US Futures Pare Losses After Monday’s Plunge

Markets Stabilise Ahead of the Open on Wall Street

US futures are gradually stabilising again ahead of the open on Wall Street on Tuesday, following an extremely volatile session at the start of the week and more of the same in overnight trade.

The sudden and sharp declines in equity markets over the last couple of sessions is still being attributed to higher interest rate expectations although the move appears to have been exacerbated by a combination of automated trading and panic selling. We’ve become so accustomed to dips being bought over the last couple of years that this appears to have caught people off-guard and that’s generated some of the panic responses that we’ve seen.

Now that the dust appears to be settling, people seem to be reflecting on this as a reminder that market corrections are perfectly normal and not always a sign that something is about to go terribly wrong. The rally over the last couple of years has been very strong and without any corrections of note and it’s possible that this has led to some complacency in the markets, with investors perhaps getting a little ahead of themselves.

Dow (US30) Daily Chart

OANDA fxTrade Advanced Charting Platform

Of course we’ll have to wait and see over the next couple of days if the sell-off generates and further fear-driven selling but I’m not currently convinced it would be warranted. The economic fundamentals appear fine and the environment has been gradually improving over the last couple of years. This has led to higher interest rate expectations and it’s possible that these have gone a little too far.

Dow Suffers Biggest Ever One Day Points Loss

Bitcoin Falls Below $6,000 For First Time Since November

It’s not just stock market investors that have been burned in recent days, cryptocurrency traders are also feeling the heat, as another plunge in bitcoin sees it trading back around $6,000, almost 70% off its December highs. Some other cryptocurrencies have fared even worse, with Ripple now more than 80% off its peak which was reached only a month ago. A constant flow of negative news flow hasn’t helped the market for cryptocurrencies and neither, I would imagine, will the exit of speculators that helped inflation the bubble late last year.

Bitcoin (CME) Daily Chart

Source – Thomson Reuters Eikon

Bitcoin has found some support again after dipping back below $6,000 earlier today for the first time since the middle of November. With cryptocurrencies being such a sentiment driven market, I wouldn’t be surprised to see further losses even if prices do stabilize or even bounce in the near-term. Most cryptocurrencies are still up a considerable amount since the start of last year which some will point to as evidence that they have a lot further to fall and others as evidence of the belief that still exists in the space. Ultimately, we’re seeing the market being flushed out which could prove handy in highlighting which players are serious and which simply piggybacked on the success of others.

EUR/USD – Euro Rebounds After Monday Losses, German Factory Orders Soar

No Room For Bitcoin When Traders Sought Safe Havens

Interestingly, despite the insistence of some that bitcoin could be the new Gold, we’ve seen little evidence of it benefiting from the recent panic. Gold on the other hand did see some safe haven flows late on Monday and is trading a little higher once again today. As is the yen, which is typically seen as a safe haven currency and is trading higher against the euro and pound today. It has pared its gains in the last few hours though as equity markets have pared losses.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

Equities Slump Deepens; Dollar Steady

Monday February 5: Five things the markets are talking about

Global stocks have extended their biggest decline in two-years overnight while the ‘big’ dollar steadies outright against G10 currency pairs. Sovereign treasury yields continue to creep higher, while crude oil prices again come under pressure as U.S explorers raised the number of rigs drilling for crude to the most since August.

This week is again dominated by monetary policy decision with four central banks meetings in the coming sessions – today, the Reserve Bank of Australia (RBA), Wednesday, the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of India (RBI) and its ‘super’ Thursday for the Bank of England (BoE) as it also publishes its quarterly inflation report.

Other data releases will focus on December industrial production (IP) and January composite PMI’s. China will release January data for its merchandise trade balance and its consumer and producer price indexes. North of the U.S border, Canada will close out the week reporting its January labor force survey. It’s December international trade balance is reported on Tuesday.

1. Stocks see red

In Japan, the Nikkei share average fell sharply on overnight as fear that U.S inflation may be finally gathering pace pound global equities. The Nikkei tumbled -2.5%, its biggest one-day drop since Nov 9, 2016, when President Trump won the U.S election. The broader Topix slumped -2.2%.

Down-under, Aussie shares fell overnight, dragged down by financial and materials. The S&P/ASX 200 index slid -1.6% ahead of Wednesday’s Reserve Bank of Australia (RBA) rate decision.

In Hong Kong, stocks ended lower on overnight, but recouped much of their earlier losses sparked by Friday’s slide on Wall Street. The Hang Seng index slumped -1.09%, while the Hang Seng China Enterprises index fell -0.43%.

In China, stocks bucked the region’s tumble as the Shanghai Composite index ended the session up +0.73%, while the blue-chip CSI300 Index also reversed its earlier losses, closing up +0.1%.

In Europe, regional indices are trading lower across the board, but off the session lows as markets have faded a large part of the earlier move lower, on the back of a slight pullback in Euro Bond yields as well as a bounce in U.S futures.

U.S stocks are expected to open little changed.

Indices: Stoxx600 -1.0% at 384.1, FTSE -1.0% at 7366, DAX -0.5% at 12715, CAC-40 -0.9% at 5317 , IBEX-35 -0.6% at 10145, FTSE MIB -0.7% at 23048 , SMI -1.0% at 9132, S&P 500 Futures flat

2. Oil trades atop one-month lows, gold prices higher

Oil prices are under pressure for a second consecutive session overnight, as rising U.S output and a weaker physical market added to the pressure from a widespread decline across equities and commodities.

Brent crude futures are down -36c at +$68.22 a barrel, while U.S West Texas Intermediate (WTI) crude has fallen -13c to +$65.32.

Oil is caught up in the markets general risk-off move, not helped the strength of the U.S dollar in the past two trading sessions.

Adding to the pressure on oil, which hit its highest price in nearly three-years in January, has been evidence of rising U.S crude production, which could threaten OPES’s efforts to support prices.

Data from the U.S government last week showed that output climbed above +10m bpd in November for the first time in nearly fifty-years, as shale drillers expanded operations.

Ahead of the U.S open, gold prices have inched higher as declining equities lend support to the yellow metal even though robust U.S. jobs data potentially increased the chances of more interest rate hikes this year. Spot gold is up +0.1% at +$1,334.23 per ounce, after declining -1.2% on Friday in its biggest one-day fall since early December.

3. Sovereign yields continue to back up

Investors on both sides of the Atlantic are dumping government debt, but for different reasons. In the U.S, investors see more inflation coming; while in the eurozone, they see stronger economic growth.

On Friday, the 10-year Treasury yield closed at +2.852%, the highest yield in two-years, compared with +2.410% at the start of the year. German 10-year sovereign Bunds have edged up to +0.701% from 0.430% over the same period.

Note: Inflation-linked Treasuries’ (TIP’s) show that almost two-thirds of the U.S bond selloff that started at the beginning of December is explained by inflation expectations.

Elsewhere, the RBA looks set to continue lagging the trend toward higher interest rates globally. It’s first policy meeting this year on Tuesday will likely see the RBA’s official cash rate steady at +1.5%, with interest in whether its guidance will be more upbeat reflecting a stronger job market.

Aussie policy makers continue to face the problem of weak wages growth, soft inflation reads and an elevated AUD (A$0.7934). Forecasts for the first interest rate hike have been pushed back lately.

4. Dollar under constant pressure

The U.S. dollar remains relatively contained after rebounding at the end of last week, when a strong non-farm payroll (NFP) suggested the currency’s weakness might have gone too far, too fast.

The EUR/USD (€1.2426) has managed to eek out a small gain overnight as optimism continued to flow about a grand coalition in Germany – political parties have said to seek a grand coalition by tomorrow (Feb 6th).

GBP/USD (£1.4102) is little changed despite the Jan. U.K PMI Services reading missed expectations (see below).

USD/JPY ‘s strong correlation with U.S interest yields seems to have broken down as the pair tested ¥109.80 in the session overnight despite the BoJ’s rhetoric that it would continue advocating an easy monetary policy.

Bitcoin (BTC) is down -6.7% at $7,637.

5. U.K services expansion slides to 16-month low, Europe expands

In the U.K, services PMI fell to 53, from 54.2 in December, below the expected consensus for an increase to 54.5. This morning’s data is now following weaker-than-expected manufacturing and construction PMI data last week.

Note: This January slowdown pushes the all-sector PMI into ‘dovish’ territory as far as the Bank of England (BoE) monetary policy is concerned. The BoE announces its latest interest rate decision and inflation report on Thursday.

Elsewhere, the composite PMI for the eurozone in January was revised up to 58.8 from 58.6, hitting its highest level in a dozen years and further proof that the eurozone economy started this year on a very strong footing.

At a national level, Italy stood out, recording its highest reading in a dozen years, as businesses hired at the fastest pace in 17-years.

Note: The ECB will be encouraged to expect acceleration in wages growth that would help it meet its inflation target in the coming years.

Forex heatmap

Dollar Rebounds After Strong Jobs Report

US added 200,000 positions in January

The US dollar rose against major pairs on Friday. The release of the U.S. non farm payrolls (NFP) proved to be the much needed shot in the arm after the greenback was under pressure for most of 2018. The job gains were above expectations but more importantly the hourly wages came in higher, giving the Fed a potential green light to hike 3 or 4 times in 2018. The market is estimating a 77.5 percent probability of the first rate lift to come in March.

  • The Reserve Bank of Australia (RBA) will publish its rate statement on February 5
  • the Reserve Bank of New Zealand (RBNZ) will follow on February 7
  • The Bank of England (BoE) will host a super Thursday on February 8

USD surged after wages rose more than expected



The EUR/USD gained 0.22 percent in the last five days. The single currency is trading at 1.2424. The USD was having a week to forget but a jobs week is not done until the U.S. non farm payrolls (NFP) report is released. The gain of 200,000 jobs in January was the boost the dollar needed after the Fed and the ADP did now sway the market. The USD reversed most of the losses of the week, gaining 0.43 percent against the EUR. The biggest boost came from the hourly wages growth at 0.3 percent for an annualized gain of 2.9 percent.

The disappointing December jobs report played a part as investors were estimating 180,000 positions and instead got pleasantly surprised by both strong gains and positive inflation signals. The move in the USD could be under threat next week as there are few economic released of note in the US and the political drama in Washington has not been beneficial to the greenback.

Fundamentals indicators and monetary policy has been supportive of the USD, but political uncertainty has hurt the dollar’s status as a reserve currency. The upgraded growth expectations around the world have also shrunk the gap between the US and the rest of the world.



The GBP/USD lost 0.31 percent during the trading week. The currency pair is trading at 1.4120 ahead of the Bank of England (BoE) monetary policy meeting on Thursday, February 8 at 7:00 am EST. The central bank is not expected to change its benchmark rate but it could signal a hike sooner rather than later specially as expectations of a softer Brexit and economic growth has been encouraging. The BoE made its first rate rise in a decade back in November. The data released on Super Thursday, so called because of the sheer number of announcements, will guide the market and shape the monetary policy expectations going further into 2018.


Canadian dollar weekly graph January 29, 2018

The USD/CAD gained o.86 percent during the week. The currency pair is trading at 1.2421. The USD appreciated against the loonie and put the Canadian currency at weekly lows. The greenback rose 1.22 versus the CAD on Friday after the release of the U.S. non farm payrolls (NFP). The U.S. Federal Reserve meeting and positive employment numbers earlier in the week did little for the USD, but with the release of the biggest indicator it all turned.

The economic data releases form Canada will start with on Tuesday, February 6 at 8:30 EST with publication of the trade balance. Later that same day the Ivey Purchasing Managers Index will be posted at 10:00 am EST. Employment data will be the highlight of the week on Friday, February 9 at 8:30 am with a 2,000 job loss report expected after the back to back gains of 70,000 positions in the previous months.

Market events to watch this week:

Monday, February 5
4:30am GBP Services PMI
10:00am USD ISM Non-Manufacturing PMI
7:30pm AUD Retail Sales m/m
7:30pm AUD Trade Balance
10:30pm AUD Cash Rate
10:30pm AUD RBA Rate Statement
Tuesday, February 6
8:30am CAD Trade Balance
4:45pm NZD Employment Change q/q
NZD Unemployment Rate
Wednesday, February 7
10:30am USD Crude Oil Inventories
3:00pm NZD Official Cash Rate
3:00pm NZD RBNZ Monetary Policy Statement
3:00pm RBNZ Rate Statement
4:00pm NZD RBNZ Press Conference
Thursday, February 8
4:00am AUD RBA Gov Lowe Speaks
7:00am GBP BOE Inflation Report
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Monetary Policy Summary
7:00am GBP Official Bank Rate
7:30pm AUD RBA Monetary Policy Statement
Friday, February 9
4:30am GBP Manufacturing Production m/m
8:30am CAD Employment Change
8:30am CAD Unemployment Rate

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

By the numbers: U.S January NFP fallout

  • Non-farm payrolls: +200k vs. +148k prev.
  • Private payrolls: +196k vs. prev. +146k)
  • Manufacturing payrolls: +15k vs. prev. +25k
  • Unemployment rate: +4.1% vs. prev. +4.1%
  • Average hourly earnings: +0.34% m/m, +2.9% y/y vs. prev. +0.4% m/m, +2.7% y/y
  • Workweek hours: 34.3 vs. prev. 34.5 – -0.2
  • U.S 10-year yield: +2.83%
  • U.S employers added +200,000 jobs in January (employers added an average of +181k a month in 2017).

    Construction, manufacturing and restaurants had strong job growth, while Government payrolls grew by +4k last month.

    Strong back-month revisions for average hourly earning and headline job prints – Dec payrolls revised to +160k and Nov revised to +216k

    Average hourly earnings rose +0.34% from Dec following an upwardly revised +0.4% gain. Year-over-year, it was +2.9% compared with projections for a +2.6% increase. December’s gain was revised upward to +2.7%.

    USD (€1.2455, £1.4165, ¥110.33, C$1.2361) is better bid across the board, while the 10-year yield has backed up to +2.834% as wage growth is starting to accelerate.

    What to look for in U.S payrolls (NFP)

    Friday February 2: Five things the markets are talking about

    The U.S labor department is expected to report that 2018 has kicked off with a pickup in hiring.

    Market consensus is looking for non-farm payrolls (NFP) to rise by +180k last month, while the unemployment rate continued to hover atop of +4.1% – its lowest level in 18-years.

    What to look for in today’s payrolls report:

    More hiring

    The pace of job creation has been slowing as the U.S economy encroaches on full employment. Employers added an average of +171k jobs a month in 2017. After a slightly softer December (+148k), the market expects todays jobs report to rebound to around its recent trend.

    Steady unemployment

    The U.S unemployment rate is expected to remain atop of +4.1% last month. Fed officials continue to monitor domestic wage and price pressures, and a falling unemployment rate supports their expectation that tighter labor market will eventually boost inflation.

    Note: Fed policy makers’ median projection in December saw the jobless rate dipping to +3.9% by late 2018.

    Wage Growth

    The biggest surprise in 2017 was that U.S wage gains actually softened after two consecutive years of gains. Average hourly earnings for private-sector workers were up +2.5% in December y/y, but down from +2.9% annual growth at the end of 2016. Minimum-wage increases in many states should help boost earnings for January.

    Housekeeping matters

    As is typical for the January jobs report, today’s release will include a number of routine changes from the Labor Department. New population controls mean the household-survey figures for the number of employed and unemployed will not be directly comparable between December and January.

    The payrolls data will include an annual benchmark revision – roughly +4% of payroll employment will be “reclassified” by industry due to the adoption of updated classifications.

    1. Stocks see red as yields back up

    In Japan, the Nikkei share average fell overnight on weakness in most sectors, with banking stocks down on worries that JGB bond yields would be kept low after the BoJ conducted a special bond purchase operation to curb rising yields. The Nikkei dropped -0.9% while the broader Topix shred -0.3%.

    Down-under, Australia’s S&P/ASX 200 Index rose +0.5%, supported by higher commodity prices. In S. Korea, the Kospi index declined -1.7%.

    In Hong Kong, the Hang Seng Index ended Friday marginally down, but posted its biggest weekly loss in two-months, pressured by rising sovereign bond yields. At the close, the Hang Seng index was down -0.12%, while the Hang Seng China Enterprises index rose +0.78%. For the week, the Hang Seng lost -1.7%.

    In China, stocks reversed earlier losses and ended higher on Friday, supported by gains in resources firms. Nevertheless, regional indexes still posted hefty weekly drops, led by the Shanghai benchmark index, which posted its worst week in 14-months. At the close, the Shanghai Composite index was up +0.5%, while the blue-chip CSI300 index was up +0.6%.

    In Europe, regional indices continue to trade lower with the German DAX registering another -1% decline as rising sovereign rates and mixed earnings continue to weigh on equity markets.

    U.S stocks are set to open in the “red” (-0.7%).

    Indices: Stoxx600 -0.9% at 389.8, FTSE -0.3% at 7466, DAX -1.4% at 12822, CAC-40 -1.2% at 5390, IBEX-35 -1.3% at 10264, FTSE MIB -1.1% at 23279, SMI -0.7% at 9229, S&P 500 Futures -0.7%

    2. Oil prices extend gains on compliance with output cuts, gold lower

    Crude oil prices are rallying for a third consecutive session after a survey showed strong compliance with output cuts by OPEC and others including Russia. It’s currently offsetting market concerns about surging U.S production.

    Brent futures are up +24c, or +0.3% at +$69.89 a barrel, while U.S West Texas Intermediate (WTI) crude is up +33c or +0.5% at +$66.13 a barrel.

    A Reuters survey this week showed that production by OPEC rose in January from an eight-month low as higher output from Nigeria and Saudi Arabia offset a further decline in Venezuela and strong compliance with a supply reduction pact.

    Stateside, an EIA report Wednesday disclosed that U.S crude output surpassed +10m bpd in November for the first time in nearly half a century.

    Gold has edged lower ahead of the U.S open, under pressure from a stronger USD outright. Investors will take their cues fro today’s NFP report. Spot gold is down -0.3% at +$1,345.22 an ounce.

    3. Global bond yields break higher

    Overnight, the Bank of Japan (BoJ) again conducted a fixed-rate JGB purchase operation (the fourth time performed). Japanese officials offered to buy unlimited amount of 10-year JGB’s at +0.11% in an attempt to control their yield curve. The BoJ said its action to cap rises in bond yields was consistent with the central bank’s current easy monetary policy.

    The market is also taking a look at bund yields – higher yields stateside seem justified, given expectations of further rate increases by the Fed, but rising yields in German Bunds seem to be ‘out of sync’ with ECB policy. The ECB is set to remain a “net” buyer of bonds until at least September 2018 and isn’t expected to raise policy rates until 2019.

    The yield on U.S 10-years has gained less than +1 bps to +2.79%, the highest in almost four-years. In Germany, the 10-year Bund yield has climbed +2 bps to +0.74 percent, the highest in more than two-years, while in the U.K, the 10-year Gilt yield increased +5% bps to +1.531%, its highest yield in 21-months. In Japan, the 10-year yield has declined -1 bps to +0.086%, the largest drop in 11-weeks.

    4. Dollar comes up for air

    With higher sovereign bond yields supporting a number of higher currency values, both the ECB and BoJ are beginning to show increasing uneasiness around the recent appreciation of their respective currencies (€1.25 and ¥109.87). The somewhat ‘outlier’ to higher domestic yield has been the USD – it cannot seem to rely on rate and yield differential for solid support.

    EUR/USD continued to probe the psychological €1.25 level area on removal of stimulus expectations, but the ‘single’ unit seems unable to sustain any momentum through this key resistance point. ECB officials have upped its rhetoric on volatility concerns. EUR bulls continue to look at pullbacks to add to current ‘long’ positions.

    The BoJ’s commitment of keeping its 10-year yield fixed despite rising upward pressure on global yields might allow 10-year yield differentials to move against the JPY. For now, JPY is confined to its ¥107-112 range.

    GBP (£1.4216) is trading softer ahead of the U.S open after a weaker U.K Construction PMI print (see below) and housing activity contracting for the first time in 17-months.

    Last December, bitcoin appeared to be marching toward $20,000/coin after climbing as high as $19,511 on Dec. 18. Since then, the cryptocurrency (BTC) has plummeted -56%, leaving it just above $8,000.

    5. UK Construction PMI falters

    Data this morning showed that U.K activity in the construction sector eased to a four-month low at the start of this year.

    Markit’s U.K’s purchasing managers’ index for the construction industry fell to 50.2 in January, down from 52.2 a month earlier – the figure was just above the 50.0 no-change mark, suggesting only a fractional rate of growth.

    Digging deeper, concerns about the U.K.’s economic outlook has weighed on new orders, with residential building activity contracting. Cost pressures remain intense, fuelled by shortages of input materials and high costs for imported products.

    Forex heatmap

    USD Struggles Ahead of Jobs Report

    USD Struggles Ahead of Jobs Report

    US expected to add 184,000 jobs in January

    The US dollar fell against a basket of currencies on Thursday. The greenback has failed to gain traction in 2018 and is awaiting the first US jobs report of the year looking for a shot in the arm. The U.S. non farm payrolls (NFP) will be published on Friday, February 2 at 8:30 am EST. Economists are expecting the US to add 184,000 positions and keep the unemployment rate at 4.1 percent. Last month’s report came in lower than expected but the saving grace for the USD was that hourly wages grew 0.3 percent as expected. There are similar gains forecasted for January wages with a special emphasis on inflationary data as the Fed ponders what to do with stagnant wages despite a strong job component.

    • European manufacturing gathered steam in January
    • Unemployment claims fell last week in evidence of strong US labour market
    • Higher growth expectations outside of US putting pressure on dollar

    Dollar Lower Despite Support from Central Bank



    The EUR/USD gained 0.82 percent on Thursday. The single currency is trading at 1.2515 a day after the U.S. Federal Reserve kept rates unchanged and ahead of the release of the January’s U.S. non farm payrolls (NFP) report. Strong manufacturing data out of Europe continued to make the case for accelerated growth. The European Central Bank (ECB) did not make any changes to its QE program or interest rate in January, but with higher growth and inflation expectations are rising that its bond buying program could end this year with a possible rate hike.

    US economic growth continues to soldier on, with the U.S. Federal Reserve forecasted to lift interest rates 3 to 4 times in 2018. Strong fundamentals and a supportive central bank should have the USD higher versus the euro, but political uncertainty going into the midterms has impaired the dollar. Employment has been the pillar of the economic recovery, but at near full employment there is little that even a monster jobs report can do to boost the dollar. The ADP private payrolls report released on Wednesday saw 234,000 jobs added in January, and while there is no perfect correlation between the ADP and the NFP, after the disappointing jobs report in December an improvement is anticipated which could help the USD finish the week higher versus other currencies.

    The USD has fallen 3.25 despite so far this year and comments from the Fed that inflation is expected to rise helped only a little. The FedWatch tool by the CME is showing a 83.1 percent probability of a rate hike in March after the release of the FOMC January statement. Growth and interest rate rises have all been priced in, but for some investors the threat of higher political uncertainty during the midterms is a cause for concern.

    Next week will offer the USD less opportunities to shine as the main indicator release will be the non manufacturing PMI related by the ISM. Services have slowed down since reaching a reading of 60.1 in October with the forecast for the January figures to be around 55.9.



    US bond prices have fallen as a result of higher growth and inflation expectations this year and yields are higher seeking to attract investors that have been tempted by fixed income alternatives overseas.

    The USD has been on the back foot against major currencies for most of 2018. The rally that followed the victory of Donald Trump in the November 2016 elections was driven by tax reform and infrastructure promises. The 12 month period before the promise and the reality proved to be too much for a market that was expecting a quicker turn around and the greenback depreciated in 2017. This year follows a similar trend with the euro hitting three year highs and even the pound recovering to pre-Brexit levels thanks to a softer dollar.

    Market events to watch this week:

    Friday, February 2
    4:30am GBP Construction PMI


    *All times EST
    For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

    Dollar Support Lukewarm despite Fed’s ‘Hawkish-hold’

    Thursday February 1: Five things the markets are talking about

    Global equities have kicked off the new month mostly in the ‘black’ as capital market participants have decided that the outlook for growth and corporate earnings remains strong enough to suppress concerns about the back up in sovereign yields.

    U.S Treasuries have resumed their slide, while the ‘mighty’ U.S dollar trades steady against G10 currency pairs.

    Yesterday, as expected, the Fed held the overnight interest rate target range steady between +1.25 – 1.50% in a unanimous vote (9-0). In their accompanying statement, policy makers noted that the U.S labor market had continued to strengthen and they dropped the language on expecting inflation to remain below +2% in near-term. In fact, the statement made few changes from December and affirmed a solid outlook for U.S. growth. It offered little sign that officials’ thinking about the economy has changed materially.

    Note: Next up is tomorrow’s U.S non-farm payroll report (NFP), where U.S employers are supposed to have added more jobs in January than a month earlier (+180k vs. +148k).

    1. Stocks get the green light

    In Japan, the Nikkei share average rallied overnight, rebounding from a six-day losing streak and pushed most sectors into positive territory, as a weaker yen and upbeat corporate earnings drove the benchmark index higher. The Nikkei rose +1.7%, while the broader Topix jumped +1.8%.

    Down-under, Australian shares rose overnight, supported by strong gains in mining stocks and financials. The S&P/ASX 200 index climbed +0.9%. In S. Korea, the Kospi index dropped -0.05%.

    In Hong Kong, shares weaken as energy and finance stocks fall. At close of trade, the Hang Seng index was down -0.75%, while the Hang Seng China Enterprises index fell -0.94%.

    In China, equities were also under pressure, as investors dumped firms, which are expected to report weaker 2017 earnings, and took profits ahead of the upcoming long Lunar New Year holidays. At the close, the Shanghai Composite index was down -0.99% losing ground for the fourth consecutive session. The blue-chip CSI300 index was down -0.71%.

    Note: Data overnight showed that growth in China’s manufacturing sector remained solid last month, beating market expectations, as new business led factories to raise output at the start of 2018.

    In Europe, regional indices trade higher across the board and in tandem with U.S futures, as corporate earnings support the move higher.

    U.S stocks are set to open in the ‘black’ (+0.2%).

    Indices: Stoxx600 +0.4% at 397.1, FTSE +0.1% at 7540, DAX +0.4% at 13237, CAC-40 +0.5% at 5507, IBEX-35 +0.5% at 10507, FTSE MIB +0.9% at 23717, SMI +0.4% at 9376, S&P 500 Futures +0.2%

    2. Oil rises as OPEC compliance trump’s U.S output, gold lower

    Oil is better bid after a survey showed OPEC’s commitment to its supply cuts remains in place, even as U.S production topped +10m bpd for the first time in 48-years.

    Brent crude futures are up +49c at +$69.38 a barrel, while WTI crude for March delivery rose +45c to +$65.18 a barrel.

    Note: Brent crude rallied +3.3% in January – it was the strongest start to a New Year for five-years.

    The week’s EIA report showed the biggest increase in crude oil stocks in 11-months, a rise of +6.8m barrels.

    For crude bears, they now have to gage how much U.S production will increase as prices rise.

    Ahead of the U.S open, gold prices are under pressure after the Fed left interest rates unchanged, but hinted at hikes later this year. The market would also prefer to take his cues from tomorrow’s U.S payrolls report. Spot gold is down -0.4% at +$1,339.71 per ounce. Yesterday, it touched +$1,332.30 an ounce, its lowest print since Jan. 23.

    3. Sovereign yields continue to back up

    Yesterday’s FOMC meeting was the last attended by Chair Janet Yellen before she turns over the reins to her successor, Fed Governor Jerome Powell.

    Governor Powell will begin his term as chairman on Saturday, and is scheduled to be sworn-in as chairman of the Fed board of governors on Monday.

    With the Fed’s three hike ‘dot-plot,’ the odds for a rate increase at the March 20-21 meeting remains at around +78%.

    However, yesterday’s FOMC statement hinted that officials might favour more than three-rate increases this year because it offered slightly more conviction that inflation would move higher in 2018.

    The yield on U.S 10-year Treasuries has backed up +3 bps to +2.73%, the highest in almost four-years. In Germany, the 10-year Bund yield has climbed +2 bps to +0.72%, the highest in more than two-years, while the U.K’s 10-year Gilt yield has advanced to +1.525%, its highest yield in 21-months.

    4. Dollar support remains lukewarm

    The USD has ebbed and flowed in the overnight session on market belief that yesterday’s Fed ‘hawkish hold’ has very much been priced-in.

    EUR/USD (€1.2433) is back above the psychological €1.24 handle as Euro manufacturing PMI’s this morning support the region’s recovery story.

    Note: Beats: France, Swiss, Norway, Czech; misses: Germany, U.K, Spain, Sweden, Poland and in-line: Euro-Zone and Russia.

    The single unit is also getting some passive support that eurozone inflation data may have bottomed.

    GBP is higher by +0.5% at £1.4245, atop of its strongest level in 19-months, supported by the markets optimism on Brexit talks. Some fixed income dealers are bringing forward their forecast for the next Bank of England (BoE) rate hike to May. It’s conditional on a Brexit transitional agreement next month.

    USD/JPY (¥109.73) trades at its overnight highs, underpinned by the Fed’s ‘hawkish-hold’ statement. The pair seems to be locked in a ¥107-110 range.

    And following a horrid January for crypto currencies, Bitcoin (BTC) has again edged lower, trading below the psychological $10,000, down-6% at $9,605.

    5. U.K manufacturing growth slows

    Data this morning revealed an unexpected drop in January U.K manufacturing PMI to a seven-month low of 55.3, down from 56.2 in December and below the market consensus for 56.5.

    Digging deeper, Markit (which compiles the survey) said that the reading remained “well above its long-run average of 51.7” and still showed a strengthening in new export order inflows.

    Today’s report also revealed a sharp rise in inflationary pressures, with purchase prices rising at the fastest rate in 11-months.

    Forex heatmap

    ADP Jobs Report Beats Expectations Sets Stage for NFP on Friday

    The new year got off to a strong start for job creation, with businesses adding 234,000 in January, according to a report Wednesday from ADP and Moody’s Analytics.

    Economists surveyed by Reuters had been looking for private payrolls to grow by 185,000.

    Job creation was concentrated largely in service-related industries, which contributed 212,000 to the total.



    Within that sector some of the better-paying industries showed solid gains: Trade, transportation and utilities led with 51,000, education and health services added 47,000 and professional and businesses services contributed 46,000. Leisure and hospitality services also grew by 46,000.

    On the goods-producing side, manufacturing added 12,000 jobs while construction saw 9,000 new hires despite the traditionally slow month for the industry.

    “The job market juggernaut marches on,” Mark Zandi, chief economist at Moody’s Analytics, said in a statement. “Given the strong January job gain, 2018 is on track to be the eighth consecutive year in which the economy creates over 2 million jobs. If it falls short, it is likely because businesses can’t find workers to fill all the open job positions.”

    ADP’s latest count comes with the national unemployment rate at 4.1 percent, though wage pressures remain muted. Economic growth overall has been solid, with the Atlanta Fed projecting the economy to grow 4.2 percent in the first quarter.

    via CNBC

    Fed Could Signal Changes to Outlook

    Wednesday January 31: Five things the markets are talking about

    Month-end USD sales and event risk of today’s Fed’s interest rate decision (2 pm EDT) have seen a dramatic pick-up in realized volatility that’s given implied vols another boost this week.

    Ahead of the U.S open, Euro stocks have stemmed the bleeding; Asian bourses were mixed, even as the EUR (€1.2454) and JPY (¥108.69) both climbed.

    The U.S dollar has found little support from President Trumps first State of the Union address last night as his speech offered few clues on U.S policy.

    At today’s FOMC meeting, officials are likely to keep interest rates steady, but they could provide clues on whether their 2018 outlook has changed amid a steadily expanding economy.

    Up to now, many investors have doubted the Fed’s dot plot; initially for good reason as central-banker predictions on the pace of rate hikes were not as aggressive as Fed officials predicted. However, that was last years thinking.

    In the past month, the market has gotten on board with the prospect that the Fed just might follow up last year’s three-rate hikes with three more in 2018.

    Fed-fund futures now show a +36% probability that three +25 bps increases are to happen in 2018, versus +25% a month ago. Meanwhile, for just one hike it’s slumped to +10% from +23% and for two hikes dropped to +29% from +36%.

    Conversely, bets have surged that three may be ‘too conservative’; the probability of four rate increases is at +19%, versus +8.7% a month ago.

    1. Stocks rebound, on pace for monthly gains

    Global stocks and bonds mostly rebounded overnight, keeping major indexes on track for solid monthly gains.

    Ahead of the U.S open, investors have been analysing President Trump’s first State of the Union address, a slew of corporate earnings and Janet Yellen’s final meeting as leader of the Federal Reserve.

    In Japan, the Nikkei fell for a sixth consecutive session overnight, with most sectors in negative territory. The Nikkei was down -0.8%. The index is still up +1.5% this year, it has fallen -4.5% from the 26-year peak hit a week ago. The broader Topix has declined -1.2%.

    Down-under, Aussie shares shrugged off lower oil prices and rising bond yields to end the overnight session higher as real estate stocks strengthened. The S&P/ASX 200 index gained +0.3%. In S. Korea, the Kospi climbed +0.2%.

    In Hong Kong, stocks reversed earlier losses to end higher overnight, posting its best month in nearly three-years, helped by gains for financial and services firms. At close of trade, the Hang Seng index was up +0.86%, while the Hang Seng China Enterprises index rose +1.29%.

    In China, stocks ended the session mixed, with the blue-chip index recouping earlier losses to close higher, aided by a bounce in real estate and consumer firms. At the close, the Shanghai Composite index was down -0.19%, while the blue-chip CSI300 index was up +0.48%.

    In Europe, regional indices are trading mostly higher, rebounding from yesterday’s steep declines on the back of upbeat earnings and a small retreat in bond yields.

    U.S stocks are set to open in the ‘black’ (+0.3%).

    Indices: Stoxx600 +0.1% at 396.6, FTSE +0.1% at 7592, DAX +0.3% at 13235, CAC-40 +0.2% at 5483 , IBEX-35 +0.2% at 10452, FTSE MIB flat at 23874 , SMI flat at 9433, S&P 500 Futures +0.3%

    2. Oil drops for a third day, gold prices higher

    Oil prices are under pressure for a third consecutive day, but remain on track for its biggest gain in January in five-years, and this in spite of data that shows that U.S stocks rose more than expected last week.

    Brent is down -49c at +$68.43 a barrel, after touching a two-week intraday low earlier overnight. U.S West Texas Intermediate (WTI) futures are down -39c at +$64.11.

    Yesterday, U.S crude fell -1.6% to close at +$64.50 a barrel, far outpacing a -0.6% drop in the price of Brent.

    Note: Prices of WTI and Brent are still on track for a fifth month of gains and Brent is set for its largest percentage increase in the month of January since 2013, with a rise of +2.7%.

    Providing price pressures are U.S producers increasing their rig count – energy companies added 12 oil rigs last week, the biggest weekly increase in 11 months.

    A report from the API Tuesday shows that U.S crude stocks rose by +3.2m barrels last week. Expect dealers to take their cue from today’s U.S DoE report (10:30 am EDT) – the report is expected to show an increase in inventories for the first time in 11-weeks.

    Ahead of the U.S open, gold prices have rebounded a tad as the U.S dollar resumes its downtrend. Spot gold is up +0.4% to +$1,342.80 per ounce.

    Note: Many believe that gold bullion remains vulnerable to weakness ahead of the Lunar New Year. On Tuesday, the ‘yellow’ metal touched its lowest since Jan. 23 at +$1,334.10 an ounce.

    4. Sovereign yields remain elevated

    U.S government bonds continue to gyrate near this weeks low prices prints, pushing sovereign yields stateside a tad higher towards their four-year high yield print.

    U.S yields, in particular, have hit fresh four-year high yields this month as investors have bet on a pickup in growth and inflation following the passage of the U.S corporate tax cuts.

    The great debate – the rise in U.S sovereign yields has certainly raised a number of concerns about the durability of the stock rally, while others have said that U.S corporate earnings growth looks solid enough to support further stock gains.

    The Fed is expected to send an upbeat message in its statement later today as market based inflation expectations and the growth outlook have improved since the last meeting. The Fed’s ‘dot plot’ forecasts three rate increases for 2018.

    The odd’s for a Fed hike in March – the first meeting this year that has a press conference and fresh projections outlook, is around +70%.

    The yield on U.S 10-year Treasuries fell -2 bps to +2.70%. In Germany, the 10-year Bund yield has declined -1 bps to +0.67%, the first retreat in a week, while in the U.K, the 10-year Gilt yield declined -1 bps to +1.46% and the biggest fall in a fortnight.

    Note: In Japan, the Bank of Japan (BoJ) increased its purchases in 3-5 year JGB’s by +¥30B to +¥33B – the first increase in six-months.

    4. Dollar on the defense

    The once ‘mighty’ USD remains on the back foot outright vs. G10 currency pairs and is poised to close out its worst monthly performance in 24-months.

    The EUR/USD is slowly edging back towards the psychological €1.25 handle as dealers discount some disappointing Euro inflation data (see below), while believing (pricing-in) that the ECB would tighten policy aggressively down the road. The techies see €1.25 as key resistance in the short-term.

    The GBP (£1.4138) trades atop of its overnight lows, mostly weighed down by report the E.U Commission officials had rejected the City of London’s proposal to strike a post-Brexit free trade deal on financial services.

    USD/JPY (¥108.82) remains little changed ahead of the U.S open.

    Elsewhere, South Africa’s rand (ZAR $11.8285) has gained +1% – its strongest rate outright in almost three-years.

    5. Eurozone inflation continues to lag, despite robust economic growth

    Despite some stellar job numbers and stronger domestic growth in Europe, data this morning once again highlights a missing ingredient in the eurozone’s expansion – an acceleration in the rate at which consumer prices are rising.

    The E.U said prices were +1.3% higher in January than a year earlier, the lowest rate of annual inflation since July 2017 and well short of the ECB’s target, which is just below +2%.

    Some of that decline had been expected by the ECB, since energy prices jumped at the turn into 2017, and those sharp rises have not been repeated this year.

    Note: But not all of the weakness in inflation is down to energy prices. According to Eurostat, services prices rose at an annual rate of +1.2%, unchanged for four straight months. Overall, the core rate of inflation edged up to +1.0% from +0.9%.

    The ECB continues to expect that inflation will eventually rise, driven in large part by a rise in wages as unemployment falls and as skilled workers become scarce.

    Other data this morning showed that eurozone employment continues to run strong. In Germany, Europe’s powerhouse, January unemployment rate has hit fresh its post-unification low of +5.4%, while the eurozone matches its December 2008 lows of +8.7%.

    Forex heatmap

    US Jobs and Fed to Guide Dollar

    Dollar Lower Awaiting Employment Data and Fed Statement

    Chair Yellen’s Last Fed Meeting as Chair

    The USD is trading lower versus most majors ahead of US President Donald Trump’s first State of the Union address, January’s monetary policy statement from the US Federal Reserve and the ADP private payrolls report. Strong economic data from both sides has seen the EUR/USD gain in the last 24 hours with a little bit of help from the US Treasury secretary who said today that a strong dollar would be in the country’s best interest.

    • Trump will deliver his first State of the Union address
    • US private payrolls forecasted to have added 191,000 jobs
    • Fed expected to keep rates unchanged on Janet Yellen’s last meeting as Chair



    The EUR/USD gained 0.12 percent on Tuesday. The single currency is trading at 1.2396 after strong eurozone data was released today. The yearly GDP growth was higher than the estimate at 2.7 percent and validating the forecasts for an end of QE and higher rates by the end of the year. The European Central Bank (ECB) has tried to tone down optimism but the market is buying EURs as political uncertainty remains in the US despite strong fundamentals and tighter monetary policy.

    European inflation has remained subdued and one of the main talking points by ECB President Mario Draghi. The European Consumer Price Index (CPI) estimate will be released by Eurostat on Wednesday, January 31 at 5:00 am EST. A higher than the expected 1.3 percent reading could further pressure the central bank to act sooner rather than later to shift from stimulus to tightening.

    The U.S. Federal Reserve hiked three times in 2017 and is on track to do the same in 2018. Fed Chair Janet Yellen will step down later this week with Jerome Powell ready to assume the reigns of the central bank. With no press conference in the January meeting the market will be left to scan the statement looking for clues, but more will come in March when Powell helms his first Federal Open Market Committee (FOMC) and faces the financial press.

    The ADP non farm payrolls report will be published on Wednesday, January 31 at 8:15 am EST. Economists are anticipating a gain of 191,000 jobs slowing down from the 250,000 gains in December. The ADP report will set further expectations for Friday’s release of the U.S. non farm payrolls (NFP) expected to add 184,000 jobs after the disappointing 148,000 at the end of last year.

    The USD has been on the back foot against major currencies for most of 2018. The rally that followed the victory of Donald Trump in the November 2016 elections was driven by tax reform and infrastructure promises. The 12 month period before the promise and the reality proved to be too much for a market that was expecting a quicker turn around and the greenback depreciated in 2017. This year follows a similar trend with the euro hitting three year highs and even the pound recovering to pre-Brexit levels thanks to a softer dollar.

    Market events to watch this week:

    Wednesday, January 31
    8:15am USD ADP Non-Farm Employment Change
    8:30am CAD GDP m/m
    10:30am USD Crude Oil Inventories
    2:00pm USD FOMC Statement
    2:00pm USD Federal Funds Rate
    Thursday, February 1
    4:30am GBP Manufacturing PMI
    10:00am USD ISM Manufacturing PMI
    Friday, February 2
    4:30am GBP Construction PMI


    *All times EST
    For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar