to do. As for data, January Trade Balance numbers came in at $63.3B (previous $60.9B). January CPI and PPI (Thursday) are forecast at 1.7% y/y from 1.6%, and -5.5% y/y from -5.9%, respectively.

Japan: the December tertiary industry index (today) improved slightly to -0.6% in December (November: -0.9%). Revised December industrial production deteriorated further to -1.9 YoY from the previous number of -1.6%, while Q4 1st preliminary GDP (Tuesday) is forecast at -2.0%, from the previous 1.0%. December machine orders are seen rebounding 3.0% m/m, from the 14.4% fall previously. A JPY 500 bln deficit is expected for the January trade report (Thursday). The December all-industry index (Friday) is penciled in at -0.5% m/m from -1.0% previously.

Australia: calendar is highlighted by the January employment report (Thursday), expected to show a 5.0k gain in jobs following the 1.0k dip in December. The unemployment rate is seen at 5.8% in January, identical to the 5.8% in December. The minutes to the RBA’s February meeting will be released on Tuesday. The bank held rates steady at 2.00%, as expected, but opened the door wide to another rate cut if needed to support domestic demand. Assistant Governor (Financial System) Malcolm Edey speaks to the Australian Shareholders Association (ASA) Investor Forum in Sydney (Thursday).

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Macro Events & News

FX News Today

ECB’s Nowotny fretting over market expectations. The Austrian central bank head said central banks must watch markets but not be guided by markets and told Swiss financial website Cash that he is concerned market expectations ahead of the March 10 meeting could become as excessive as in December, when expectations had “lost touch with reality”. Nowotny added that the turbulence in global markets is mainly driven by emerging market developments, an sovereign funds aiming to ensure liquidity. He admitted that market turmoil constitutes “a massive destruction of value, which is very negative for overall sentiment”. However, Nowotny stressed that monetary policy can only improve conditions for growth and was very successful in preventing deflation and keeping credit markets intact, but that actual investments have to be made by investors.

Boston Fed dove Rosengren said the Fed would be “in no rush at all” to hike rates if US inflation does not rise and would cut rates if missing 2% growth, unemployment rising and significant weakening in U.S. labor markets was seen. That’s about par for the course from the regional Fed president. Fed’s Kashkari said that staff will continue to analyze NIRP (Negative Interest Rate Policy) as a potential policy tool, while noting that global economic and financial developments will be important inputs at the March FOMC. That said, the Fed expects a gradual increase in interest rates to be the base case. The Fed still seems quick to deny NIRP, while mulling its options for the timing of a second hike.

A third of energy companies could go bankrupt according to a report released by Deloitte, as credit risk zooms to a record high as low commodity prices cut access to cash and debt. “The roughly 175 companies at risk of bankruptcy have more than $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash. These companies have kicked the can down the road as long as they can and now they’re in danger of kicking the bucket, said William Snyder, head of corporate restructuring at Deloitte, in an interview. ‘It’s all about liquidity,’” noted a Reuters report.

Main Macro Events Today

FOMC minutes will be scrutinized for clues on Fed’s thinking last month. However, the report will be a little out of date following Yellen’s testimony last week, and given the volatility in the markets since the policy meeting. Indeed, recent events have taken a March rate hike off the table, and have pretty much pushed out the next tightening into later in the year. Nevertheless there were a couple of interesting changes in the policy statement which will make for a worthwhile read, and especially the discussions on growth, inflation, and the importance of international developments. First the Fed downgraded its growth outlook somewhat, so we’ll look to specifics on the extent of policymakers’ worries over growth. Additionally, the FOMC revealed diminished confidence that inflation would be picking up toward the 2% target over the medium term, and it will be interesting to see how widespread that angst was. Also, the Fed removed its “balance of risk” stance as it wanted to monitor global economic and financial developments for guidance.

US Industrial Production: January industrial production is out today and should reveal a flat (median 0.3%) headline following the 0.4% decline in December and the big 0.9% drop in November. Despite some rebound in manufacturing employment, hours worked declined 0.2% in January and mining sector data continued to face headwinds from the drop in oil prices. Capacity utilization should tick down to 76.4% (median 76.6%) from 76.5% in December.

US Produces Price Index: January PPI data is out Wednesday and is expected to reveal a 0.1% (median -0.2%) decline for the headline with the core index up 0.1% (median 0.1%) for the month. This comes on the heels of respective December figures of -0.2% for the headline and 0.2% for the core. Oil prices declined further through January which should continue to weigh on price measures.

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Macro Events & News

FX News Today

The yen has held firm amid a moderate risk-off theme in Asia, where stock markets traded mostly lower after Wall Street’s best-in-eight-weeks three-day rally came to an end. USDJPY dipped to a four-day low at 112.71, while the equity market correlative AUDJPY cross fell 1.9%. Both USDJPY and AUDJPY still remain comfortably above trend lows, while most of the main Asian equity indexes are still about 3% higher on the week despite today’s declines. Oil prices are down about 1% but remain a good 20% or so above trend lows. Japanese data today were discouraging, with the all Industry activity index falling 0.9% m/m in December, below the -0.3% median forecast, while department store sales tumbled 1.9% y/y in January.

BoE MPC’s Weale is concerned about market expectations regarding when the central bank will hike interest rates. He remarked in an interview with the Irish Times that “I would be surprised if people had to wait as long as markets are currently implying,” although he added that “markets may well turn out to be right.” BoE deputy governor Cunliffe also described yesterday this as unwarranted, which caused sterling to rally, although the latest survey from Reuters found a consensus among market economists expecting the a tightening by around the end of this year. Weale argued that the disinflationary effects of last sterling strength “is not an effect that is going to last forever,” and that “if we look at core measures of inflation, those are closer to the target but still below the target.” He said that wage pressure as a key issue. While prospects of BoE tightening remain in the distance, Cunliffe and Weale’s interjections are clearly aimed at balancing the market narrative.

SF Fed’s Williams has not really changed his outlook on the US or the global economy, despite the recent fluctuations, he said, adding that he will adjust his views on conditions and the policy path with more data. The “daily dives” in equity markets are not accurate reflections of the economy and shouldn’t be viewed as “the four horsemen of the apocalypse.” Growth is still estimated in the 2.25% area for the year and the unemployment rate should dip further and hit 4.5% by later in the year. He is not happy about the inflation rate but expects it to return to 2% over the next 2 years. He is monitoring potential risks and “closely watching” developments abroad. This isn’t anything new from Williams, and he is not a voter this year.

Yesterday’s US reports were encouraging on net, though with diverging signals from a tightening in initial claims but with big February Philly Fed component declines and a 0.2% January leading indicators drop. For claims, we saw a 7k decline to just 262k in the BLS survey week to leave a 23k two-week drop that reversed elevated holiday levels and left upside risk for our 190k February payroll estimate. For Philly Fed, the slight headline rise to -3.5 accompanied a sharp ISM-adjusted drop to a 45.5 three-year low thanks to declines in every component.

Main Macro Events Today

US Consumer Price Index: the January headline CPI is expected to decline 0.1%, while the core index rises 0.1%. Forecast risk: downward, as further weakness in gasoline prices could weigh. Market risk: downward, as inflation undershoots may affect the timing of additional rate hikes.

Canada Retail Sales: are expected to fall 1.0% in December after the 1.7% surge in November. The ex-autos sales aggregate is seen declining 0.7% m/m in December after the 1.1% bounce higher in November. An as expected drop in total retail sales that is accompanied by a similar sized pull-back in the “real” (price adjusted) sales basis would partly counter the firm manufacturing and wholesale shipment gains seen in December. We expect an 0.2% gain in December GPD.

Canada CPI: We expect the CPI, due today, to expand at a 1.7% y/y pace in January, accelerating slightly from the 1.6% growth rate in December. CPI is seen falling 0.1% month comparable basis in January after the 0.5% plunge in December. Gas prices fell 7.0% in January compared to December, which is expected to weigh on month comparable CPI.

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GBPUSD Update, Trading Lower on Brexit Fears

GBPUSD, Daily

A referendum has been announced for Jun-23, London mayor Boris Johnson yesterday said that he will be backing the ‘out’ campaign. The uncertainty ahead will be bad for business, with large companies now seen as supporting the “in” campaign, we expect GBP to underperform heading into the referendum.

Technically, the 1.4235 area looks to be an important price point to watch out for, a clean break below could open up the way for further downside pressure towards the 1.4080’s (January Lows). Current price is below the valid downward sloping trend line, as well as , its short (10) and medium term (50) moving averages. 1.4235 looks now to be a valid resistance level, my conclusion is to remain short as long as price can hold below 1.4235 for a 1.4080 target. However, traders should remain on alert to reverse short sales upon any potential price break back above 1.4235 for a potential bounce towards the 1.4530’s.

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The Economic Week Ahead

Main Macro Events This Week

United States: Housing reports this week feature January existing home sales (Tuesday) and new home sales (Wednesday), along with December Case Shiller (Tuesday) and FHFA (Thursday) home prices. Existing home sales are forecast rising 0.7% to a 5.500 mln pace following the 14.7% bounce in December, though there may be some further fallout from the regulatory distortion from late 2015, as well as some depressing impact from weather and the market turbulence to start 2016. New home sales are expected to drop 4.4% to a 0.520 mln clip following the 10.8% jump in December, which was a 3rd consecutive monthly increase. We look for some slippage in the Case Shiller index, which hasn’t posted a monthly decline since January 2015. On the other hand, the FHFA is expected to post another small increase. It hasn’t declined since January 2012. Durable goods new orders are forecast rebounding 2.0% in January after diving 5.0% in December, continuing a typically saw-toothed pattern, which limits a lot of the report’s usefulness. Q4 GDP is expected to be revised slightly lower to a 0.5% pace, versus the 0.7% increase in the Advance report, and down from 2.0% in Q3. Much of the weakness is a function inventories, but the soft data did factor into recession worries earlier this year. January income and consumption reports will help fine tune GDP forecast for Q1 too. Income is forecast rising 0.4%, with consumption up 0.3%. The gains in income/spending, amid a firmer labor market, are major factors countering recession worries. Consumer confidence and sentiment data is also on tap this week and are expected to show modest gains thanks to the mixed though mostly improved data and diminished recession fears.

Canada: The Canadian calendar is thin after last week’s busy holiday-shortened docket. The highlight will be comments from BoC Deputy Governor Schembri (Wednesday), who speaks to the Guelph Chamber of Commerce in Guelph, ON. His remarks, titled “Connecting the Dots: Elevated Household Debt and the Risk to Financial Stability” will be published on the BoC’s website at 12:35 ET. There will not be a press conference but he will take questions from the audience. Data includes the December establishment employment survey (Thursday), which provides a separate jobs tally along with an average weekly earnings figure. Neither result is market moving. We expect earnings to dip 0.1% m/m in December after the 0.3% drop in November. The timely labour force survey revealed a 22.8k gain in December before falling 5.7k in January. An increase in the establishment survey’s jobs measure during December is anticipated.

Europe: The week kicks off with the Manufacturing and Services PMI readings (today) with the former seen falling to 52.0 (median same) from 52.3 and the latter to 51.2 (med 53.3) from 53.6, which would leave the composite at 53.2 (median 53.3) from 53.6. Data broadly in line with expectations would still point to ongoing expansion in both sectors, but the recent slowdown is consistent with a growth outlook weakened by global headwinds. Similarly, the German Ifo Business Climate (Thursday) is expected to fall to 106.9 (median same) from 107.3 and the overall Eurozone ESI Economic Confidence to 104.4 (median same) from 105.0. With the focus on February confidence readings, final Q4 GDP numbers are not expected to change the current outlook unless there are marked revisions. We expect German Q4 GDP to be confirmed at 0.3% q/q, and Spanish GDP at 0.8% q/q, which would not change the overall Eurozone estimate. More important will be the round of preliminary national inflation numbers for February, where we see the Spanish HICP falling to -0.5% y/y (median same), French HICP to fall to 0.2% y/y (median 0.1%) from 0.3% y/y and German HICP (Thursday) to fall to 0.3% y/y (med 0.1%) from a preliminary January reading of 0.4% y/y. Base effects and oil prices are the main reason for the renewed decline, but with expectations for a pickup in headline rates being pushed out further and further, the ECB will be fretting about the long term impact of persistently low headline rates. The February numbers will overshadow the release of the final Eurozone HICP reading, which is expected to be confirmed at 0.4% y/y (median same). The data calendar also has French consumer spending and German retail sales for January, as well as Eurozone M3 money supply growth, with the latter seen steady at 4.7% y/y. As usual, the focus here will be on the counterparts and lending growth, however. Germany releases GfK consumer confidence data.

United Kingdom: The UK calendar this week brings the latest CBI surveys on industrial trends (today) and the retail sector (Wednesday), and the second estimate of Q4 GDP. We expect the industrial trends survey for February to rebound a little from January’s unexpected weakness, forecasting a -12 outcome in the headline total orders reading (median same). The CBI’s distributive sales survey, meanwhile, has us expecting a correction to 12 from 16 in the headline realized sales figure. The second release of Q4 GDP should come in unrevised at 0.5% q/q and 1.9% y/y.

China: Apart from MNI Business Sentiment Indicator (today) and House Price Index on Friday, the Chinese calendar is empty. MNI Business Sentiment declined to 49.9 from the previous figure of 52.3. The decline was rather big and came below the analyst expectations but more importantly the actual number was below 50 index points. This indicates that the number of businesses feeling pessimistic about the future was greater than the number of businesses being positive about future growth.

Japan: kicked things off with the flash Markit PMI manufacturing index (today). The index fell to 50.2 after falling to 52.3 in January, from 52.6 in December. January services PPI (Wednesday) is forecast slowing to a 0.2% y/y pace, halving the previous 0.4% gains. Revised December leading and coincident indices are also due (Wednesday). January national CPI (Friday) is expected to drop to -0.1% y/y from December’s 0.2% reading on an overall basis, while the core reading is seen down 0.1% y/y from up 0.1% previously. Overall Tokyo February CPI (Friday) is seen ticking up to -0.2% y/y from -0.3%, while the core is expected to dip to -0.2% y/y from -0.1% in January. The downtrend in price pressures will be a thorn in the BoJ’s side, and will be a major factor in the BoJ’s policy decisions. BoJ Governor Kuroda said last week that the Bank will continue to ease until the 2% is achieved. It could be awhile.

Australia: calendar has the RBA’s Assistant Governor Debelle (Financial Markets) speaking at the KangaNews DCM Summit in Sydney (today). Tony Richards, the RBA’s Head of Payment Policy Department, speaks at the Payment Innovations 2016 Conference in Sydney (Tuesday). Economic data includes the Q4 wage price index (Wednesday), expected to expand 0.5% (q/q, sa) after the 0.6% gain in Q3. Also, Q4 private capital expenditures (Thursday) are seen falling 5.0% (q/q, sa) after the 9.2% drop in Q3 as the resource sector continues to delay projects amid a still bleak price outlook.

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Macro Events & News

FX News Today

Asian stock markets moved higher and are heading for a second weekly gain, with China bouncing back after the central bank said it sees room for monetary easing. The ASX closed with a marginal loss, but most other markets are up as G20 finance heads discuss stimulus efforts and U.S. and U.K. stock futures are also up. Oil prices are slightly down on the day, but above USD 33 per barrel as risk appetite returns. BoE’s Carney warns against “zero sum game” of negative interest rates, while highlighting sizeable downside risks”. Released overnight U.K. GfK consumer confidence came in much weaker than expected. The European calendar still has EMU ESI Economic Confidence as well as preliminary February inflation data from France, Spain and Germany.

Japan’s national CPI was as expected, with the total CPI and core CPI (excluding fresh food only) coming up zero (0.0%) in January on an annual basis after respective gains of 0.2% y/y and 0.1% y/y in December. The core CPI, which takes out food and energy, grew 0.7% y/y in January after the 0.8% rise in December. Tokyo CPI was up 0.1% y/y in February, contrary to an expected drop following an 0.3% pull-back in January. The Tokyo core CPI fell 0.1% y/y in February, also better than expected after the 0.1% drop in January. The outlook remains less than upbeat for Japan’s economic and CPI growth, as the shock-and-awe of negative rates is not having the desired impact.

PBoC’s Zhou said China has room to add accommodation, saying “China still has some monetary policy space and multiple policy instruments to address possible downside risks.” Current policy is “prudent and relatively accommodative” he said. The Shanghai Comp is a modest 0.6% higher and the CSI 300 up 0.8% after suffering 6% declines Thursday, aided today by Zhou’s comments, a steady Yuan and lower money market rates. The Hang Seng has bounced 1.6% while the Nikkei 225 is 0.8% higher.

SF Fed dove Williams said the “Taylor Rule” is too rigid and forecast-reliant, and he opposes tying monetary policy to a single rule. Otherwise on monetary policy he largely repeated the “gradual rate hikes, further economic growth, inflation rebound” mantra. Williams sees no sign of a looming recession, and is less concerned about Chinese growth than others, in Q&A following his speech. However, he still wants to “take things slowly” on rates. He acknowledged that negative rates are potentially in the policy toolbox, but such actions won’t be taken over the foreseeable future, especially as there are unintended consequences. Domestic demand will be the main driver of the U.S. economy over the next couple of years. Indeed, he sees upside risks from consumer spending fueled by low energy prices.

The US initial jobless claims rose to 272k (median 270k) from 262k for the week-ended February 13. Continuing claims fell to 2,253k from 2,272k (was 2,273k) for the week-ended February 6. This is near levels last seen in 2006. The four-week average fell to 272k from 273k and 281k before that. Claims are averaging 268k in February, 284k in January and 277k in December.

Main Macro Events Today

German Consumer Price Index: The February Y/Y CPI numbers are released today and are expected to come in at 0.2%, down 0.3% from January. Low inflation numbers are due to soft energy prices while the annual contraction eased in December. This suggests that there is no real danger of a deflationary spiral.

US Gross Domestic Product: The second release on Q4 GDP is out on Friday and we expect the headline to be revised down to 0.5% (median 0.4%) from 0.7% in the first release and 2.0% in Q3. Driving our expectations for downward revisions we expect to see inventories revised down by $14 bln and construction spending revised down by $8 bln. However, we expect some offset from an $11 bln upward revision in net exports and a $2 bln upward revision in equipment spending.

US Personal Income: January personal income is out Friday and should reveal a 0.4% (median 0.4%) increase for headline income with consumption growing by 0.3% (median 0.3%). This compares to December figures of 0.3% for income and unchanged for consumption. We expect the chain price index to reveal a flat rate for the headline with a 0.3% core increase.

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The Economic Week Ahead

Main Macro Events This Week

United States: US data is front and center ahead with the February employment report highlighting Friday, though as forecast it’s not likely to alter the outlook on the labor market or necessarily the Fed trajectory. We forecast a 190k gain along with a steady 4.9% unemployment rate. Also on tap is a small 0.1% forecast hourly earnings rise and likely 34.5 hour workweek (median 34.6). Initial jobless claims have been trending lower of late and this could lend some upside risk to payrolls this month. As a prelude to payrolls the economic calendar will close out the month of February (today) with Chicago PMI expected to dip to 54.5 in February (median 53.1) from 55.6, NAR pending home sales may rebound to 107.7 in January from 106.8 and the Dallas Fed index is still seen tortured by the oil sector at -33.0 in February, up slightly from -34.6 in January. The ISM manufacturing index (Tuesday) should show minor improvement to 48.5 from 48.2, though still in contraction, accompanied by construction spending set to rise 0.5% for January vs 0.1%. Vehicle sales are projected to increase 0.8% to a 17.6 mln unit pace. MBA mortgage application report is on tap (Wednesday), along with the February ADP Employment report, which should show a 180k gain for the month (195k median), below the January figure of 205k. There’s quite a data hurdle (Thursday), starting with the revision of Q4 productivity seen at -3.2% (median -3.1%) vs -3.0% initially, while unit labor costs may accordingly be revised up to 4.7% (median 4.5%) from 4.5%. Initial jobless claims are set rebound 10k to 282k for the week ending February 27, while the ISM Non-Manufacturing index should reveal sluggish growth at 54.0 in February (53.1 median) vs 53.5 and factory goods orders rebound 0.7% in January (median +1.5%) vs -2.9% in December. Wrapping up the week will be wholesale trade data (Friday). Fed’s Beige Book (Wednesday) adds to the rich tapestry of data and events, but it shouldn’t provide any major new insights or alter outlooks on the economy.

Canada: The Canadian calendar is packed with top tier economic releases this week. The Q4 and December GDP reports (Tuesday) along with the trade figures (Friday) highlight. December GDP is expected to moderate to a 0.1% m/m pace, while the separate real GDP measure is seen edging 0.3% higher in Q4. The reports will show a domestic economy that was limping along, yet still expanding, going into the new year. The January trade report is expected to show a widening in the deficit to -C$0.8 bln from -C$0.6 bln in December. A variety of other reports are on the docket: The Q4 current account (today) is seen narrowing to a -C$15.5 bln deficit from -C$16.2 bln in Q3. The industrial product price index (today) is expected to decline 0.1% m/m in January after the 0.2% drop in December. The Ivey PMI (Friday) is projected to slump to a still firm 60.0 in February from the seasonally adjusted 66.0 in January. Productivity (Friday) is seen flat in Q4 (q/q, sa) after the 0.1% gain in Q3. The RBC manufacturing PMI for February is due out Tuesday.

Europe: this week’s data releases will add to the arguments of the doves with national inflation data suggesting that overall EMU HICP (today) will fall back to -0.1% y/y. Final PMI numbers for February will only confirm that confidence is hit by uncertainty about the outlook for the world economy and ongoing market turbulences and the EMU Feb Manufacturing PMI (Tuesday) is expected to be confirmed at 51.0 and the Services PMI (Wednesday) at 53.0 (medians same). Data still indicates expansion across both sectors, but growth momentum is clearly ebbing. For now though at least labour markets continue to improve, which underpins consumption trends, but this is a lagging indicator and if growth slows down it is only a matter of time until this will also be reflected in unemployment data. For February we still see another dip in the German sa jobless total (Tuesday) of 10K (median same), which would leave the unemployment rate unchanged at a very low 6.2%. The overall Eurozone rate for January meanwhile is seen steady at 10.4% (median same). Data releases also include more national unemployment and inflation numbers as well as German retail sales and import prices.
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United Kingdom: The calendar this week, in chronological order, brings January BoE lending data (today), the February Markit PMI surveys for manufacturing (Tuesday), construction (Tuesday) and services (Wednesday). Lending is likely to be strong, while markets will be keeping close tabs on the PMI reports following weakness in January data. We expect the BoE report to show a GBP 1.3 bln rise in unsecured consumer lending, near to underlying trend, and a jump in mortgage approvals to 74.0k from 70.8 in the previous month, likely to be reflective of a rush of so-called buy-to-let purchases ahead of tax changes. The manufacturing PMI has us expecting an ebb to a 52.3 headline reading (median 52.2), down from 52.9 in January. The data is too early to reflect the jump in Brexit concerns that has happened over the last week, but will still show the erosive affect that slowing Eurozone and global growth is having. The construction PMI is anticipated at 55.5 from 55.0, holding near recent trends. The services PMI should come in at 55.1 (median 55.0), down from 55.6, which would leave the composite figure at 55.7, down from 56.1.

China: In China, data includes January leading indicators (today) and February PMIs (Tuesday). The Caixin/Markit series is expected to dip to 48.2 from 48.4, while the official CFLP reading is seen at 49.2 from 49.4. February services PMI (Thursday) are penciled in at 52.0 from 52.4.

Japan: January preliminary industrial production (today) rebounded nicely and came in at 3.7% m/m, as compared to the previous -1.7% outcome. January retail sales fell to a -0.1% y/y pace from flat for large retailers, though total sales should improve slightly to a -0.7% y/y clip from -1.1% y/y overall. January housing starts improved to 0.2% from -1.3%. January unemployment (Tuesday) likely remained steady at 3.3%, with the job offers/seekers ratio static as well at 1.27. January PCE (Tuesday) is forecast at a -3.0% y/y rate from the -4.4% y/y outcome in December. February auto sales are on the docket (Tuesday) as well. January Markit/Nikkei PMI (Wednesday) is expected to fall to 51.0 from 52.3, as the Q4 MOF capex survey (Wednesday) is seen slowing to 7.0% y/y from 11.2% y/y previously.

Australia: calendar is headlined by the RBA meeting (Tuesday), expected to result in no change to the 2.00% policy rate setting. A busy economic calendar has real Q4 GDP (Wednesday), expected to slow to a 0.5% growth rate after the 0.9% gain in Q3 (q/q, sa). January building approvals (Tuesday) are seen dipping 1.0% m/m following the 9.2% bounce in December. The current account deficit (Tuesday) is projected to worsen to -A$20.5 bln in Q4 from -A$18.1 bln in Q3. The trade report (Thursday) is expected to show a narrowing in the surplus to -A$2.8 bln in January from -A$3.5 bln in December. Retail sales (Thursday) are seen rising 0.3% m/m in January after the flat reading in December.

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Macro Events & News

FX News Today

Reserve Bank of Australia held rates steady at 2.00%, as was widely expected. Policy remains, not surprisingly, data and event driven as the bank will follow new information to see if the improvement in the job market is sustainable and (repeating a key line from February) whether the “recent financial turbulence portends weaker global and domestic demand.” Notably, Stevens now says “continued low inflation would provide scope for easier policy” should that be needed to support demand. He said it “may” provide scope back in February. He was again largely constructive on domestic growth, saying that the expansion in the non-mining parts of the economy strengthened in 2015. On the exchange rate, he said it “has been adjusting to the evolving economic outlook.”

The People’s Bank of China (PBOC), restarted easing operations on Monday. The bank added approximately $100 billion worth of long-term financing into the Chinese economy to mitigate the pain from increased unemployment and bankruptcies in those industries that have been suffered from overcapacity. According to a statement on PBOC website the bank was cutting the reserve requirement ratio, or the amount of cash that banks must hold as reserves, by 50 basis points, taking the ratio down to 17 percent for the biggest lenders.

China’s manufacturing sentiment shrunk in February, adding to ongoing concerns over the pace of slowing in China’s economy. The official manufacturing PMI fell to 49.0 in February from 49.4 in January. The Caixin manufacturing PMI declined to 48.0 in February from 48.4 in January.

Yesterday’s US reports revealed a sharp 8-point Chicago PMI February plunge to 47.6 alongside a 3-point uptick in the Dallas Fed index to -31.8 from a -34.6 expansion-low. We also saw a 2.5% January drop in the pending home sales index to a lean 1.4% y/y rise, which reinforces the view that housing sector growth is moderating despite a winter weather-lift. Yesterday’s figures counter Friday’s more encouraging reports that documented resilience in the US economy to the global growth pull-back.

Main Macro Events Today

EMU Unemployment Rate: So far the slowdown in confidence indicators hasn’t reached the labour market and jobless numbers continue to come down. We are looking for a further decline in the German sa number of 10K (median same) in February, which would leave the jobless rate unchanged at 6.2%. Eurozone January unemployment meanwhile is seen steady at 10.4%, with headline rates coming off highs, but disparities across countries remaining large and youth unemployment still much too high. With confidence indicators heading south and global headwinds getting stronger, it seems only a matter of time until the labour market starts to feel the chill.

Canada GDP: The Q4 and December GDP reports are due today. These two releases are the key reports in a busy week. December GDP is expected to moderate to a 0.1% m/m pace (median same) following the 0.3% gain in November. The separate real GDP measure is seen edging 0.3% higher in Q4 (median is for no change) after the 2.3% bounce in Q3. The reports will show a domestic economy that was limping along, yet still expanding, going into the new year.

US Manufacturing ISM: The February ISM is expected to decline to 48.0 (median 48.5) from 48.2 in January and 48.0 in December. Other measures of February producer sentiment have been mixed and despite some headline improvements the various components of the releases have remained weak which could spell downside risk for the ISM. Broadly speaking, we expect the ISM-adjusted average of all measures to decline to 48 for the month, a new cycle low, from 49 in January and 50 in December.

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Macro Events & News

FX News Today

Swiss growth much better than expected at +0.4% q/q, up from -0.1% in Q3 (revised down from 0.0%). The median forecast had been for a 0.2% rise. The y/y figure was also +0.4%, down from 0.8% in Q3 but above the 0.1% median forecast. The jump in the franc in January 2015 following the SNB’s abandonment of its former cap, along with sluggishness in the Eurozone economy have been dragging on the Swiss economy, though the year finished well with the 0.4% growth the best quarterly performance of 2015.

ECB’s Draghi brandished his dovish bazooka again, noting that the bank’s policy review in March will be seen against the background of increased downside risks to the prior outlook and there “are no limits” to how far we are willing to deploy our instruments within our mandate to achieve our objective of inflation rates below but close to 2% over the medium-term. Moreover, Euro area inflation dynamics continue to be weaker than expected. Speaking from Frankfurt, Draghi continues to keep expectations high for action in March, which helped relegate the already weak euro to session lows after being weighed firmer rounds of US data earlier.

The US February ISM rose to 49.5 (median 48.5) from 48.2 in January while US construction spending grew by 1.5% (median 0.5%) in January following a 0.6% (was 0.1%) pace in December and US Markit manufacturing PMI slid to 51.3 in the final February print, from 52.4 in January, though it improved slightly versus the 51.0 flash February reading. This just beats the all-time low of 51.2 set in December.

Canada’s real GDP grew 0.8% in Q4, contrary to expectations (median flat) following the revised 2.4% bounce in Q3 (was +2.3%, q/q saar). The separate December GDP tally showed a 0.2% gain (m/m, sa) that topped expectations (median +0.1%) after the 0.3% bounce in November. The BoC expected a flat reading for real Q4 GDP, so these reports further trim the chances for a near term rate cut from the bank. Note, however that trade made a sizable contribution to growth as exports fell by less than imports, consumption slowed and business investment contracted. So at first glance the dynamics of the Q4 report appear to be roughly in-line with bank projections. Yet these are better than anticipated reports overall, notably the December GDP gain that shows the economy with some momentum going into 2016.

Main Macro Events Today

Euro Area PPI: The Euro Area Producer Price Index (Y/Y) for January is released today and is expected to come in almost unchanged at -2.9%. December reading was -3.0%. This should put ammunition in the hands of the doves in the ECB.

US ADP Employment Change: The ADP unemployment survey for February is due today with an expectation of 195K new jobs against the previous number of 205K.

US Fed Beige Book: Traders look forward to this month’s Beige Book release as it is used by the FOMC to help in their interest rate decisions. In the previous release, the Philadelphia Fed stated that the economy was expanding moderately while consumer spending remained mixed.

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Macro Events & News

FX News Today

Caixin China Services PMI disappointed in February and came in at 51.2 while analysts expected a 0.2 point rise to 52.6 from January. Index is still an indication of expanding services sector but growth was modest and much weaker than the average growth in long term. The survey shows that contraction in the manufacturing sector can spill over into service sector. This could be a red flag for the government and push it to increase its stimulative efforts further. Chinese government has been trying to replace manufacturing and export with private consumption as a key driver for the economy.

Fed’s Beige Book reiterated growth expanded in most Districts, according to the report prepared by the KC Fed, with contacts generally optimistic over future economic growth. Consumer spending increased in most regions, but some weakness was noted in KC and Dallas. Auto sales remained elevated. Manufacturing was mostly flat, but conditions varied considerably across Districts. Most note weak demand originating from the energy sector, not surprisingly. Additionally, the stronger dollar and weaker global growth outlook were headwinds to exports. Nonfinancial services activity was up slightly, with demand for staffing services in the rise. Transportation was mixed. Residential real estate was mostly on the rise, while home inventories were low. Residential construction activity had strengthened. Nonresidential sales also improved. Labor market conditions continued to improve. Wage growth varied from flat to strong across the 12 Districts, and most noted consumer prices were holding steady.

SF Fed’s Williams said that domestic demand is overwhelming weakness from abroad and he sees the US service sector as the driver next year, while inflation should move back to 2% over the next couple years. He doesn’t see the stock market a good indicator of where the economy is going and doesn’t think that China will be a huge risk to the US economic outlook. Williams sees no tangible risk that the US will fall into recession and the Fed strategy of raising rates is the right one. He still sees some accommodation as needed, but over time favors normalization. This is in keeping with his more bullish view of the economy and consistent favoring of normalizing rates for this hawkish dove.

The 214k February ADP rise beat the analyst estimates. The mining-restrained 5k rise in February goods jobs included a big 27k increase for construction jobs follows yesterday’s solid construction spending report to signal encouraging prospects for that sector, though we saw a 9k drop for factory jobs. A stronger than expected 208k climb for service sector jobs explained the headline ADP overshoot, and countered fears of a weakening service sector. U.S. reports over the last week have largely countered the market narrative of a slowing economy despite the big hit to trade revealed in last Friday’s trade data.

Main Macro Events Today

EMU Final Services PMI: The Eurozone Markit Services PMI for February, is expected to be confirmed at 53.0, unchanged from the preliminary reading. Confidence has been coming off, although mainly in the manufacturing sector, which is more focused on global headwinds and slowing emerging market growth. The services sector continues to benefit from robust domestic demand and PMI levels suggest ongoing expansion, but growth momentum is clearly slowing down and even a better than expected number would do little to dampen demands for further easing from the ECB.

US initial jobless claims: Jobless claims are expected to be 270k in the week-ended February 27. Continuing claims are expected to fall to 2,229k for the week-ended February 20. Forecast risk: upward, as the end of the holidays should slow layoffs. Market risk: downward, as weaker than expected data could slow the path of rate hikes

US Factory Orders: January factory orders are expected to grow 2.0% with inventories down 0.2%. Forecast risk: upward, given the stronger topline durable inventory numbers. Market risk: downward, as weaker data could impact the path of rate hikes.

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EURAUD oversold and at support

EURAUD, Daily

After falling for three weeks in a row EURAUD is oversold and near lower weekly Bollinger Bands and an important daily support at 1.4830. This is a level that caused prices to rally in December and created an uptrend that lasted for several weeks. Even if we didn’t get a similar move from this support this time, the previous move indicates how important this level has been to the market participants.

Obviously I don’t know beforehand if the support will hold but it price consolidates above or near the 1.4830 support we should see buyers emerging and moving the pair higher again. The first intraday resistance level can be found at 1.4986-1.5025 while a more significant resistance will test the bulls’ commitment above the 23.6% Fibonacci level at 1.5172.

I look for buy opportunities above 1.4830 support with target 1 at 1.4986 and target 2 at 1.5075.

If you don’t know how to utilize the above analysis, please join my free webinars for further training. Below I have a EURAUD trade example from last Tuesday’s Live Analysis Webinar. This setup worked perfectly and those shorting EURAUD as per my analysis made a nice pile of pips. If you want to learn to find similar trades, you need to attend some webinar training. I look forward to seeing you there!