FUNDAMENTAL NEWS AND TECHNICAL ANALYSIS REPORT – 03- FEBRUARY-2023

03 Feb 2023

Dollar strengthens as nonfarm payrolls approach while Asia FX declines

Asian stock market closes in green on Thursday. The Shanghai Composite is green 0.68% at 3285.67. Overall, the Singapore MSCI is up 0.42% at 308.60. Over in Hong Kong, the Hang Seng Index is up 1.56% at 21958.36. In Japan, the Nikkei 225 is up 0.39 at 27402.05. While the Topix index is up 0.26% at 1965.17, South Korea’s Kospi is up 0.46% at 2468.88. Australia S&P/ASX 200 up 0.62% at 7511.60.

Top News of the Day: –

Most Asian currencies weakened on Friday, while the dollar rebounded in anticipation of more cues on the U.S. economy from nonfarm payrolls data, while markets dialled back bets on an imminent pause in the Federal Reserve’s rate hike cycle.

The Chinese yuan fell 0.2% even as a private survey showed that the country’s massive services sector roared back in January from a four-month lull, after the relaxing of most anti-COVID measures.

But data released earlier this week painted a mixed picture of the manufacturing sector, which could delay a bigger economic recovery this year.

Most currencies exposed to China also retreated. The Singapore dollar fell 0.2%, while the South Korean won fell 0.3%.

Regional units were also pressured by a rebound in the dollar, which rose sharply overnight following strong readings on weekly unemployment claims. The data ramped up concerns that strength in the jobs market could keep inflation higher for longer, necessitating more interest rate hikes by the Federal Reserve.

Markets are now awaiting more cues on the U.S. jobs market from nonfarm payrolls data for January. The dollar index and dollar index futures rose about 0.1% each after a 0.5% bounce, and were set to end the week unchanged.

The dollar was also supported against a basket of currencies by weakness in the euro and the British pound, after their respective central banks hinted at a potential pause in their rate hike cycles this year.

Market Summary as per 02/02/2023:

European equities Thursday closing. The DAX futures contract in Germany traded up 2.16% at 15509.19, CAC 40 futures down 0.46% at 7133.65. UK 100 futures contract in the U.K. down 0.07 at 7814.83.

In the U.S. on Wall Street, the Dow Jones Industrial Average Closed down 0.11% at 34053.94. The S&P 500 up 1.47% at 4179.76 and the Nasdaq 100 up 3.00% at 12200.82, NYSE 0.82% closes at 16122.58.

Top Market News Today:

In the Forex market, GBPUSD down 0.27% at 1.2188. The USDJPY up 0.01% at 128.64, The USDCHF up 0.26 at 0.9155. EURUSD down 0.20% at 1.0886. EUR/GBP up 0.11% at 0.8932. The USD/CNY up 0.24% at 6.7445 at the time of writing.

In the Commodity market U.S. Gold futures down at 0.04% $1,911.20. Elsewhere, Silver futures down 0.35% at $23.35 per ounce, Platinum up 0.44% at $1025.79 per ounce, and Palladium up 0.49% at $1669.45.

Brent Crude Oil down 0.85% at $81.47 per barrel.

In the Cryptocurrency Markets, Bitcoin at 23368.00 down at 0.54%, Ethereum down 0.46% at 1635.85, Litecoin at 98.02 down 0.59%, at the time of writing.

Top Market Segment to Watch Out Today:

OIL– Oil prices eased on Friday, with major benchmarks headed for their second straight week of losses, as the market awaited further signs of fuel demand recovery in China to offset looming slumps in other major economies

Both contracts have dropped by more than 5% so far this week, with mixed signals on fuel demand recovery in China, the world’s top oil importer, keeping a lid on prices.

ANZ analysts pointed to a sharp jump in traffic in China’s 15 largest cities following the Lunar New Year holiday, but also noted that Chinese traders had been “relatively absent”.

Economic News:

US: – U.S. job growth likely remained strong in January amid a persistently resilient labour market, but an anticipated further slowdown in wage gains should give the Federal Reserve some comfort in its fight against inflation.

The Labor Department’s closely watched employment report on Friday is also expected to show the unemployment rate ticking up to 3.6% last month from a more than 50-year low of 3.5% in December. It would allow the U.S. central bank, focused on wage inflation, to maintain a moderate pace of rate hikes and reduce the risk of a recession this year.

Fed Chair Jerome Powell told reporters on Wednesday that “the economy can return to 2% inflation without a really significant downturn or a really big increase in unemployment.” With wages moderating and inflation trending lower, economists are increasingly agreeing with that sentiment.

“Wage growth is decelerating less than inflation,” said Kate Bahn, chief economist at the Washington Center for Equitable Growth in Washington. “For the Fed, it really makes the case that you don’t necessarily need to rely on tempering labour market growth to address inflation if the labour market is not the cause of inflation.”

The survey of establishments will likely show that nonfarm payrolls increased by 185,000 last month after rising by 223,000 in December, according to a Reuters survey of economists.

Average hourly earnings are forecast rising 0.3% after a similar gain in December. That would lower the year-on-year increase in wages to 4.3% from 4.6% in December.

But great uncertainty surrounds the payrolls forecast, and estimates ranged from 125,000 to 305,000.

With January’s employment report, the government will publish its annual “benchmark” revisions and update the formulas it uses to smooth the data for regular seasonal fluctuations in the establishment survey. It will also incorporate new population estimates in the household survey, from which the unemployment rate is derived. As such January’s unemployment rate will not be directly comparable to December.

Last year, the Labor Department’s Bureau of Labor Statistics (BLS) estimated the economy added 462,000 more jobs in the 12 months through March 2022 than previously reported. Payrolls data from April through December will also be revised based on the new benchmark level and updated seasonal factors. The revisions will also affect average hourly earnings and the workweek.

Euro Zone: – The European Central Bank raised interest rates by 0.5% on Thursday and explicitly signalled at least one more hike of the same magnitude next month, reaffirming it would stay the course in the fight against high inflation.

But financial markets immediately interpreted the move as suggesting the tightening cycle might in fact end soon – just as they had done on Wednesday after U.S. Federal Reserve chief Jerome Powell said there were signs inflation was easing.

Speaking to Reuters after the meeting, three ECB policymakers pushed back on the market’s reaction, saying on condition of anonymity they fully expected at least another rate hike in May.

ECB President Christine Lagarde also disputed the interpretation that Thursday’s move meant the hiking cycle was nearing the end.

“No. We know that we have ground to cover, we know that we are not done,” she told a news conference, reiterating the bank’s mantra that it would “stay the course” in the fight to bring inflation back down to its target of around 2%.

The ECB has been increasing rates at a record pace to fight rising prices which are the by-product of factors including the aftermath of the COVID-19 pandemic and an energy crisis that followed Russia’s invasion of Ukraine nearly a year ago.

On Thursday, the central bank for the 20 countries that share the euro raised the rate it pays on bank deposits by another half-percentage point to 2.5%, in line with what it had said in December and with market expectations.

It said the next rate increase would be of the same size, but left its options open further ahead. The three policymakers who spoke to Reuters said the May rate hike could be worth 25 or 50 basis points.

“The Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March and it will then evaluate the subsequent path of its monetary policy,” the ECB said.