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Summary: Risk aversion dominated financial markets after Fed Chair Jerome Powell signalled an earlier end to bond tapering. Powell said that it is time to retire the term “transitory” for inflation. Uncertainty over Omicron rose after the chief executive of vaccine developer Moderna, told the Financial Times that existing vaccines may not be as effective against the new variant. The CBOE VIX Index, a popular measure of the stock market’s expectation of volatility rebounded to 27.56 from 22.90, up 18.4%. Against the haven sought Japanese Yen, the US Dollar tumbled 0.60% to 113.11 from 113.67 yesterday. Risk leader, the Australian Dollar fell 0.35% to 0.7122 (0.7135 yesterday). A rise in the Eurozone Annual Consumer Price Inflation (CPI) to 4.9% in November from 4.1% lifted the EUR/USD pair 0.3% to 1.1325 (1.1282) as speculative shorts ran for cover. Sterling settled to finish 0.17% lower to 1.3290 after tumbling to a 12-month low at 1.3194. The Dollar Index, which measures the value of the Greenback against a basket of 6 major currencies, slid 0.4% to 95.95 from 96.27. Asian and Emerging Market currencies finished mixed against the US Dollar. The USD/SGD pair (US Dollar-Singapore Dollar) fell to 1.3655 (1.3700), while USD/THB (Dollar-Thai Baht) edged higher to 33.72 from 33.67. USD/CNH (Dollar-Offshore Chinese Yuan) ended lower to 6.3665 from 6.3880. The Turkish Lira tumbled 7.6% against the Greenback (13.50 from 12.83), a record low after Turkish President Tayyip Erdogan said he opposed and interest rate increases.
Global bond yields tumbled. The benchmark US 10-year treasury yield fell 8 basis points to 1.44%. Germany’s 10-year Bund yield eased 3 basis points to -0.35%. Australia’s 10-year treasury rate was last at 1.68% from 1.74% yesterday.
Wall Street stocks slumped. The DOW lost 1.9% to 34,525 (35,197) while the S&P 500 fell to 4,573 from 4,667, down 1.87%. Oil prices slid with Brent Crude settling at USD 70.57 from USD 72.80.
Among the data released yesterday, Japan’s Unemployment Rate in October improved to 2.7% from 2.8%. Japanese Industrial Production rose to 1.1% from -5.4%, but lower than estimates of 1.8%. Australia’s October Building Approvals for October fell to -12.9% from -3.9% and forecasts of -1.4%.
Australia’s Current Account Surplus rose to +AUD 23.9 billion from +AUD 22.9 billion but lower than estimates of +AUD 29.3 billion. China’s November Manufacturing PMI rose to 50.1 from 49.2 and expectations of 49.8. Chinese Non-Manufacturing PMI beat forecasts at 52.3 against 51.6. Japan’s October Housing Starts rose to 10.4% (y/y), better than estimates of 5.4%. Switzerland’s KOF Economic Barometer eased to 108.5 from a previous downward adjusted 110.2 and forecasts of 109.
In Germany, the number of people claiming unemployment benefits fell to 34,000 from 40,000.
The Eurozone Core CPI climbed to 2.6% from 2.0%, and higher than estimates at 2.3%. Canada’s November GDP rose 0.1%, beating forecasts at 0.0%. US November House Price Index dropped to 0.9% from 1.0%, and lower than estimates of 1.2%. US Chicago PMI slumped to 61.8 from 68.4 and estimates at 67.1. The US Conference Board Consumer Confidence Index slid to 109.5 from 113.8, and lower than forecasts at 110.8.
On the Lookout: Today’s data calendar kicked off with New Zealand reporting its October Building Permits, which matched previous data at -2%. Australia’s Markit Manufacturing PMI rose to 59.2 from 58.2. Japan follows next with its Annual Capital Spending (f/c 1.6% from 5.3%). Japanese Jibun Bank Manufacturing PMI for November follows (no f/c, previous was 53.2). Australia releases its Q3- GDP (q/q f/c -2.7% from 0.7%, y/y f/c 3.0% from 9.6% - ACY Finlogix). China follows with its November Caixin Manufacturing PMI (f/c 50.5 from 50.6 – ACY Finlogix). The UK starts off Europe with its November Nationwide House Prices (m/m f/c 0.5% from 0.7%, y/y f/c 9.3% from 9.9% - ACY Finlogix). Germany releases its October Retail Sales (m/m f/c 1% from -2.5%, y/y f/c -2% from -0.9%. Switzerland releases its November CPI report (m/m f/c -0.1% from 0.3%, y/y f/c 1.4% from 1.2%). France releases its Final November Manufacturing PMI (f/c 54.6 from 53.6), German November Manufacturing PMI (f/c 57.6 from 57.8) and Eurozone November Manufacturing PMI (f/c 58.6 from 58.3). The UK releases its Final November Manufacturing PMI (f/c 58.2 from 57.8). Canada starts off North America with its October Building Permits (f/c -% from 4.3%). Canadian November Markit Manufacturing PMI follows (no f/c, previous was 57.7). The US rounds up today’s big economic calendar day with its ADP Employment Change for November (f/c 525,000 from 571,000), US November Markit Manufacturing PMI (f/c 59.1 from 58.4), and US ISM Manufacturing PMI for November (f/c 61 from 60.8).
Trading Perspective: Overnight the US Dollar failed to make headway despite comments made by Fed Chair Jerome Powell. A rise in risk aversion saw the Greenback finish mixed against its rivals. Speculative net long USD positions are now overextended, and a further corrective move lower is possible. The fall in the US 10-year bond yield to 1.44% from 1.52% will weigh on the US Dollar. While other rival treasury rates were lower, their falls were smaller in comparison with US rates.
Tin helmets on, we are in for more choppy trading. Enjoy the ride.
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