Analysts at Westpac explained Westpac-MI Consumer Sentiment for February’  was marked by a wave of volatility in global share markets. 

Key Quotes:

“The Westpac Melbourne Institute Index of Consumer Sentiment fell by 2.3% to 102.7 in February from 105.1 in January.”

“The Australian market, which was more stable than most, still experienced some significant swings, being down a net 4.6% for the week while the US market (S&P 500) was down by a net 7.2%.

Extensive media coverage of these developments would have unnerved respondents on two fronts – the impact on their own financial position and concerns for general global stability.

These concerns appear to have been acutely felt by retirees whose confidence fell by 13.5%.”

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Analysts at NBF Economics and Strategy explained that the latest iteration of the NFIB Small Business Survey was released this morning.

Key Quotes:

“It showed the optimism index rose to 106.9 in January, i.e. just a shade below November’s 30-year high (107.5). No less than 41% of polled businesses considered that present economic conditions were conducive to expansion, a new all-time high. In such a good context, 20% of firms were planning to hire new staff while 29% were contemplating rising capital spending, elevated percentages by historical standards.

Only one problem remains: labour shortages. Indeed, 34% of respondents reported positions they were unable to fill in January, the third highest reading in 17 years. What’s more, poor quality of labour moved ahead of taxes as small businesses’ most important problem in the first month of 2018, the first time it occurred since the early 2000s.

True, the fiscal reforms passed into law in Washington might have helped reducing tax burden for enterprises, but the fact remains that qualified labour is growing scarcer by the day. With so many firms hunting for a diminishing pool of potential employees, an acceleration of wage growth cannot be ruled out.

To be sure, fully 24% of firms were already planning to enhance their net compensation plans in the near future according to the NFIB, the highest percentage since December 1989.”

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AUD/JPY flat in Asia trading following a weak Tuesday session.
Australia Westpac Consumer Confidence data due shortly at 23:30 GMT.

AUD/JPY is trading calmy in the overnight session, testing the waters around 84.70.

Australia will be releasing their figures for the Westpac Consumer Confidence survey at 23:30 GMT today, which is a gauge of consumer confidence in economic conditions looking forward. A higher reading over the previous 1.8% would imply growing consumer confidence in the Australian economy in regards to family financing and housing costs. Looking ahead, employment data for Australia will be dropping on Thursday  at 01:30 GMT; The Reserve Bank of Australia (RBA) is lagging behind other major central banks in their expectations for when they will begin increasing interest rates, as economic growth in Australia has lagged, with data continuing to come out mixed, showing sluggish conditions for the island continent. A positive read for Consumer Confidence and employment could give the RBA the right amount of push to begin considering raising interest rates sooner, with the RBA currently looking to stand pat for the rest of 2018.

The Aussie has struggled lately, with AUD/JPY closing lower for three consecutive weeks amid sotfer-than-expected economic growth within Australia and bouts of market-wide risk aversion sending traders piling into the Yen, the safe haven currency of choice as market participants pull large amounts of cash out of riskier assets, sending equities and commodities retreating in fear-induced selloffs. Markets recently woke up to the reality that rising inflation in key global economies will mean a rising interest rate environment as central banks begin to tighten their belts and prepare to start winding down their decade-long montary easing policies.

AUD/JPY Technicals

The Aussie continues to trade on the backfoot, falling for most of Tuesday’s trading on risk-based Yen strength. Intraday swing support is priced in at 84.33 and 85.50 respectively, while long-term charts show AUD/JPY trading below the 200-day SMA and technical indicators treading even deeper into their bearish zones. A decisive break of the 84.40 level will see the pair ready to fall, unchallenged, to the nearest major support at 81.85.

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Forex today was broadly encouraging for markets that seem more prepared to take the plunge in terms of risk, despite the recent turmoil and high levels in volatility of late. 

The greenback, however, was not having a very good day in NY, down below 89.70 for the best part of the session within a range of between 89.609 – 90.177 and only recovering off the lows later in the day and into the close finding territory to 89.73. 

US 10yr treasury yields were also giving back some ground to 2.83%, although the 2yr yields rose from 2.06% to 2.10%. The Fed fund futures yields have been steady once again, an according to a Bloomberg estimate, they are pricing the chance of another rate hike in March around 90%. 

US stocks were rising after early losses on Wall Street while the S&Ps and N225 (cash) were still supported by their 200-DMAs. It was really a day of traders awaiting for this wee’s showdown that will come in the form of CPI.

There were are lack of real fundamental drivers, although Fed speakers, Cleveland Fed’s Mester who argued that the market rout was not impacting economic outlook and that further rate hikes are needed this year and next while Powell’s prepared remarks in his swearing-in ceremony were bullish around the US economy, adding some support to the euro as the day came to a close. 

Other noise came in as:

N.Korea warning to S.Korea after a visit, to volume down on border propaganda.
Trump weighs tariffs, quotas on U.S. steel, aluminium imports.
ECB’s Draghi says not his job to regulate Bitcoin.
German SPD leader quits in a bid to calm party after coalition deal.

As for price action in the forex space, EUR/USD climbed from 1.2280, ( just below the 200-Hour SMA), to 1.2360 within some choppy price action early, despite a lack of drivers, making a high on Powell’s prepared remarks where a Bloomberg headline decided to run with “remain alert to any financial stability risks”, indicating that dovish hikes would be required should the stock markets continue to unwind. The high was faded as the day drew to a close on the Asia handover where his more optimistic comments were supportive of the greenback. 

GBP/USD was in recovery mode in NY after a sell-off from in the 1.3920’s down to 1.3851 scored in late London despite that UK Jan CPI held at 3.0% y/y and just above expectations while the core inflation was rising from 2.5% to 2.7%. the high was scored on the back fo the data but were not sustained in an environment where Brexit concerns ‘trump’ the May hike probability that has risen to 2 in 3 from 1 in 2 after the BoE’s recent “hawkish hold” and hawkish MPC comments. 

As for the cross, EUR/GBP dropped to 0.8859 on the UK data having threatened 0.89 early Europe but then recovered with the rally in EUR/USD. The single currency took up the driving seat in the early part of the US session moving up through the 21-hr SMA at 1.2313 while cable lost its footing. EUR/GBP closed at 0.8896.

Meanwhile, the Aussie was choppy and fragile in London, falling to 0.7828 from 0.7870 and closing at 0.7858, all the while capped below the 200-H SMA, with dips heavy on bid in EUR/AUD. AUD/JPY came to the rescue as risk improved and helped the Aussie back above 0.7850. 

As for the Kiwi, a new short-term high was shortlived and the bird lost it wings in Europe’s morning before opening NY around 0.7290. The bears mounted up in NY as well and pushed bulls back to 0.7265/70 on the Asina handover. 

Key events to come:

Previewed by analysts at Westpac:

“At 10:30am Syd/Mel we see the Australia Feb consumer sentiment survey from Westpac and the Melbourne Institute. Sentiment was on the soft side for much of 2017 but rose sharply in Dec and Jan. The headline index of 105.1 in January was a high since Nov 2013.

At 10:50am Syd/Mel we see Japan’s Q4 2017 GDP report. A modest 0.2% q/q rise is expected after above-trend readings of 0.7% in Q2 and 0.6% in Q3. The Bank of Thailand is expected to hold steady at 1.5%.

The kiwi could respond to the RBNZ’s inflation survey if Q1 shows a sharp move from Q4’s 2.02%.

Wednesday is the key day this week for US data: Jan retail sales and CPI. Retail sales growth has been strong since Sep 2017 (with some help from post-hurricane spending), so the more muted 0.2% m/m gain expected in Jan should not be cause for concern. Jan CPI is seen to rise 0.3%, with the core measure estimated to be 0.2%, 1.7%yr. Markets should be sensitive to this inflation update.”

Key notes from US session:

Powell’s swearing-in ceremony lifts the euro before a fade
Wall Street posts shallow advance ahead of US inflation data
Funda and political news wrap, the key headlines so far

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EUR/USD popped on the Bloomberg headline that was taken as dovish in the markets when Fed’s Powell’s prepared comments came with, “remain alert to any financial stability risks”.

EUR/USD was trading at 1.2348 before making it to 1.2365 when the market has since drifted back to 1.2350 on a fade. Currently, EUR/USD is trading at 1.2352, down -0.03% on the day, having posted a daily high at 1.2360 and low at 1.2348.

Powell’s comments:

Fed is in process of ‘gradually normalizing’ rates
“Monetary policy has continued to support a full recovery in labor markets and a return to our inflation target; we have made great progress in moving much closer to those statutory objectives”
Global economy is recovering strongly
Fed will “preserve the essential gains in financial regulation while seeking to ensure that our policies are as efficient as possible.”

 

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In respect to the Kiwi, analysts at ANZ explained that the USD weakened overnight with unease persisting ahead of tonight’s US CPI and more talk of Donald Trump taking action on the US trade deficit with China/Asia. 

Key Quotes:

“Domestic and US inflation will be the focus of the next 24 hours. 

We expect NZ inflation expectations will hold around 2%, but there are risks of a modest easing which would pressure this cross lower.

Support 0.7140 Resistance 0.7350.”

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