DXY rebounded by 1.1% to 104.7 on the first trading day of 2023 ahead of today’s FOMC minutes. DXY has been trapped between 103.4 and 105.0 after the Fed’s smaller 50 bps hike on 14 December. Investors are worried that inflation may not fall fast enough for recession worries to recede this year. The S&P 500 and Nasdaq Composite indices fell by 0.4% and 0.8% respectively. Although it fell 13.6 bps to 3.74%, the US Treasury 10Y yield was still up from its post-FOMC low of 3.43%. USD/JPY rebounded to 131 after a feeble attempt to break below the psychological 130 level. Today, consensus sees the US ISM manufacturing PMI slowing to 48.5 in December from 49.0 in November, holding below the breakeven 50 level for a second month. On Friday, a lower 200K reading for US nonfarm payrolls in December from 263k in November will not dispel the notion of a tight labour market. Next week, US CPI inflation on 12 January will still be high against the 2% target even as it slows to 6.7% YoY in December from 7.1% in November.
Fed speakers return this week to remind markets that the battle against inflation will continue into 2023. Tomorrow, Atlanta Fed President Raphael Bostic will discuss the global economic outlook with European Central Bank Chief Economist Philip Lane. On Friday, Fed Governor Lisa Cook will participate in a panel discussion on inflation. On 10 January, Fed Chair Jerome Powell will discuss central bank independence and its mandate. WTI crude oil price plunged 3.9% to USD77.17 per barrel on the IMF’s recession warning on weaker economic activities in the US, the Eurozone, and China. AUD, NZD, and CAD depreciated by 1.1%, 1%, and 0.7%, respectively.
GBP depreciated 0.7% to 1.1968, below the psychological 1.20 level for the first time since 29 November. If the support around 1.1938 (50-day moving average) breaks, GBP will eye the next support at 1.1667 (100d MA). As per the CFTC data, speculators unwound their gross short GBP positions to levels before the first Fed hike in March 2022. UK’s CIPS and S&P manufacturing PMI fell to 45.3 in December, its lowest reading since May 2020. UK’s economy contracted by 0.3% QoQ sa in 3Q22 which consensus sees as the start of a five-quarter recession into 3Q23. Although the Eurozone economy did not contract in 3Q22, consensus sees a technical recession from 4Q22 to 1Q23. EUR depreciated 1.1% to 1.0548, back to its 13 December levels. On Friday, consensus expects EU CPI estimate to slow to 9.5% YoY in December from 10% in November. Yesterday, Germany’s CPI inflation fell more than expected to 8.6% YoY in December; consensus had expected a fall to 9% from 10%. Before yesterday, EUR consolidated between 1.0570 and 1.0720 after the ECB meeting on 15 December. Although the Bank of England and the ECB joined the Fed in scaling down rate hikes to 50 bps from 75 bps last month, the UK and the EU face more challenges than the US in taming inflation because of their recessions.
Quote of the day
“If history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience.”
George Bernard Shaw
4 January in history
In 2007, Nancy Pelosi was elected as the first female Speaker of the US House of Representatives.
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