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Trends & Analysis
News

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Buy the JPMorgan dip?

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USD traders remain cautious despite upbeat NFP

 

Monday, January 08, 2024

Today’s headlines

What’s happening: The US dollar ended almost flat on Friday, as investors assessed the latest economic reports.

What happened: The greenback eased from a three-week high after data showed a contraction in US services activity in December.

Traders remained cautious even after US NFP (nonfarm payrolls) for December came in higher than expected.

Why it matters: The US economy added 216,000 new jobs in December, significantly topping market estimates of 170,000. The unemployment rate in the US remained steady from November at 3.7%, versus market expectations of an increase to 3.8%. Average earnings grew by 0.4% in December, better than estimates of a 0.3% gain.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, surged to its highest level since mid-December following the upbeat NFP report. However, the index fell below 102 after the release of services sector data.

The ISM said the US non-manufacturing index declined to 50.6 in December, the weakest reading since May, and down from 52.7 in November. The figure also came in lower than market expectations of 52.6. The services industry represents over two-thirds of the US economy. The ISM’s measure of services sector employment dipped to 43.3 in December, recording the lowest level since July 2020.

Traders also assessed data showing higher-than-expected US factory orders, which grew by 2.6% in November, following a 3.4% decline in October.

Traders refrained from going long on the US dollar on continued expectations of the Federal Reserve announcing around 5 interest rate cuts of 25 bps each this year.

The US dollar index traded almost flat to 102.42 on Friday. On the week, the greenback added around 1.1%, notching its best weekly surge since mid-July.

The EUR/USD forex pair slipped 0.06% to 1.0940 on Friday. The European common currency lost around 0.9% last week, its biggest weekly fall since early December.

What to watch: Investors await the release of consumer inflation expectations data from the US today. US consumer inflation expectations for the year ahead, which declined to 3.4% in November, is expected ease to 3.3% in December.

The markets today

European stocks will be in focus today ahead of a basket of economic reports

Context: European equities settled lower on Friday, following the release of inflation data.

Details: European stocks remained highly volatile last week, with the pan-European index rising around 0.7% on Thursday, after recording losses over the previous couple of sessions. The index finally ended the week lower on Friday.

Investors monitored inflation data from the Eurozone, which showed inflation increasing to 2.9% year-over-year in December, from 2.4% a month ago, according to a preliminary estimate. However, the figure was lower than market expectations of a reading of 3% for December. The recent data raised concerns around sticky inflation forcing the European Central Bank to prolong its hawkish stance.

Other economic data released on Friday showed Eurozone’s industrial producer prices falling 8.8% year-over-year in November, compared to a 9.4% decline a month ago. Eurozone’s construction PMI rose to 43.6 in December, compared to November’s reading of 43.4, but remained in the contraction zone.

The STOXX Europe 600 Index fell 0.27% to close at 476.38 on Friday, with most sectors closing in the negative zone. Retail stocks were the worst performers after data showed retail sales in Germany contracting more than expected in November. Banking stocks bucked the overall market trend, closing the session higher by around 0.5%.

The S&P Global UK construction PMI rose to a reading of 46.8 in December, from 45.5 in November. London’s FTSE 100 shed 0.43% to close at 7,689.61 on Friday.

Germany’s DAX 40 and France’s CAC 40 lost 0.14% and 0.40%, respectively, during Friday’s session.

What to watch: Investors await the release of economic data on retail sales, consumer confidence and services confidence from the Eurozone today. Retail sales in the region, which rose by 0.1% in October, are expected to decline by 0.3% in November.

Analysts expect the consumer confidence indicator to increase by 1.8 points from the prior month to a reading of -15.1 in December. The services confidence is projected to increase to 5 in December, from 4.9 in November.

Other Markets: US trading indices closed higher on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.07%, 0.18% and 0.15%, respectively.

The news shaping the markets

Ukraine shot down 21 Russian drones headed for the south and east of the country. The news sent the RUB/USD lower in forex trading this morning.


Brazil’s trade surplus came in at $9.36 billion for December, up by a whopping 106.5% from the year-ago month. The figure also came in significantly above market expectations of $7.8 billion and lent support to the BRL/USD forex pair.


China’s forex reserves rose to $3.238 trillion in December, from $3.172 billion in the previous month. The figure being above market estimates of $3.2 trillion and the biggest surplus since December 2021 sent the CNY//USD pair higher in forex trading this morning.


The Baker Huges crude oil report showed an increase in US oil rigs to 501 in the week of January 5, from 500 in the previous week, lending support to the WTI crude oil prices.


Indonesia’s foreign exchange reserves climbed to $146.4 billion in December, from $138.1 billion in the previous month. This being the largest figure amount since September 2021 lent support to the IDR/USD forex pair.

What else to watch today

South Africa’s foreign exchange reserves and manufacturing PMI, Germany’s balance of trade and factory orders, France’s foreign exchange reserves, Singapore’s foreign exchange reserves, Eurozone’s economic sentiment indicator, consumer confidence price trends over next 12 months, industry confidence indicator and gauge for selling price expectations, Mexico’s consumer confidence, Turkey’s treasury cash balance and total vehicle sales, Spain’s consumer confidence indicator, US Logistics Manager’s index, Manheim used vehicle value index and consumer credit, Central Bank of Brazil’s focus market readout, as well as Argentina’s industrial production.


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