Amana Capital Market News
Next week, the investors will look to the third revision of the US Q3 GDP, UK final Q3 GDP, eurozone headline inflation and Japan trade balance. On the monetary policy front, the BOJ and the Riksbank is expected to keep its policy-setting unchanged in its last meeting of 2017 next week.
United States: Key data for next week includes the third revision to GDP, the PCE report, and durable goods. We expect Q3 GDP to be revised slightly lower to 3.2% from 3.3%, mainly due to downward revisions to exports. We expect consumer spending to increase a solid 0.6% MoM in November, after a modest 0.3% gain in October. Core PCE prices are likely to slow a bit, rising 0.1% MoM, after increasing 0.2% last month. YoY core inflation should pick up slightly to 1.5%, well below the 2.0% Fed target. We expect headline durable goods orders to rise by 2.0% MoM in November after a 0.8% decline in October. Ex transportation, we expect orders to rise a solid 0.6% MoM after four consecutive months of large gains.
Eurozone: In the euro area, we expect headline inflation to be confirmed at the flash estimate of 1.5% and core inflation at 0.9% in November. Consumer confidence is likely to increase to 0.2 in December.
United Kingdom: Final estimate of UK Q3 GDP should be confirmed at 0.4%q/q. PSNB ex is expected to be £8.3bn in November (vs. £8.9bn in November last year).
Japan: We estimate that the seasonally-adjusted trade surplus decreased to 178.5 billion yen in November from 322.9 billion yen in October. Export value likely grew +15.7% YoY (vs +14.0% in October) and import value likely grew +20.0% YoY (after +18.9% in October).
Central Banks: We expect no changes in the BoJ policy directives at the policy board meeting next week. We think it is still premature for the BoJ to change its policy framework, but we expect the board to start discussing how it can add flexibility to its 10-year JGB yield targeting policy. We expect the Riksbank to keep rate guidance unchanged with a hike pencilled in H2 2018. It is unlikely that the QE will be extended/wound up due to strong growth fuelled by the European recovery, the upside surprise in inflation in November and the reduction in the ECB’s pace of purchases. Moreover the krona is weaker than forecast, which should alleviate some concerns regarding krona appreciating too rapidly.
In emerging markets, we expect the central banks of Taiwan, Thailand and Hungary to keep the policy rates unchanged, in line with consensus. The central bank of Czech republic is expected to keep the main policy rate unchanged.
AUDUSD Weekly: Pair Gains over 2% on Strong Employment Report, Upbeat Consumer Sentiment
- AUDUSD gained more than 2% this week so far following stronger-than-expected employment report
- Solid employment report is welcomed by the RBA on hopes of a trickle-down effect on higher wage growth and inflation
- Upbeat consumer sentiment also added to investors’ optimism in the Australian dollar
The AUDUSD gained more than 2% this week so far following stronger-than-expected employment report, which boosted the investors’ confidence in the country’s labor market. At the same time, upbeat consumer sentiment data supported the Australian dollar.
Australian employment beat all market expectations in November, rising to its highest in over 2 years and extending gains for 14 consecutive months, while the unemployment rate hovered near 5-year lows. According to the data released by the Australian Bureau of Statistics on Thursday, 61,600 net new jobs were added last month, compared with consensus estimates for an 18,000 rise and above an upwardly revised 7,800 gain in October.
Further, the country’s annual jobs growth rate at 3.2% is more than double the US’ at 1.4% and the second fastest on record. This upbeat reading pushed the Aussie dollar up over a quarter of a cent to US0.7673, a level last seen since early November. The data also showed full-time jobs climbing 41,900, bringing gains since November 2016 to a blistering 304,600. Also, the jobless rate stood at 5.4%, which is the lowest since February 2013, while the participation rate surged to 65.5%, highest since early 2011.
This set of data is a welcoming one by the Reserve Bank of Australia (RBA) which hopes that the upbeat employment report will feed into higher wage growth and inflation. Still, then, interest rate futures imply an increase in the 1.50% cash rate over the coming months, with an interest rate hike not fully priced in until early 2019.
In addition, gains in the country’s consumer sentiment also added to the upside in the Australian dollar. Australia's Westpac consumer sentiment jumped 3.6% to 103.3 in December, reversing its last month decline of 1.7% from 99.7. A level above 100 indicates optimism, while below that pessimism. The average reading for the Index in the December quarter stayed 5% above the average for the September quarter which witnessed a disturbing slump in consumer spending.
However, with ongoing weak income growth, coupled with a low savings rate and high levels of debt, markets cannot be really confident that consumers possess the strength to provide a steep push to their spending despite higher confidence.
According to the latest the Wall Street Journal survey on bitcoin, 51 out of 53 forecasters, which is over 96%, said that the bitcoin has been experiencing a speculative bubble. On the other hand, only 2 respondents said the recent bitcoin gains were not a bubble.
So far this year, the BTC/USD rallied over 1,600% to a new record high of USD17,500. We believe that at the current level it is overvalued, some amount of correction is warranted in the near-future.
The Bank of Korea’s (BoK) rate hike last month was aimed at curtailing another leg-up in household debt, rather than warding off a looming inflation overshoot. CPI inflation has been above target, until October, but only thanks to high food price inflation, following an avian flu outbreak, and commodity price pressures. Base effects should ensure that headline inflation remains below target for now.
The BoK has historically been reticent to address the household-debt elephant in the room, preferring to allow forbearance. But the MPC was able to take advantage of buoyant consumer confidence in November to hike rates. Confidence has rallied, in part, on the prospect of employment gains, with the subindex of the BoK consumer confidence survey picking up sharply this year. The employment index of the manufacturing PMI remains stubbornly below 50, though, indicating that the private sector is in no mood to go on a hiring spree. The public sector jobs drive also looks set to disappoint. Greater job security could be enough to keep up Korean sentiment for now, while the November hike was expected among households. But rising long yields and mortgage rates will hurt eventually.
Nevertheless, we think the BoK will hold to its task and hike again in mid-2018. Addressing debt imbalances is never easy, but next year will be as good a time as any. Fed normalization will afford Asian central banks the cover to make adjustments to their domestic policies, with China attempting to deleverage and even Japan likely to make minor adjustments to raise rates and steepen the yield curve. With fiscal spending likely to help the Korean economy offset the pain of rising rates, the BoK can afford to go for a modestly tighter policy.
Morning Outlook: Euro Declines After the ECB Sticks to Its Pledge to Provide Stimulus for as Long as Needed
- Euro declined vs the greenback in overnight session after the ECB stuck with its pledge to provide stimulus for as long as needed
- Sterling flat after BoE sticks to its view that interest rates were likely to rise only gradually
EUR/USD: Euro declined against the dollar during the overnight session after the European Central Bank raised growth and inflation forecasts for the euro area, but stuck with its pledge to provide stimulus for as long as needed. The ECB kept its key rates on hold and also held rigidly to its script on its intentions for next year despite pressure from some policymakers to acknowledge explicitly the strength of the eurozone recovery and more closely follow the U.S. Federal Reserve's tightening trend. The euro rose to a day high of USD1.186 after the bank raised its growth forecasts from this year through to 2019, before weakening back to USD1.178, down 0.38% on the day. As of 04:20GMT, the pair traded nearly flat at 1.1781.
GBP/USD: Sterling struggled for direction against the dollar as some traders were disappointed after Bank of England stuck to its view that interest rates were likely to rise only gradually despite above-target inflation and progress in Brexit talks. The BoE said in a statement that last week's breakthrough in Brexit talks has reduced the risk of Britain leaving the European Union in a disorderly way and might boost economic confidence. But it also said only modest increases in Bank Rate, currently 0.5%, would be warranted over the next few years. Sterling initially slipped to as low as USD1.3390 but recovered to trade at USD1.3467 in the late US session. As of 04:55GMT, GBP/USD steadied at 1.3437.
USD/CAD: The Canadian dollar rallied more than one percent against its U.S. counterpart on Thursday after upbeat remark on Canadian economy by Bank of Canada's Poloz. Poloz said the economy was in a sweet spot after making "tremendous" progress over the last year, with early signs that a long-awaited rotation to higher exports and business investment is happening as the housing boom cools. The Governor acknowledged that current monetary policy "clearly remains quite stimulative" despite rate hikes in July and September, fueling market bets the next hike will come in the first quarter of 2018. As of 04:30GMT, USD/CAD traded 0.06% lower at 1.2782.
USD/JPY: The Japanese yen rose against the US dollar as the latter weakened after two lawmakers were reported to seek changes to proposed legislation to overhaul the U.S. tax code in order to garner their support. U.S. Republican Senator Mike Lee has not decided whether to support a Republican tax bill and wants changes to the child tax credit, an aide to the lawmaker said on Thursday. Both Lee and Republican Senator Marco Rubio want more of the proposed child tax credit to be refundable, Conn Carroll, Lee's communications director said, adding Lee is "undecided on the tax bill as currently written. Many investors are betting that tax changes will help stimulate the economy and boost growth. As of 04:35GMT, USD/JPY fell 0.01% to 112.38.
The United States initial jobless claims for the week ending December 9 declined -11k to 225k, as compared to unrevised 236k reading seen in the week prior. That is way lower than the Reuters’ median consensus of 236k. The 4-week average was reported at 234.8k, down from the unrevised 241.5k reading seen in the week prior. Meanwhile, continuing claims for the week ending December 1 fell to 1.886mln, as compared to 1.913mln reading seen prior.