Down but not out! The dollar staged a strong, much-needed rebound against its counterparts but market watchers remain wary that it’s merely a pullback or profit-taking ahead of the FOMC.
- U.S. core PCE price index up by 0.2% as expected
- U.S. personal spending increased by 0.4% vs. 0.5% consensus
- U.S. personal income up by 0.4% vs. 0.3% consensus
- New Zealand trade balance turned from 1233M NZD deficit to 640M NZD surplus
Mostly upbeat U.S. data
Uncle Sam’s reports turned out somewhat stronger than expected, probably convincing some dollar bears that it was the opportune time to book profits ahead of this week’s FOMC decision and NFP release.
The core PCE price index, which is rumored to be the Fed’s preferred inflation gauge, ticked up from 0.1% to 0.2% in December as expected. On a year-over-year basis, this brings the figure up to 1.5% – just a few notches away from the 2% target.
Personal income rose by 0.4% versus the 0.3% consensus, but personal spending fell short with a 0.4% gain instead of the estimated 0.5% increase. Still, the upgrade in the November personal spending figure from 0.6% to 0.8% made up for it.
Components of the report, however, revealed that savings are actually down to 10-year lows. This suggests that consumers are spending more than they earn by dipping into savings, which is seen as a red flag for growth. Then again, many believe that this behavior could be corrected once the tax cuts take full effect.
Risk aversion on global tightening expectations?
U.S. equities closed in the red at the start of the week, and analysts say that part of the blame goes to central bank officials hinting that monetary policy is about to shift to tightening mode all over the globe.
- Dow 30 index is down 177.23 points to 26,439.48 (-0.67%)
- S&P 500 index is down 19.34 points to 2,853.53 (-0.67%)
- Nasdaq is down 39.27 points to 7,466.51 (-0.52%)
Apart from that, forecasts that Apple will cut its production target for the iPhone X by half this quarter and expectations of weaker earnings from The Fruit also weighed on stock market performance.
U.S. bond yields popped higher also on revived Fed tightening expectations.
- 10-year Treasury yield rose to 2.697%
- U.S. 5-year bond yield climbed to 2.492%
- U.S. 30-year bond yield increased to 2.944%
Commodities took hits as the stronger dollar dragged prices down.
- WTI crude oil fell 58 cents to $65.56 per barrel (-0.90%)
- Brent crude oil was down $1.06 to $69.46 per barrel (-1.50%)
- Gold is down to $1,337.60 per troy ounce (-1.60%)
Major Market Mover(s):
The dollar index rebounded by 0.28% to 89.319 as a combination of global tightening expectations and profit-taking ahead of the FOMC boosted U.S. yields.
USD/JPY bounced off 108.62 to a high of 109.03, USD/CHF climbed back to a high of .9837, EUR/USD fell to a low of 1.2377, and GBP/USD is down to a low of 1.4025.
The euro continued to slide against most of its peers before pulling up towards the end of the trading session.
EUR/JPY tumbled to a low of 134.31 then closed at 135.02, EUR/AUD dipped to 1.5259 then bounced to 1.5296, EUR/CAD dropped back to 1.5225 then recovered to 1.5260, and EUR/GBP found support near .8785 to reach the .8800 area again.
Watch Out For:
- 11:30 pm GMT: Japanese household spending y/y (1.6% expected, 1.7% previous)
- 11:30 pm GMT: Japanese unemployment rate (no change from 2.7% expected)
- 11:30 pm GMT: Japanese retail sales y/y (no change from 2.1% expected)
- 12:30 am GMT: Australian NAB consumer confidence index (previous reading of 7)