Mixed price action for the financial markets this week, but the general theme looks to be one of “risk-off” as safe haven currencies uniformly outperformed the risk-on majors.
As usual in this environment, the Japanese yen and Swiss franc took the top spot against the rest of the FX majors, while crypto and equities to a back seat to gold.
Notable News & Economic Updates:
U.K.’s consumer prices rise by 5.4% – the highest since March 1992 – vs. 5.2% expected and 5.1% in Nov.
Australian economy added 64.8K jobs in Dec. vs. 60K forecast, 366.1K previous
Canadian inflation hits 30-year high at +4.8%
PBOC cut lending rates to boost credit supply and growth on Thursday
Bank of Russia calls for a full ban on crypto trading and mining; ownership would be permitted
U.S. jobless claims surge to a three-month high of 286K new claims
BOJ’s Kuroda: “Absolutely not thinking about raising rates or modifying our easy monetary policy”
President Lagarde re-iterates a that the ECB will tighten when inflation conditions meet their criteria
Intermarket Weekly Recap
Broad risk sentiment looked to be the dominant theme this week as equities, crypto assets, and risk currencies couldn’t find a bid, while safe havens like the U.S. Dollar, gold, and the Japanese yen saw green most of the week.
It’s likely that the negative vibes stem from a collection of drivers, starting with negative pandemic related headlines from China to start the week (Chinese cities on high COVID-19 alert as Lunar New Year travel season starts), followed by the ever present fears of high inflation and rising interest rates (as evidenced by bond yields, including the U.S. 10-yr Treasury yield nearly touching the 1.90% level).
We also saw fresh fuel for growing speculation that the globe may be seeing slowing growth in the coming months, including weakening Chinese & U.K. retail sales data, rising unemployment claims in the U.S., and mixed business survey data from around the globe.
We did get a brief moment of risk-on sentiment on Thursday, sparked by news of a lending rate cut from the People’s Bank of China, but that proved to be a short-lived bounce as traders went back to selling risk assets during the U.S. session. It was a turn that was arguably fueled by the continued sell-off in the tech sector as traders tend to rotate away from riskier assets in a rising rate environment.
This may have been the reason for the negative turn in crypto assets as well, but we can also argue that stories like the hacking of Crypto.com for $34M, and another SEC rejection of a spot bitcoin ETF (this time First Trust SkyBridge’s Spot Bitcoin ETF Proposal) may have had an influence on crypto bias as well.
With risk aversion dominating this week, it was no surprise that in the forex markets, the Japanese yen took the top spot, followed by the Swiss franc and U.S. dollar. The Canadian dollar also saw a lot of green this week despite the negative risk environment, likely driven more by rising oil prices thanks to geopolitical headlines (Oil hits a seven-year high of $87.10 after a key Iraq-Turkey Oil pipeline was knocked out by an explosion).
USD Pairs
NY Empire State Manufacturing Index fell to -0.70 in January vs. an expected drop to 25.0
U.S. Housing starts rose 1.4% to 1.7M units in Dec.
U.S. Jobless Claims Surge to Three-Month High on Omicron Impact
Fed officials say higher immigration could ease U.S. labor shortage
The Philadelphia Federal Reserve’s manufacturing conditions rose by 8 points to 23.2 in Jan.
U.S. existing home sales tumbled by -4.6% m/m in December
Treasury Secretary Yellen expects inflation to slow substantially next year
GBP Pairs
U.K. property asking prices increase 7.6% from a year earlier – the quickest pace since 2016
UK employers add record 184K jobs in Dec.; UK unemployment rate down from 4.2% to 4.1% in Nov.
Rising inflation could weaken demand, slow price growth – BoE’s Bailey
U.K. consumer confidence falls from -15 to -19 amid inflation and interest rate concerns
U.K. retail sales slump by -3.7% vs. -0.6% forecast in Dec.
BOE policymaker Catherine Mann says the Bank of England needs to push back against inflation
EUR Pairs
Germany’s ZEW economic sentiment index jumps from 29.9 to 51.7 in Jan.
Eurozone’s ZEW economic sentiment index also higher from 26.8 to 49.4
Germany producer prices rose +24.2% y/y in December
Eurozone inflation hits a record high of 5% in December
ECB Meeting accounts (15-16 December 2021): a scenario of “higher for longer” inflation conditions could not be ruled out; ready to act if price pressures persisted
CHF Pairs
Swiss Producer prices index fell -0.1% to 105.1 in December
CAD Pairs
Businesses, consumers expect inflation above 3.0% for the next two years: BOC survey
Canada’s manufacturing sales up by 2.6% in Nov. despite flooding in B.C.
Canada’s home building 22% slower in Dec. vs. Nov. but “remains high in historical terms”
Canadian inflation hits 30-year high at +4.8%
Canada added 19.2K jobs in December -ADP
Canadian retail sales rose 0.7% in November to $58.1B
Canada new home prices rose 0.2% in December
NZD Pairs
Global Dairy prices rose by +4.6% since the last auction
New Zealand PM says restrictions could be tightened again on community transmission of Omicron
Business NZ’s manufacturing index improves from 50.6 to 53.7 in Dec.
AUD Pairs
Australia consumer sentiment slips by 2% to 102.2 in Jan. on Omicron surge
Australian economy added 64.8K jobs in Dec. vs. 60K forecast, 366.1K previous
Australia’s jobless rate improved from 4.6% to 4.2% vs. 4.5% consensus
Australian MI inflation expectations dipped from 4.8% to 4.4%
JPY Pairs
Japan’s core machinery orders up by 3.4% vs. 1.4% expected in November
BOJ raises inflation estimates from 0.9% to 1.1% in FY 2022, says risks are “generally balanced”
BOJ downgrades FY 2021 growth forecasts from 3.4% to 2.8% but upgrades FY 2022 growth from 2.9% to 3.8%
Japan exports hit 17.5% y/y while imports surged by 41.1% in December
Fuel costs and weak yen lift Japan’s annualized core consumer prices by 0.5% in Dec
