UPCOMING EVENTS:

• Monday:
  Switzerland CPI and Retail Sales, Eurozone Retail Sales.
• Tuesday: Tokyo
  CPI, Australia Retail Sales, Switzerland Unemployment Rate, Eurozone
  Unemployment Rate, US NFIB Small Business Optimism Index.
• Wednesday: Japan
  Wages data, Australia Monthly CPI.
• Thursday: US
  CPI, US Jobless Claims.
• Friday: China
  CPI, UK GDP, US PPI.

Monday

The Switzerland CPI Y/Y is expected at
1.5% vs. 1.4% prior,
while the M/M reading is seen at -0.2% vs. -0.2% prior. Inflation has been
within SNB’s 0-2% target range since last summer and even if we get a beat,
it’s very unlikely to trigger a response from the central bank. The market is
now looking forward to rate cuts with the first one expected in June.

Tuesday

The Tokyo CPI is seen as a leading
indicator of National CPI. The Tokyo Core CPI Y/Y is expected at 2.1% vs. 2.3% prior.
The headline inflation rate has been falling steadily thanks to energy
deflation but the Core-Core measure, which excludes food and energy prices, has
been doing the opposite with the rate standing at 2.7%, well above the BoJ’s 2%
target.

There’s no consensus for the US NFIB Small
Business Optimism Index which came in at 90.6 the prior
month. Given the ISM Services PMI report on Friday, I feel like the market
this time might react to this release, especially if we get a notable dip.
Overall, the index has been in recessionary territory for quite some time, so
it’s worth to keep an eye on it.

Wednesday

Wage growth is of the utmost importance
for the BoJ right now, so the Average Cash Earnings is something to watch out
for. There’s no consensus for the data but the prior
report saw a rise of 1.5% Y/Y in October with a positive revision to the
September figure.

The Australian Monthly CPI Y/Y is expected
at 4.4% vs. 4.9% prior.
The RBA will meet in February, so they will also get to see another labour
market and quarterly inflation report before deciding on the policy response.
The market is expecting the central bank to cut rates in June.

Thursday

The US CPI Y/Y is expected at 3.2% vs.
3.1% prior,
while the M/M reading is seen at 0.2% vs. 0.1% prior. The Core CPI Y/Y is
expected at 3.8% vs. 4.0% prior, while the M/M figure is seen at 0.2% vs. 0.3%
prior. The market is expecting six rate cuts in 2024 with the first one coming
in March. A hot report might trim the expectations for a March cut to basically
a 50/50 chance, but given last Friday’s data, we might see the market looking
past the CPI report and focusing more on other data.

The US Jobless Claims continue to be one
of the most important releases every week as it’s a timelier indicator on the
state of the labour market. Initial Claims keep on hovering around cycle lows,
which shows us that layoffs have not yet picked up notably, but Continuing
Claims have risen to a new cycle high in the past few months and that’s
indicative of people finding it harder to get another job after being laid off.
This week the consensus sees Initial Claims at 210K vs. 202K prior,
while there’s no estimate at the time of writing for Continuing Claims,
although the last week’s number was 1855K vs. 1886K prior.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Zhongzhi is a shadow banking-linked wealth manager with major exposure to the property sector. Its not a bank so manages to operate outside many of the prudential and regulatory rules governing commercial banks. Shadow banking firms typically sell ‚wealth products‘ to retail and channel the proceeds to real estate developers and other sectors.

• the filing for bankruptcy has come after the firm failed to repay debt, being mired deep in the property market downturn
• its assets are insufficient to pay all its debts
• back in November it apologised to investors and admitted it was insolvent with liabilities circa USD64bn
• the bankruptcy filing will ease the firm’s asset liquidation, investors will be lucky to recover more than 30% of their money, and it’ll take a long time

—

This is not just about Zhongzhi, it points to contagion from the property debt crisis more broadly into the financial sector.

This will not be a positive for the China and China proxy trade (looking at you, AUD). Having said that, this is not a surprising development and much negativity on China has been discounted in already.

This article was written by Eamonn Sheridan at www.forexlive.com.

• MON: Swiss CPI
  (Dec), EZ Retail Sales (Nov), Sentix (Jan), Japanese Tokyo CPI (Dec), Chinese
  Trade Balance (Dec)
• TUE: EIA STEO; German
  Industrial Output (Nov), US NFIB (Dec).
• WED: CNN
  Republican Debate; Norwegian CPI (Dec), Chinese CPI/PPI (Dec), Chinese M2
  (Dec).
• THU: US CPI
  (Dec), IJC (w/e 5th Jan), Japanese Current Account (Nov).
• FRI: UK GDP
  (Nov), US PPI Final Demand (Dec), Canadian Housing Starts (Dec).
• SAT: Taiwan
  Presidential/Parliamentary Elections.

NOTE: Previews are listed in day order

Swiss CPI (Mon):

November’s release was markedly cooler than
expected at 1.4% Y/Y (exp. 1.7%), even given the influence of the Rental Rate
increase from mid-2023. However, the SNB’s December forecasts (provided after
the November data) look for inflation to tick up to an average of 1.8% across
Q1-2024. Though, crucially, inflation is seen within the 0-2% target band for
the entirety of 2024. December’s data will be assessed to see if the November
M/M decrease at -0.2% continues, a decline that was driven by reduced fuel, hotel
and holiday pricing with the bulk of this stemming from imported products.
While the Rental Rate remains the headline point for those watching Swiss CPI,
the nation’s statistics office only updates on this quarterly and is next
scheduled for February’s CPI, due around two-weeks before the March SNB policy
announcement.

China Trade (Mon):

There are currently no expectations for the
December Trade Balance (prev. 35.39bln in USD terms) and the Imports/Exports
breakdown (prev. -0.6% and +0.5% respectively). The data will be eyed for a
diagnosis of foreign and domestic demand. In terms of the prior month’s
metrics, exports in November saw a surprise increase (in USD terms) of 0.5% Y/Y
(exp. -1.1%), which ended a six-month streak of consecutive declines. The
unexpected strength in exports was attributed to China’s increasing share in
the global export market, despite overall falling global trade volumes. Key
factors include a shift towards EVs, although some desks suggest Chinese
exporters face challenges such as lower profit margins and limited scope for
further price reductions, potentially impacting export performance in 2024.
Imports last month remained weak and continued to raise concerns surrounding
Chinese domestic demand.

Norwegian CPI (Wed):

December’s print is expected to continue the
incremental downward trend in the Norges Bank’s main measure of CPI-ATE
inflation, which printed at 5.8% Y/Y in November, a figure which matches the
January 2023 reading but was markedly below the 2023 peak of 7.0% from June.
December’s policy announcement from the Norges Bank saw a somewhat unexpected
hike to a likely 4.50% peak, though high inflation and NOK downside were cited
as potential drivers for further tightening. For reference, the Bank’s Q4-2023
CPI-ATE view is 5.83%, roughly in-line with November’s figure. In terms of
December, SEB forecasts a Y/Y print of 5.6% writing that the expected modest
upward surprise has not occurred in the series.

China Inflation (Wed):

The prior month’s release saw inflation print
below expectations across the board, with CPI Y/Y at -0.5% (exp -0.1%), M/M at
-0.5% (exp -0.1%), and PPI Y/Y at -3.0% (exp -2.8%). The decline in consumer
price inflation was driven by a further decrease in food prices, from -4% to
-4.2% Y/Y, and a 0.5% M/M decrease, after accounting for seasonality. Energy
prices also fell by 2.7%M/M, contributing to the deflation. Core inflation,
excluding food and fuel, remained steady at 0.6% in November. Analysts cited by
SCMP expect Chinese inflation to remain low in the near term, but do not
anticipate a deflationary spiral, and suggest core inflation is likely to
increase in the first half of 2024 due to a rise in policy support, potentially
boosting domestic demand and services inflation. SCMP also posits that food and
energy price deflation is expected to lessen due to changing base effects, with
CPI inflation forecast to average 1% in 2024, up from 0.3% so far this year.

US CPI (Thu):

US headline CPI is expected to rise +0.2% M/M in
December (prev. +0.1%), while the core rate is seen rising +0.3% M/M, matching
the rate seen in November. Traders will be looking to see if there is any
resurgence in price pressures that could knock the market’s dovish view of the
Fed’s rate trajectory (currently, the market has priced six 25bps rate cuts in
2024, but the FOMC’s December projections sees only three). November’s report
saw headline inflation continuing to fall, though analysts at JPM noted that
core inflation remains sticky at a level higher than what the Federal Reserve
wants, as elevated wages in the services sector continue to add an element of
stickiness; after that November data, JPM said that it appeared less likely
that the Fed will implement a rate cut in the upcoming March 2024 meeting. This
week’s edition of The Economist notes that the recent fall in inflation might
be a „false signal“; it notes that while goods prices have declined,
services prices continue to edge up, with many rising more quickly than the
pre-pandemic trend, while even house prices saw a rebounded in 2023 (as
mortgage rates now fall back, it leaves risks that house prices could pick-up
further), while an easing in financial conditions as the Fed cuts rates would also
feed into renewed price pressures. „If inflation rebounds the Fed would
have little choice but to keep interest rates elevated, perhaps reviving the
fears of a recession that have all but vanished,“ The Economist said.

US Corporate Earnings (Fri):

According to FactSet, Q4 earnings growth for the
S&P 500 is estimated to be +2.4%, which would mark the second straight
quarter of Y/Y growth for the index. It also notes that these estimates have
been falling as we approach Q4 reporting: in September, analysts expected the
S&P 500 earnings growth rate to be +8.1% Y/Y. Ahead of earnings season,
FactSet’s data shows 72 S&P 500 companies issued negative EPS guidance, 39
issued positive EPS guidance. Looking ahead, a longer-term poll from Reuters
finds that analysts expect US corporate earnings to improve at a stronger rate
this year as inflation and interest rates fall, though concerns surrounding
slower economic growth cloud the outlook. The Reuters poll says that analysts
expect S&P 500 earnings to rise +11.1% this year after +3.1% in 2023. But
analysts want to see solid earnings growth to support lofty equity valuations,
which are currently around 19.8x forward 12-month earnings estimates for the
S&P 500, significantly above the long-term average of around 15.6x.
„The market trading where it is at current levels demands earnings to show
strong growth next year,“ Wells Fargo said. Accordingly, analysts will be eyeing the Q4 earnings report for signs on how higher rates are impacting the
economy and corporate earnings. It will also be interesting to see how
analysts‘ views evolve after Q4 earnings, as some predict Q1 earnings will
weaken at a quick pace.

UK GDP (Fri):

Expectations are for GDP to rise +0.1% M/M in
November (vs. the 0.3% contraction seen in October, despite consensus expecting
an unchanged outcome, the release reported falls in every sector, with services
sector the main contributor for the declines. This, combined with the negative
Q3 GDP print has stoked some concerns over a potential H2 2023 recession. For
the November release, analysts at Investec note that their forecast of +0.2%
would be “too small to prevent a technical recession,” albeit, such a recession
would be “as mild as they come.” In terms of the drivers for a rebound in
production, the desk cites strong retail sales volume growth, lack of NHS
strike action and cooler weather prompting an increase in heating needs. That
said, upside could be capped via the pressure on households and firms from
higher interest rates. Beyond the upcoming release, Investec expects lacklustre
activity to continue into Q1 before recovering later as inflation declines.
From a monetary policy perspective, the upcoming release will likely have
little sway on market pricing for the BoE, with the MPC more concerned about
services inflation and wage growth. However, a particularly soft release could
see markets bring forward current expectations of the first BoE rate cut from
June to May. As a reference point, markets currently price around 120bps of
cuts by year-end.

For more like this, check out Newsquawk.

This article was written by Adam Button at www.forexlive.com.

• Premature easing of financial conditions could allow demand to pick back up
• If we don’t maintain sufficiently tight conditions, there is a risk inflation will pick back up, reversing progress
• Appropriate to consider parameters to guide decision to slow Fed’s balance sheet runoff
• Labor market ’still tight‘ but continues to rebalance
• Financial system overall has ‚more than ample‘ bank reserves and liquidity, though no longer ’super abundant‘
• Inflation in a ‚much better place‘ than last January but Fed’s job is not yet complete
• We should slow the pace of asset runoff as the Fed’s overnight reverse repurchase balances approach a low level

The Fed’s repo balances should approach a low level around mid-year so we should start to hear more talk about slowing the pace of runoff soon, though I don’t think it will be much of a factor for markets (though others disagree).

Overall, Logan doesn’t sound like someone who is even close to supporting a rate cut.

This article was written by Adam Button at www.forexlive.com.

• US November non-farm payrolls +216K vs +170K expected
• US December ISM services 50.6 vs 52.6 expected
• Canada December employment 0.1K versus 13.5 K estimate
• Non-farm payrolls reactions: Objects in the rear-view mirror may not be as they seem
• US Factory orders for November 2.6% vs 2.1% estimate
• SEC asked bitcoin ETF issuers to submit final versions of key docs as soon as today
• Fed’s Barkin: Labor market fees like it’s moving in a steady, softening pattern
• Baker Hughes oil rig count up 1
• Timiraos: Dec non-farm payrolls „doesn’t change much of anything for the central bank“
• Yellen: What we’re seeing now can be described as a soft landing

Markets:

• WTI crude oil up $1.74 to $73.93
• US 10-year yields up 6 bps to 4.05%
• Gold up $1 to $2044
• GBP leads, CAD lags
• S&P 500 up 0.2%

Looking at the closing changes in FX, you might be excused for thinking nothing happened today but it was certainly the opposite. The US dollar hit the highs in the moments after non-farm payrolls on a strong headline and lower unemployment but a deeper dive into the data showed it wasn’t quite as strong as it looked. That started a retracement that further extended when ISM services missed.

However the bond sellers weren’t ready to give up and the initial risk-positive move and USD selling on ISM didn’t last. As the day wore on, the mood worsened and the dollar improved.

Ultimately, that left FX and equities right back to where they started the day.

This article was written by Adam Button at www.forexlive.com.

I continue to believe a bitcoin ETF is a done deal with a launch likely next week.

The latest report comes from Bloomberg and cites four people familiar who say the SEC told several issueers that they should submit a final version of a key listing document as soon as today.

Two of the sources said staff had no additional feedback on the paperwork.

The report says SEC commissioners are expected to vote on the filings next week.

We’ve seen many reports this week saying it’s a done deal and yet the price of bitcoin hasn’t responded positively, which makes me think that people are front-running the sell-the-fact trade. Bitcoin has rallied to $45K from $30K largely on hopes for an ETF approval.

This article was written by Adam Button at www.forexlive.com.

Closing changes on the day:

• S&P 500 up 0.2%
• DJIA +0.1%
• Russell 2000 -0.2%
• Nasdaq Comp +0.1%
• Toronto TSX Comp +0.2%

Closing changes on the week:

• S&P 500 down 1.5%
• DJIA -0.6%
• Russell 2000 -3.6%
• Nasdaq Comp -3.25%
• Toronto TSX Comp -0.3%

Coming into this week, the S&P 500 and Nasdaq had rallied for nine straight weeks in a move that highlights the power of the Fed pivot. Some profit taking was probably delayed by the turn of the calendar but it arrived this week. Is there more to come? I could see the argument for that, especially because Fed funds have repriced rate cuts down to 137 bps.

For next week though, the big release will be December CPI. A soft number puts a March cut right back into play.

This article was written by Adam Button at www.forexlive.com.

• Consumer demand remains healthy, though slowing
• Labor market reacceleration at this point seems unlikely
• There is more uncertainty around the path of inflation given that progress over last six months has been so reliant on goods
• Companies still trying to raise prices; need to see how consumers and competitors react
• First quarter will be important given that businesses tend to mark up at the start of the year
• US still at a point where inflation is above target and employment is near max
• Labor market is ’normalizing nicely‘
• No problem ‚toggling‘ rate to more normal levels as you build confidence inflation is falling

I think there is some real insight in these comments. The ‚toggling‘ idea is like the Fed taking out insurance and moving down to around 4.00% if inflation stays low. The comment about Q1 pricing is an important one too, given how strong prices rose in Jan/Feb of last year.

This article was written by Adam Button at www.forexlive.com.

Maybe it was too much to expect a strong rebound on a soft ISM services number.

In the bigger picture, stocks are still on a nine-week winning streak, so that kind overbought momentum isn’t going to be cleaned up by four days of selling. That doesn’t necessarily mean the market needs to tank from here but we might need to see a dovish validation from the Fed to get there and maybe we track a bit lower in the meantime.

This article was written by Adam Button at www.forexlive.com.

Yesterday, the Dow Jones remained on the back foot
as the correction that began last week seems to have more room to go. As of
now, the data has been overall positive with the US ISM Manufacturing PMI beating
expectations and US Job Openings missing
forecasts. Moreover, yesterday we got a beat in the US ADP and US Jobless Claims data. If
the data remains positive, we can expect the market to bounce back once the
froth from the aggressive rate cuts expectations gets unwound. Today, is an
important day as we get the release of the US NFP and the US ISM Services PMI.

Dow Jones Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the Dow Jones remains
in a negative mood amid a general stock market selloff. The level to watch is
the support around
the 37066 level where we can find the confluence of the
recent swing low and the 21 moving average. This is
where we can expect the buyers to step in with a defined risk below the support
to position for new highs. A break below the support would open the door for a
bigger drop into the 36030 level.

Dow Jones Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that the
Dow Jones has been trading inside a rising channel but the price recently broke
out of it signalling a deeper correction to follow. We can also notice that the
latest leg higher diverged with
the MACD which
is generally a sign of weakening momentum often followed by pullbacks or
reversals. If the price breaks below the 37066 level the reversal would be
confirmed and the 36030 level will be the next target.

Dow Jones Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see more
closely the current price action and the divergence with the MACD. Now it’s
just about waiting for the price to come into the 37066 support and see what
happens there as it’s likely to decide the direction for the next few weeks.

This article was written by FL Contributors at www.forexlive.com.