Retail sales: U.S. increase, Declines for Canada and the U.K, U.S. Economic resilience: Possible rate cuts 1st Half 2024, U.S. indices record highs, Rate decisions ahead: BOJ -BOC-ECB

PREVIOUS WEEK’S EVENTS (Week 15-19.01.2024)

Announcements:

U.S. Economy

The U.S. Retail Sales figures reported last week indicated a surprising increase in retail sales in December showing signs of economic resilience.

Economists changed their economic growth estimates for the fourth quarter, casting further doubt on financial market expectations that the Federal Reserve would start cutting interest rates in March after taking into account the NFP/strong employment report and the recently released inflation report.

Most economists are confident the economy will avoid a downturn and that the economy might be just right for rate cuts in 2024.

The Unemployment Claims figure was reported surprisingly lower. New Claims fell to the lowest level in nearly 1-1/2 years, coinciding with the recently reported hot labour market data. The figure was reported to be 187K, an unusual drop below 200K, the level that served as a “support” recently.

Economists said the data was consistent with a fairly tight labour market. Strong retail sales growth in December was also reported, making it difficult for the Federal Reserve to start cutting interest rates in March as financial markets anticipate. The view that the Fed is likely to hold rates at current levels until the middle of 2024 is strongly supported.

The Consumer Sentiment and Inflation Expectations reports released on Friday showed that there is a significant improvement in the U.S. consumer sentiment in more confidence in January, reaching the highest level in 2-1/2 years amid growing optimism over the outlook for inflation and household incomes.

The University of Michigan reported a better-than-expected figure for consumer sentiment. The overall index of consumer sentiment came in at 78.8 this month, the highest reading since July 2021, compared to 69.7 in December. Consumers’ inflation expectations over the next 12 months were the lowest in three years.

Easing inflation expectations supports economists’ views that the U.S. central bank will start cutting interest rates in the first half of this year.

Australia Economy

In Australia, employment fell sharply in December after two months of surprisingly strong growth, while the jobless rate remained on the same level. Employed people were less by 65.1K in December from November, from a way higher revised change of 72.6K the previous month. Market forecasts had been for an increase instead of around 17.6K.

The jobless rate stayed at 3.9%. The participation rate dropped sharply to 66.8%, from a record high of 67.3%.

U.K. Economy

The U.K. Retail Sales report revealed a big decline in sales in December, with retail sales volumes falling 3.2%, raising the risk the economy entered recession late last year.

Canada Economy

Canadian retailers experienced an unexpected decline in sales, a 0.2% month-on-month decline in November led by a slowdown in sales of food and beverages. Core retail sales, which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers, fell 0.6% in November.

The Bank of Canada (BoC) is expected to hold interest rates steady next week as inflation remains above its 2% target, despite falling from last year’s peak and with signs of slowing growth. Markets and economists expect the BoC to start trimming rates during the first half of the year.

The advance estimate for December suggested a 0.8% increase in sales.

______________________________________________________________________

Canada Inflation

Canada’s inflation was reported higher than expected in December. Annual inflation rose to 3.4% in December from 3.1% in November giving no room for conversations around interest rate cuts.

The annual inflation rate was largely driven by higher gasoline prices compared with the same period a year ago.

U.K. Inflation

U.K.’s inflation figure was reported higher, rising to 4.0% from November’s more-than-two-year low of 3.9%. Expectations for when rate cuts could be implemented changed immediately. Inflation began to fall faster than expected in the latter months of last year, a surprisingly large drop giving the impression that it would be back at the BoE’s 2% target by April or May this year. However, these data change everything.

Core inflation – which excludes volatile food, energy, alcohol and tobacco prices – was unchanged 5.1% in December. Services inflation increased to 6.4% in December from 6.3% in November.

______________________________________________________________________

Source:

https://www.reuters.com/world/uk/uk-inflation-rate-rises-4-december-2024-01-17

https://www.reuters.com/markets/canadas-inflation-rises-34-dec-meeting-expectations-2024-01-16/

https://www.reuters.com/markets/canadas-november-retail-sales-down-02-mm-led-by-food-beverages-2024-01-19/

https://www.reuters.com/world/uk/british-retail-sales-slump-32-december-2024-01-19/

https://www.reuters.com/world/asia-pacific/australia-employment-dives-65100-dec-jobless-steady-2024-01-18/

https://www.reuters.com/markets/us/us-consumer-sentiment-rises-solidly-january-2024-01-19/

https://www.reuters.com/markets/us/us-weekly-jobless-claims-fall-level-last-seen-sept-2022-2024-01-18/

https://www.reuters.com/markets/us/us-retail-sales-beat-expectations-december-2024-01-17

_____________________________________________________________________________________________

Currency Markets Impact – Past Releases (Week 15-19.01.2024)

Server Time / Timezone EEST (UTC+02:00)

World Economic Forum annual meetings last week were held in Davos and attended by central bankers, prime ministers, finance ministers, trade ministers, and business leaders from over 90 countries.

Eurogroup meetings were attended by the Eurogroup President, Finance Ministers from euro area member states, the Commissioner for Economic and Monetary Affairs, and the President of the European Central Bank for coordinating economic policies of the nineteen euro area member states.

The U.K. reported 7K more people claiming unemployment-related benefits in December, a number less than the forecast but way over the previous change of just 0.6K. From October to December 2023, the estimated number of vacancies in the U.K. fell by 49K in the quarter. Vacancies fell in the quarter for the 18th consecutive period. The weak labour market conditions are quite apparent. The annual growth in employees’ average total earnings (including bonuses) was 6.5% from September to November 2023, a figure lower than the forecast and the previously reported figure. The GBP suffered depreciation against other currencies but the impact in the market soon faded and pairs reversed back soon during the time of the report release.

Canada’s monthly CPI change figure was released on the 16th Jan as expected, -0.3%. The other figures were released higher than expected. In addition, the annual inflation rate actually rose 3.4% in December, showing inflation ticked up from 3.1% in November and the market reacted with an intraday shock at that time with CAD appreciating significantly. USDCAD fell near 30 pips during the release but soon reversed back to the intraday MA.

The New York Fed’s Empire State index plunged in January to its lowest level since the pandemic, with a reporting figure of -43.7 against the previous -14.5. Manufacturing business activity surprised the market with a sharp drop in New York State according to the related survey. The USD depreciated at the time but the impact of the release was not great.

The reports early on the 17th Jan during the Asian Session indicated that the yearly figure for calculating industrial production increased in China while the quarterly GDP figure showed a 5.20% growth versus the expected 5.3% but higher than the previous figure. The Retail sales figure was reported lower, however, 7.4% against the expected 7.9%. The AUD lost a lot of ground after the mixed Chinese data.

UK’s inflation was reported surprisingly higher, on the 17th Jan, to 4%, up from 3.9% in November, and the first time the rate has increased since February 2023. The market reacted with strong GBP appreciation against other currencies. The GBPUSD jumped at the time of the release by nearly 30 pips and continued to move upwards.

Retail Sales figures for the U.S. were reported surprisingly higher than expected. They rose 0.6% month-on-month in December, above the 0.4% consensus. The market reacted with USD appreciation at the time of the release, with moderate intraday shock.

Australia’s report regarding the employment change surprised the market with a negative figure -65.1K, while the jobless rate held steady at 3.9% as fewer people went looking for work. Full-time employment sank 106.6K in December. At the time of the report release the AUD experienced a sharp depreciation. The AUDUSD dropped near 20 pips but immediately reversed to the mean as the effect faded soon after, causing strong AUD After that, the pair continued the initial sideways path around the mean.

U.S. Building Permits picked up but the Philly Fed Manufacturing index was reported slightly worse than the previous figure and way more negative than the expected one. U.S. Unemployment claims were reported outside of the 200K-220K range, down to 187K instead of the expected 206K. This surprise caused USD appreciation at that time but the impact on the market was only moderate. The EURUSD dropped by nearly 20 pips before finding support and retracing soon after the release.

The U.K. Retail Sales figures were released showing a strong decline. The change in retail sales was recorded -3.20% worse than the expected -0.5% change. The GBP depreciated against other currencies moderately. The GBPUSD dropped nearly 20 pips before retracement. However, the pair continues to drop steadily.

Canada’s retail sales figures were reported negative. Big declines but way more than expected. Retail sales decreased 0.2% in November. Core retail sales—which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers—were down 0.6% in November. The impact on the market was minimal from the release. CAD depreciated momentarily with the effect fading soon. Just near 15 pips jump for the USDCAD at that time.

The U.S. Consumer sentiment figure was reported at 78.8 versus the expected 69.8. Confidence surges while the inflation outlook actually dips according to the survey by the University of Michigan. Consumers have grown more confident about the direction of the economy. “Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” Joanne Hsu, the university’s surveys of consumers director, said in a release. No major impact on the market was recorded at the time of the release.

_____________________________________________________________________________________________

FOREX MARKETS MONITOR

Dollar Index (US_DX)

A surprising upward and rapid path for the dollar index last week starting on the 15th Jan. A short-term upward trend that ended on the 17th Jan. The U.S. retail sales released on the same day, even though they caused some USD appreciation intraday, the dollar did not experience more strength but remained at the same high levels. The path changed sideways around the 30-period MA but experienced high volatility. Consumer expectations regarding future inflation are supporting the view that inflation will get to lower levels suggesting that rate cuts are on the way causing the dollar to lose strength. A downward wedge is currently formed as per the chart.

GBPUSD

The pair reversed from the downside on the 17th Jan. The sharp upward path is attributed mostly to GBP appreciation caused by the inflation report the same day. U.K.’s inflation was reported higher while the dollar started to lose strength during that period. The path remained roughly upward within a channel and around the 30-period MA. The Retail Sales report for the U.K. on the 19th caused the pair to drop but the impact was not strong enough to break the channel. It remained in range and currently tests the highs.

_____________________________________________________________________________________________

CRYPTO MARKETS MONITOR

BTCUSD

After the Spot Bitcoin ETF approval from the SEC, Bitcoin saw an unusual fall in value. On the 18th Jan, it dropped heavily until the support near 40600 USD. Retracement followed but on the 19th it saw another drop to 40200 USD. On the same day, it recovered fully and on its way up it crossed the 30-period MA showing strength, settling at near 41600 USD. During the weekend the price experienced very low volatility but on the 22nd Jan, the price dropped heavily again reaching and testing the 40600 USD support once more. It is currently settled around that level.

_____________________________________________________________________________________________

NEXT WEEK’S EVENTS (22 – 26.01.2024)

Next week we have the release of the monetary policy report and rate decision for the Bank of Japan (BOJ), Bank of Canada (BOC) and the European Central Bank (ECB).

We also have the release of the Durable Goods orders report for the U.S. which could cause higher volatility levels and add to the data of economic resilience.

Currency Markets Impact:

On the 23rd Jan, the BOJ news will potentially have a strong impact in the market affecting JPY pairs at the time of the release. BOJ policy rate has been kept at -10% for a long time now. A surprise increase obviously will cause the pairs to deviate significantly. During the Asian session, retracements tend to happen quickly.

At 23:45, on the 23rd Jan, the NZD pairs could move significantly upon the quarterly CPI change figure release for New Zealand. That inflation measure is expected to be reported lower.

On the 24th the PMI figures could cause high volatility. At the time of the release, we have usually strong deviations from the intraday mean and steady one-side movements. The recent reports show a grim picture of the Manufacturing sector business conditions for all regions and that is not expected to have changed significantly. However, for the services sector, the market could see some surprises causing movement, especially for EUR and

At 15:30 on the same day, the BOC is going to release the interest rate decision potentially affecting the CAD Recent data show that the economy has been strongly affected by elevated rates, with the current overnight rate held to 5%. Lower employment change and declines in retail sales have been highlighted. It is unlikely that a change in policy will be implemented currently, however.

On the 25th Jan, the ECB will decide on rates as well and proceed to statements in regard to future monetary policy and comments on inflation. EUR pairs could experience an intraday shock at the time of the release. MRR is held at 4.5% and the impact on the Eurozone economy was quite strong. Business conditions deteriorated significantly, however, the unemployment rate was kept fairly stable, around 6.4%-6.5%, and the annual inflation rate dropped to 2.9% in December from 9.2% a year earlier.

Durable Goods Orders reports for the U.S. could cause an impact on the USD The figures are expected to show lower increases in these orders. However, the recent U.S. retail sales data showed strong resilience and actually higher figures for retail sales. Surprises in these figures could cause volatility and opportunities at the time of the release.

On the 26th Jan, the U.S. Core PCE Price Index figure will be released affecting the USD. An inflation-related report that usually causes volatility. The change is expected to be reported higher, thus coinciding with the previous inflation data supporting evidence of rising prices in December.

_____________________________________________________________________________________________

COMMODITIES MARKETS MONITOR

U.S. Crude Oil

Crude oil experienced a short-term upward trend from the 17th to the 19th Jan. After the reversal to the upside on the 17th it crossed the 30-period MA on its way up and found strong resistance near 74.5 USD/b before reversing again to the downside heavily. It crossed the MA on its way down showing signs that the uptrend ended and a more probable sideways but volatile movement is following next. 72.5 USD/b seems to be the support at the moment that could drive the price back to the MA.

Gold (XAUUSD)

The price broke the support at near 2017 USD/oz on the 17th Jan, moving to the next at 2001 USD/oz. This short-term downward trend found an end as the price eventually retraced significantly. On the 18th Jan, the price moved to the upside, crossing the MA on its way up reaching the 61.8 Fibo level, as depicted on the chart. Seemingly, preference for Gold increased as currently the dollar value remains stable against other currencies. The upward movement found resistance on the 19th Jan near 2041 SUD/oz and the price reversed to the MA. The price continues sideways with high volatility around the mean currently.

_____________________________________________________________________________________________

EQUITY MARKETS MONITOR

NAS100 (NDX)

Price Movement

All benchmark U.S. indices moved to the upside quite rapidly in the past few days, particularly since the 17th Jan. The uptrend is clear with some retracements taking place every day, however not being complete as the path is quite strong to the upside. The 4H chart below shows why this is clear. Volatility levels are higher than usual. I am expecting a retracement soon. Upon NYSE opening it would be more clear if the index will move further to the upside or break the intraday support and eventually retrace to the 61.8 Fibo level as per the chart.

______________________________________________________________

Related Posts

Nvidia Falls: Opens at $129.66, closes at $119.37 despite 122% YoY revenue surge, USOIL drops on Libya production cut, Core PCE index matches forecast at 0.2%

Powell Hints at September Rate Cut, Nvidia Earnings Due, S&P 500 Up 18.1%, CPI m/m Steady at 0.4%

Gold peaks at $2500+, Australia’s unemployment rate edges up to 4.2%, U.S. retail sales beat forecasts at 1.0%, with Canada’s CPI m/m at 0.4% next week in focus