FUNDAMENTAL NEWS AND TECHNICAL ANALYSIS REPORT – 22 FEBRUARY 2023

22 Feb 2023

Wage growth in Australia reaches a decade high but falls short of expectations

Asian stock market closes in red on Tuesday. The Shanghai Composite is in red by 0.48% at 3306.52. Overall, the Singapore MSCI is red 0.52% at 300.05. Over in Hong Kong, the Hang Seng Index is down 0.28% at 20529.49. In Japan, the Nikkei 225 is down 1.36 at 27473.10. While the Topix index is down 1.11% at 1997.46, South Korea’s Kospi is down 1.71% at 2458.96. Australia S&P/ASX 200 is down 0.30% at 7336.30.

Top News of the Day:

Australian wages grew at the fastest annual pace in a decade last quarter but that was still short of market forecasts and could lessen the pressure for further aggressive hikes in interest rates, sending the local dollar lower.

Figures from the Australian Bureau of Statistics out on Wednesday showed its wage price index rose 0.8% in the December quarter from the previous quarter, under forecasts of a 1.0% increase.

Annual pay growth picked up to 3.3%, from a revised 3.2%, but again was under forecasts of 3.5% and a likely relief for policymakers who fear high inflation could lead to a damaging price-wage spiral.

Markets had been braced for an upside surprise and quickly reacted by pushing the Australian dollar down 20 ticks to $0.6847, while futures scaled back slightly the likely future peak for interest rates.

The Reserve Bank of Australia (RBA) has already hiked interest rates a huge 325 basis points to a decade-high of 3.35% as inflation surged to a 20-year peak of 7.8% late last year.

Market Summary as per 21/02/2023:

European equities Tuesday closing. The DAX futures contract in Germany traded down 0.52% at 1597.62, and CAC 40 futures down 0.37% at 7308.65. UK 100 futures contract in the U.K. is down 0.46 at 7977.75.

In the U.S. on Wall Street, the Dow Jones Industrial Average closed down 2.06% at 33129.59. The S&P 500 was down 2.00% at 3997.34 and the Nasdaq 100 was down 2.50% at 11492.30, NYSE was down 1.69% closes at 15572.52.

Top Market News Today:

In the Forex market, GBPUSD is down 0.04% at 1.2108. The USDJPY is down 0.15% at 134.79, The USDCHF down 0.17 at 0.9260. EURUSD up 0.14% at 1.0659. EUR/GBP up 0.09% at 0.8799. The USD/CNY up 0.38% at 6.8953 at the time of writing.

In the Commodity market U.S. Gold futures are up at 0.01% $1,835.07. Elsewhere, Silver futures are down 0.14% at $21.80 per ounce, Platinum down 0.05% at $940.50 per ounce, and Palladium down 1.31% at $1508.00.

Brent Crude Oil is down 0.40% at $82.71 per barrel.

In the Cryptocurrency Markets, Bitcoin at 23952.00 down at 2.05%, Ethereum is down 1.58% at 1633.50, and Litecoin is at 93.77 down 0.06%, at the time of writing.

Top Market Segment to Watch Out for Today:

GOLD- Gold prices hovered slightly above a six-week low on Wednesday with markets remaining cautious ahead of the minutes of the Federal Reserve’s February meeting, while some stronger-than-expected U.S. economic data further supported the dollar.

Bullion prices were trading in a tight range for the week amid renewed concerns over more hawkish moves by the Fed, especially after stronger-than-expected inflation readings for January. Those, coupled with signs of resilience in the U.S. economy, give the Fed enough headroom to keep raising interest rates.

Economic News:

US: – U.S. existing home sales dropped to the lowest level in more than 12 years in January, but the pace of decline slowed, raising cautious optimism that the housing market slump could be close to reaching a bottom.

The report from the National Association of Realtors on Tuesday also showed the smallest increase in annual house prices since 2012, which should help to improve affordability. It will, however, be a while before the housing market turns the corner.

Mortgage rates have resumed their upward trend after robust retail sales and labour market data as well as strong monthly inflation readings raised the prospect of the Federal Reserve maintaining its interest rate hiking campaign through summer.

“The marginal decline in existing home sales in January supports our view that housing market activity is reaching a trough,” said Sam Hall, property economist at Capital Economics. “But growing economic headwinds and stretched affordability mean sales will recover only gradually this year.”

Existing home sales fell 0.7% to a seasonally adjusted annual rate of 4.00 million units last month, the lowest level since October 2010, when the nation was grappling with the foreclosure crisis. That marked the 12th straight monthly decline in sales, the longest such stretch since 1999.

Sales fell in the Northeast and Midwest, likely because of harsh weather, but rose in the South and West.

Economists polled by Reuters had forecast home sales rising to a rate of 4.10 million units. Home resales, which account for the biggest share of U.S. housing sales, plunged 36.9% on a year-on-year basis in January.

The housing market has been the biggest casualty of the Fed’s aggressive monetary policy tightening. Residential investment has contracted for seven straight quarters, the longest such stretch since 2009.

Government data last week showed single-family homebuilding and permits for future home construction declining in January.

The 30-year fixed mortgage rate rose to an average of 6.32% last week from 6.12% the prior week, according to data from mortgage finance agency Freddie Mac. The second straight weekly increase reflected a spike in U.S. Treasury yields.

UK: – Britain looks on course to sidestep a long recession after a survey showed a surprise return to growth by businesses this month, raising the likelihood of another Bank of England interest rate hike in March.

The preliminary “flash” reading of the S&P Global/CIPS UK Composite Purchasing Managers’ Index (PMI) jumped to 53.0 in February from 48.5 in January, above the 50 threshold for growth for the first time since July.

It surpassed all forecasts in a Reuters poll of more than 20 economists, which had pointed to a reading of 49.0.

Sterling jumped against the dollar and notched its biggest gains against the euro in a month, while British government bond prices fell on the back of the PMI which was stronger than readings for both France and Germany.

The strength of the survey made it more likely that the BoE – grappling with an inflation rate still above 10% – would raise interest rates to 4.25% in March, despite further signs of easing price pressures in the PMI, economists said.

“The report poses a clear challenge to the BoE’s central view that a long recession and rise in unemployment will bring inflation down such that further rate increases are not required,” said J.P. Morgan economist Allan Monks.

Financial markets pointed to an 95% chance of an increase in Bank Rate next month, up from 90% early on Tuesday.

The dominant services sector drove the improved reading in the PMI survey, which financial data company S&P Global put down to recovering global demand and stability since the market turmoil associated with the brief premiership of Liz Truss.

Crucially for the BoE, the PMI’s price indexes – a good guide of future inflation pressure – continued to fall, with businesses’ costs rising at the slowest pace since April 2021.

Growing numbers of companies in services and manufacturing were more optimistic about their prospects.

Top Economic Releases Today:

NZD: RBNZ Interest Rate Decision Actual 4.75%, Forecast 4.75%, Previous 4.25% at 06:30
EUR: German CPI (YoY) (Feb) Actual 8.7%, Forecast 8.7%, Previous 8.6% at 12:30
EUR: German Ifo Business Climate Index (Feb) Forecast 91.4, Previous 90.2 at 14:30
CAD: New Housing Price Index (MoM) (Jan) Forecast 0.1%, Previous 0.0% at 19:00
AUD: Construction Work Done (QoQ) (Q4) Actual –0.4%, Forecast 1.5%, Previous 2.2% at 06:00