Big Banks Kick Start Earnings Season in The U.S., Fed Speeches Expected
U.S. stocks and the dollar were higher after market closed on Friday. At the close in NYSE, the Dow Jones Industrial Average added 0.32% to end at 19,963.8 points. The index rose as high as 19,999.63 but failed to sustain its bullish run. Meanwhile, the S&P 500 index gained 0.35% to settle at 2,276.98, its highest close ever, and another benchmark NASDAQ Composite index rose 0.60% 5,521.06, also a record.
After the first trading week of the new year, the Dow surged 1% while the S&P climbed 1.7% and the Nasdaq jumped 2.6%. The U.S. dollar rallied against its major rivals on Friday, fueled by the latest non-farm payrolls that mounted expectations for improving inflation in the U.S. economy.
The U.S. added 156,000 new jobs in the final month of 2016 while economists had expected for job growth to increase by 180,000 in December. This was the second-weakest month for job growth since May. However, job growth in November was revised up strongly from 178,000 to 204,000 and the labor force participation rate also advanced. That explained the rise in the unemployment rate which ticked higher to 4.7% from 4.6% in November. Most importantly, wage growth rose by 0.4%, the strongest pace since 2009, exceeding the market’s 0.3% forecast.
For the week ahead, Friday’s retail sales report will be in spotlight along with speeches from Federal Reserve’s officials. The Commerce Department will publish data on December retail sales which are anticipated to advance 0.7% last month, after gaining 0.1% in November. Core sales are forecast to rise 0.5%, after gaining 0.2% a month earlier. Friday will also witness earnings reports for the fourth quarter from major banks such as JPMorgan Chase, Wells Fargo and Bank of America.
There will be seven Fed members due to speak until Friday. Among them, five are voting members of the FOMC this year including Fed Chair Janet Yellen, Minneapolis Fed Presidents Neel Kashkari, Philadelphia Fed Presidents Patrick T. Harker, Fed Governor Jerome H. Powell and Chicago Fed Presidents Charles L. Evans.
The People’s Bank of China on Friday hiked the CNY/USD rate the most in 11 years with the overnight yuan borrowing cost jumping above 60%. In an attempt to support the Yuan ahead of the Chinese New Year holiday and protect the currency from short-selling, the government shot up offshore yuan rates as well as intervened in the financial market to send Hong Kong’s overnight lending rate sharply higher. Those measures were meant to make making it exorbitantly more expensive to borrow or “sell short” the currency overseas. However, the Yuan had to give up earlier gains to slip back near the 7.0 mark — a level not broken in over 8 years.
The Chinese National Bureau of Statistics will publish data on December consumer and producer price inflation on Tuesday. Consumer prices are expected to edge 2.3% higher last month while producer prices may have increased by 4.5%.
The USDCAD recorded another week of sharp decline. The pair settled at 1.32366 after falling to as low as 1.31762 – the lowest level since December 14th, 2016. Oil prices that were on the rise coupled with solid improvements in Canadian data contributed to the second-straight week of advance. Canada’s trade deficit turned into a surplus in November, which was significantly better than expected as economists had looked for a bigger deficit.
In addition, according to the Statistics Canada, 53,700 full-time jobs were also created in December, which shattered the median economist forecast of a small decline. Manufacturing activity also expanded at the fastest pace since January, as stated by the IVEY PMI report.
On the contrary, the Euro and British Pound were nearly unchanged for the week. Last week’s better-than-expected Eurozone economic reports sent the pair EURUSD above 1.06 but strong dollar at the end of the week brought Euro back to 1.053 level. The European Central Bank is to publish the minutes of its last monetary policy meeting on Thursday. Besides, German industrial production, trade and current account numbers are also in focus next week.
Although a trio of PMI reports last week show improvements in the manufacturing, service and construction sectors, Sterling remained on the back foot as traders awaited the Supreme Court to make its decision on what part parliament will play in Brexit negotiations. The U.K. is to release a report on manufacturing and industrial production as well as trade data on Wednesday.