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DXY rose a third session by 0.3% to 102.3 despite bets for the Fed to deliver a smaller 25 bps hike to 4.5-4.75% on 1 February. Although markets expect larger 50 bps hikes from the European Central Bank and the Bank of England on 2 February, EUR depreciated 0.2% to 1.0851 while GBP fell 0.2% to 1.2352. Investors turned defensive ahead of the FOMC meeting and tech earnings. The Dow Jones Industrial Average and S&P 500 fell by 0.8% and 1.3%, respectively. US Treasury yields rose for the fourth session by 0.1 bps to 3.55% in the 10Y and 1.2 bps to 4.25% for the 2Y. Before the blackout period, Fed officials signalled their preference for the Fed Funds Rate to push above 5% this year. Today, consensus sees the US Conference Board’s consumer confidence index rising a second month to 109 in January from 108.3 in December. On Friday, US nonfarm payrolls might beat consensus again by not falling to 185k in January from 223k in December.
The 2% plunge in the Nasdaq Composite was the worst since 22 December. Many expect Apple to report its first year-on-year decline in quarterly earnings since March 2019 this Thursday. Amazon shares plunged more than 40% in August-December on slower consumer spending and cost pressures. After reporting losses in the first three quarters of 2022, Amazon may signal declining sales in 2023 on recession risks. The Biden administration is banning US companies from exporting American technology to China’s telco giant, Huawei. USD/CNH fell initially to 6.74 on Monday morning only to end the session at 6.7565, near last Friday’s close. AUD depreciated 0.6% to 0.7060 after failing to extend its rise above 0.71 in the past three sessions. Despite the odds for two more rate hikes by the Reserve Bank of Australia in February and March, AUD could not overcome risk aversion and the weaker CNH.
NZD depreciated 0.4% to 0.6468. NZD/USD has not been able to push above 0.65 since 18 January. The market is not convinced that the Reserve Bank of New Zealand will follow through with another jumbo 75 bps hike at its meeting on 22 February. CPI inflation was unchanged at 7.2% YoY in 4Q22, less than the 7.5% feared by the central bank. Following the unexpected resignation of Jacinda Ardern on 19 January, new Prime Minister Chris Hipkins has promised to focus on the economy ahead of the general elections in October. Although support for the Labour Party improved, consensus predicts a three-quarter recession from 2Q23 to 4Q23 from the cost-of-living crisis hitting private consumption expenditure. The New Zealand Institute of Economic Research reported the worst business sentiment since 1974; a net 70% of companies see the economy worsening over the next year and plans to hold back investment and hiring. The RBNZ wants a recession to cool inflation because of the tight labour market. Tomorrow, consensus expects an unemployment rate of 3.3% in 4Q22, just above its record low of 3.2% in 4Q21.
Quote of the day
“A vote to leave is the gamble of the century. And it would be our children’s futures on the table if we were to roll the dice.”
David Cameron
31 January in history
In 2020, the United Kingdom ceased to be a member of the European Union in accordance with Article 50.
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