Fundamental News And Technical Analysis Report – 06 February 2023

06 Feb 2023

After a dry January, major central banks resume their push for rate increases.

Asian stock market closes in green on Friday. The Shanghai Composite is in red by 0.66% at 3263.41. Overall, the Singapore MSCI is up 0.44% at 308.65. Over in Hong Kong, the Hang Seng Index is down 1.36% at 21660.47. In Japan, the Nikkei 225 is up 0.39 at 27509.46. While the Topix index is up 0.26% at 1970.26, South Korea’s Kospi is up 0.47% at 2480.40. Australia S&P/ASX 200 is up 0.62% at 7558.10.

Top News of the Day: –

Major central bank interest rates move were off to a tepid start in January with a single hike by Canada but the pace will speed up again in February with policymakers in the U.S., Britain, and the eurozone out of the starting blocks already.

January saw just three meetings by central banks overseeing the 10 most heavily traded currencies with Canada delivering a 25-basis point hike while Norway and Japan stayed put.

However, the first days of February showed central banks were not quite done yet with monetary tightening, with the U.S. Federal Reserve adding 25 bps and the European Central Bank and the Bank of England each hiking by 50 bps.

All this comes after 2022, the year when central banks ramped up interest rates at the fastest pace and biggest scale in at least two decades in their all-out battle to contain inflation.

“Central banks aggressively hiked interest rates last year as inflation in many countries rose to the highest levels in decades,” Tobias Adrian at the International Monetary Fund said in a blog on Thursday.

“Now, falling energy prices are reducing headline inflation and fuelling optimism that monetary policy may be eased later this year.”

Across emerging markets, six out of 18 central banks delivered a total of 225 bps of hikes in January. Indonesia, Korea, South Africa, Thailand, Israel, and Colombia all lifted benchmarks.

The January moves compare with five central banks hiking by 260 bps in December.

Market Summary as per 03/02/2023:

European equities Friday closing. The DAX futures contract in Germany traded down 0.21% at 15476.43, and CAC 40 futures up 0.94% at 7233.94. UK 100 futures contract in the U.K. up 1.04 at 7901.80.

In the U.S. on Wall Street, the Dow Jones Industrial Average closed down 0.38% at 33926.01. The S&P 500 is down 1.04% at 4136.48 and the Nasdaq 100 down 1.59% at 12006.96, NYSE 0.76% closes at 15999.4.

Top Market News Today:

In the Forex market, GBPUSD up 0.11% at 1.2063. The USDJPY up 0.56% at 131.83, The USDCHF down 0.08 at 0.9250. EURUSD down 0.05% at 1.0786. EUR/GBP down 0.13% at 0.8941. The USD/CNY up 0.07% at 6.7777 at the time of writing.

In the Commodity market U.S. Gold futures up at 0.64% $1,876.51. Elsewhere, Silver futures up 0.65% at $22.48 per ounce, Platinum up 0.63% at $978.10 per ounce, and Palladium up 0.36% at $1630.24.

Brent Crude Oil up 0.40% at $80.28 per barrel.

In the Cryptocurrency Markets, Bitcoin at 22789.00 down at 0.64%, Ethereum down 0.23% at 1625.56, Litecoin at 95.89 down 0.84%, at the time of writing.

Top Market Segment to Watch Out Today:

OIL– Oil prices inched up on Monday after falling 8% last week to more than three-week lows as concerns that slower growth in major economies may limit fuel consumption outweighed signs of a demand recovery in China, the world’s top oil importer.

Last Friday, WTI and Brent slid 3% after strong U.S. jobs data raised concerns that the Federal Reserve would keep raising interest rates, which in turn boosted the dollar. The stronger greenback typically reduces demand for dollar-denominated oil from buyers paying with other currencies.

Economic News:

US: – The U.S. Federal Reserve is likely to need to lift the benchmark rate above 5% and keep it there to squeeze too-high inflation out of an economy where the labour market remains strong even after nearly a year of the most aggressive round of Fed rate hikes in 40 years.

That was the betting in financial markets on Friday after the U.S. Labor Department reported employers added more than half a million jobs last month, far more than expected, and the unemployment rate fell to 3.4%, the lowest in more than 50 years.

That was also how San Francisco Fed President Mary Daly saw it.

In December Fed policymakers thought they would likely need to lift rates to at least 5.1% this year to tame inflation, and that projection is still a “good indicator” for where policy is going, Daly told Fox Business Network.

The Fed earlier this week increased its benchmark rate by a quarter-of-a-percentage-point to 4.5%-4.75%. In a news conference following the decision, Powell said that with the labour market still tight he expects to need “ongoing” increases to get monetary policy “sufficiently restrictive” to engineer a more balanced job market and bring down too-high inflation.

That move would bring the policy rate to the 5%-5.25% range.

Traders also pushed out their expectations for eventual Fed rate cuts after the jobs report, pricing them to start in November versus in September previously.

Powell has said he does not expect inflation to fall fast enough to allow the Fed to cut rates at all this year.

Friday’s Labor Department report did show slower growth in average hourly earnings to a 4.4% pace, from an upwardly revised 4.8% in December.

“While the Fed welcomes any signs of easing wage pressures, the pace of growth in average hourly earnings is still too strong to help lower inflation,” Oxford Economics’ Ryan Sweet wrote.

And it is progress on inflation that will drive the Fed’s policy decisions ahead, Daly said on Friday. By the Fed’s preferred gauge, inflation registered 5% in December, a slowdown from earlier in the year.

But it’s too early to say that inflation has peaked, Daly warned.

“The direction of policy is for additional tightening and in holding that restrictive stance for some time,” she said. “We really will have to be in a restrictive stance of policy until we truly understand and believe that inflation will come squarely back down to our 2% target.”

Euro Zone: – British employers’ pay award increases are on course to hit a median of 6% in January, the highest reading in over 30 years, provisional data from human resources information provider XpertHR showed on Friday.

The figures, provided to Reuters, followed Bank of England Deputy Governor Ben Broadbent’s warning on Thursday that settlements at this level were inconsistent with the central bank’s 2% target.

The BoE is watching pay deals data for signs that the recent surge in inflation will have a lasting impact on wage growth, which could result in more persistent inflation pressure in the years ahead, potentially preventing the central bank from cutting interest rates.

Based on 15 deals from major employers in January, XpertHR said the median whole economy pay award had risen to 6%, which would be the highest reading since September 1991. December and November both saw readings of 5%.

XpertHR added that the settlements data were finely balanced and the final data could be revised back down to show a 5% increase.

After raising interest rates to 4% on Thursday, BoE Governor Andrew Bailey said officials had been surprised by the strength of private sector wage settlements, although he added that there were signs this might ease later in the year.

Even average pay settlements of 6% would leave employees facing a sizeable hit to their incomes after taking into account inflation, which peaked at 11.1% in October.

Expectations for inflation among the British public have declined in recent months, meaning the prospect of a damaging wage-price spiral appears to have reduced