Risk-taking carried over to Tuesday trading with the safe-haven yen taking an extra knock from incoming BOJ Deputy Gov. Shinichi Uchida and future BOJ Gov. Kazuo Ueda supporting the current “Abenomics” before the Japanese Parliament.
U.S. initial jobless claims, a proxy for layoffs, dipped from 192K to 190K last week and supported a strong labor market.
US CB consumer confidence unexpectedly fell from 106.0 to 102.9 in January on sticky inflation and high interest rate expectations
U.S. Pending Home Sales Index jumped by +8.1% m/m in January to 82.5 vs. a +1.1% m/m increase in December
Japan’s retail sales popped 6.3% higher y/y vs. projected 4.2% gain and previous 3.8% reading
The disappointing reports got mixed in with end-of-month profit-taking, likely fueling the turn lower in equities and risk assets while U.S. Treasury yields, gold, and the U.S. dollar jumped higher.
China’s official manufacturing PMI jumped from 50.1 to 52.6 in February, the fastest expansionary pace since April 2012, while the services PMI improved from 56.3 to 54.4 after Beijing withdrew its zero-COVID policies
BOJ’s Wakatabe warns secular stagnation risk has yet to pass
U.K. Manufacturing PMI rose to 49.3 in February (47.0 in January); signs of resilience and stability seen across many sub-sectors; optimism for 2023 is seen at the highest its been in 12 months
EUR Pairs
Stronger than expected Australian data (private sector credit, retail sales) keep pressure on RBA to keep hiking rates
BOE Gov. Bailey cautions against suggesting that the central bank is done with rate hikes or needs to do more
European and U.S. equities didn’t get much chance to celebrate China’s recovery, however, thanks to Germany’s inflation data mirroring upside surprises in Spain and France’s CPIs, supporting higher-for-longer interest rate speculations.
A jump in risk-taking started NZD’s intraweek uptrend and made it a good candidate for bulls who were looking to price in China’s better-than-expected business activity reports.
More Fed speak:
- Philip Jefferson says services inflation remains “stubbornly high,” but slowing wage growth may helps soften high inflation conditions
- Kashkari and Bostic suggested on Wednesday that aggressive interest rate hikes and maintaining rates high for a while may be needed to reduce inflation
Markets started the week by bargain-hunting after the previous week’s selloff led European and U.S. equities to their worst week so far this year. End-of-month profit-taking may have also added to the pro-risk, anti-USD sentiment that played out during the Monday U.S. session.
Expectations of higher interest rates from major central banks carried over to Thursday trading when the benchmark 10-year U.S. Treasury yields hit new intraweek high above 4%–the highest since November! It also didn’t help that U.S. initial jobless claims and labor productivity data reflected a tight enough labor market to support further rate hikes.
Despite that action, it appears that cryptocurrencies were the place to be for short-term traders to find volatility as BTC/USD dropped from the $23,400 area to below $22,000 in less than an hour while other major crypto pairs showed similar downswings.
Friday’s price action looked like a continuation of Thursday’s, actually even accelerating in its risk-on lean as bond yields continued to fall. This arguably was catalyzed by a big dip in the Eurozone producer prices index and another round of net contractionary global business sentiment data, toning down the recent strengthening of the “higher-for-longer interest rates” narrative that is currently dominating broad market sentiment.
Japan’s au Jibun Bank manufacturing PMI adjusted higher from 47.4 to 47.7 in February but still lower than January’s 48.9 reading
Overlay of EUR Pairs: 1-Hour Forex Chart
Richmond Manufacturing Index fell to -16 in February from -11 in January
U.S. Durable Goods Orders dropped in by -4.5% in January vs. a 5.1% m/m rise in December; core durable goods orders rose by +0.7% m/m vs. -0.2% m/m previous
Eurozone Manufacturing PMI for February: 48.5 vs. 48.8 in January; new orders fell for a 10th consecutive month; input price pressures easing; “”Factory employment rose moderately and at the quickest rate in four months.”
Several ECB officials commented this week on how they’re winning the inflation fight but the ECB will stay aggressive with rate hikes until it is certain price growth will return to 2%.
Australia’s GDP disappoints at 0.5% q/q in Q4, less than the estimated 0.8% uptick and Q3’s upwardly revised 0.7% growth, as cost pressures and high interest rates drag household consumption to its slowest growth in five quarters
Eurozone Manufacturing PMI for February: 48.5 vs. 48.8 in January; Services PMI rose to 52.7 in February (an 8-month high)
U.S. Manufacturing PMI for February: 47.3 vs. 46.9 in January; new orders continue to fall; “Input prices faced by manufacturing firms increased at a sharp pace”
U.S. CB consumer confidence unexpectedly fell from 106.0 to 102.9 in January on sticky inflation and high interest rate expectations
Japanese preliminary industrial production sank 4.6% m/m vs. estimated 2.9% decline in Jan, largest fall in eight months
RBNZ Gov. Orr: We need to bring inflation back to target range “over a reasonable horizon” to not “unnecessarily crash the economy and turn temporary, slower growth into permanent unemployment.”
ISM U.S. Manufacturing PMI for February: 47.7 vs. 47.4 in January; “Employment Index returned to contraction after two months of expansion”; Prices Index jumped to 51.3 vs. 44.5 previous
China’s private sector Caixin manufacturing PMI rose from 49.2 to 51.6 in February and marked its first increase since July 2022 as output and new orders saw notable increases after China lifted its zero-COVID policies
U.K. and the European Union leaders made a new deal that would tackle trade and political disruption in Northern Ireland after Brexit
British and the European Union leaders made a new deal that would tackle trade and political disruption in Northern Ireland after Brexit
Relief came when FOMC voting member Raphael Bostic spilled that the Fed could pause its rate hikes as soon as mid or late summer this year, correlating with a turn in U.S. Treasury yields while other risk assets turned higher.
Jon Cunliffe, Bank of England Deputy Governor, said a new digital pound may protect consumers in the event of a banking system failure, supporting a proposal to make cash accessible online.
Overlay of GBP Pairs: 1-Hour Forex Chart
Thanks to a heavy economic calendar, it was a very busy week for forex traders who had to balance global business surveys, economic data updates and lots of central bank speak. It’s no surprise that we saw choppiness and a less tight correlation from the usual intermarket price patterns.
Bitcoin and other major cryptos dropped sharply on Friday, likely a reaction to negative headlines for Silvergate Bank, a crypto-friendly financial institution.
ECB’s February minutes showed agreement over further tightening, but also talks of policy rates “coming closer to a level where caution was needed to ensure that monetary policy was not tightened excessively.”
Japan’s unemployment rate unexpectedly dipped from 2.5% to 2.4%, the lowest reading since February 2020