MNI US OPEN - USD Sits Lower Ahead of Critical Week

NEWS

ECB (MNI): Pay Catch-Up Set to Spur Strong Wage Growth - ECB

Post-pandemic wage growth has remained relatively moderate but is expected to strengthen significantly in the near term, according to the latest ECB Economic Bulletin. Consumer real wages remain substantially below those pre-pandemic as a result of high inflation, possibly leading to increased negotiated wage demands.

BRAZIL (MNI): What Happened with Brazil Protests This Weekend?

Supporters of ousted President Bolsonaro breached security at the Presidential Palace, Congress as well as the Supreme Court in protest against Lula’s leadership. The sites were reportedly ‘ransacked’ before security forces were able to regain control, with hundreds of arrests proceeding through the night.

The government have declared a state of emergency until end-January, meaning military police take the lead on security functions across Brasilia. Meanwhile, a right-wing lawmaker have been placed on forced leave for 90 days on suspicion of involvement in the unrest.

US (MNI): US: House Speakership Battle Over for McCarthy, But War w/GOP Right to Continue

Following Rep. Kevin McCarthy (R-CA)'s election as Speaker of the House of Representatives early on the morning of 7 Jan, focus now turns to the new session of Congress and the ability (or lack thereof) of the new speaker to chart the course a legislative agenda given the extremely narrow margin of his winning the gavel.

CHINA (MNI): PBOC To Cut Borrowing Costs, Support Liquidity in Q1

MNI (Singapore) The People’s Bank of China will ensure ample liquidity and guide down borrowing costs early in 2023 as the economy continues to struggle after a likely slowdown in fourth quarter GDP amid a nationwide surge in Covid infections, economists and analysts said.

CHINA (BBG): Millions of Chinese Travel Home as Holiday Period Kicks Off

Chinese people are traveling in larger numbers domestically as the nation’s key holiday season kicks off, a sign that the end of Covid Zero is giving way to a rebound in economic activity. Some 34.7 million trips within the country were made by road, rail, water or air on Saturday, the first day of the Spring Festival travel rush, according to the Ministry of Transport. An additional 35.4 million trips were made on Sunday.

DATA

EUROZONE DATA (MNI): Unemployment Steady at Record Low

• EUROZONE NOV UNEMPLOYMENT 6.5% (=FCST); OCT 6.5%

Eurozone unemployment was stable in November at the October low of 6.5%, inline with expectations as the bloc continues to experience a record-tightlabour market.

GERMAN DATA (MNI): November Industrial Production Adds to Muted Q4 Data

• GERMANY NOV INDUSTRIAL PROD +0.2% M/M (FCST +0.3%); OCT -0.4%r M/M
• GERMANY NOV INDUSTRIAL PROD -0.4% Y/Y (FCST +0.1%); OCT -0.2%r Y/Y

November German Industrial production saw a modest +0.2% m/m rebound from the downwardly revises -0.4% m/m contraction recorded in October. Production levels remained -0.4% below November 2021 levels. A dip in construction production is in part generating a weaker headline figure. Excluding energy and construction, German IP expanded by +0.5% m/m.

SWITZERLAND DATA (MNI): Unemployment Hits Two Decade Low

• SWITZERLAND DEC UNEMPLOYMENT SA 1.9% (FCST 2.0%); NOV 2.0%
• SWITZERLAND DEC UNEMPLOYMENT +6.1%, -20.4% Y/Y

Swiss unemployment dipped to the lowest level in over 20 years in December. The seasonally-adjusted unemployment rate edged down by 0.1pp to 1.9%, against forecasts of holding steady at 2.0%. 2022 saw continued labour market tightness due to reduced labour supply. Following a strong Covid recovery, less optimistic economic outlooks going forward will likely dampen labour demand.

AUSTRALIA DATA (MNI): Rate Hikes Push Aussie Nov Building Approvals Lower

• AUSTRALIA DEC BUILDING APPROVALS -9% M/M, -15.1% Y/Y

Approvals dip 9% in November s RBA rate hikes weigh on the housing construction sector. The Reserve Bank of Australia's rate hiking campaign continues to reverberate through the building industry, with approvals falling 9% in November. Total approvals fell to 13,898 in November, notching up the third consecutive monthly decline and falling to the lowest level since January 2022, according to the Australian Bureau of Statistics.

FX SUMMARY: USD Edges Lower Still Ahead of Critical Week

• EUR/USD has extended the recovery off the Friday lows ahead of the NY crossover, hitting European morning highs at the 1.07 handle. The USD is among the poorest performers in G10 ahead of a critical week, with both the US CPI release as well as the beginning of the US earnings season to come.
• JPY is the sole currency falling against the USD so far, with USD/JPY bouncing off overnight lows to erase a small part of the Friday decline. Tech levels of note remain somewhat unchanged, with 133.73 marking the 20-day EMA. Resistance seen stiffer headed into 134.77/81, the High Jan 6 / 23.6% Oct - Jan Downleg.
• At the other end of the table, AUD and NZD are outperforming, gaining a tailwind from a more solid session for Chinese equities. AUD/USD has now traded close to 4% above last week's lows, keeping momentum tilted in favour of the bulls for now. Prices now hold within range of the $0.69 handle, which marks a sizeable expiry for Wednesday's NY cut, with A$1.6bln notional set to roll off.
• Datapoints are few and far between Monday, keeping focus on the central bank slate. BoE's Pill and Fed's Bostic & Daly are all scheduled.

BOND SUMMARY: Moving Off Of Friday's Data-Induced Highs

• Core fixed income has been gradually moving lower through the European session, moving off the highs seen after the weaker-than-expected US wage numbers and soft ISM services print on Friday.
• The Euribor strip is down up to 6 ticks, the Eurodollar strip down up to 5.5 ticks and the SONIA futures strip is also up to 6 ticks lower (although the latter has seen more moves lower further out the curve in the Blue area with more limited moves in Whites / Reds / Greens).
• The highlight of the day may well come from a speech by BOE Chief Economist Huw Pill in New York entitled "The UK Economic and Monetary Policy Outlook" with the text due to be released today at 15:30GMT / 10:30ET. We will also hear from the Fed's Bostic and Daly today.
• Looking ahead there will be huge interest in US CPI on Thursday with only tier 2 data due for release until the second half of the week.
• TY1 futures are down -0-4+ today at 114-02+ with 10y UST yields up 4.1bp at 3.601% and 2y yields up 2.9bp at 4.282%.
• Bund futures are down -0.87 today at 136.56 with 10y Bund yields up 5.7bp at 2.264% and Schatz yields up 5.5bp at 2.621%.
• Gilt futures are down -0.59 today at 102.12 with 10y yields up 4.7bp at 3.516% and 2y yields up 5.1bp at 3.445%.

EQUITIES: Quarterly Earnings Cycle Kicks Off Friday

• This week marks the beginning of the quarterly US earnings cycle, with big banks and financials first up from Friday. Full MNI Schedule here: https://roar-assets-auto.rbl.ms/files/50444/MNIUSE...
• Earnings season begins in earnest in the w/c 24th Jan, with both the number of reports picking up as well as the cumulative market cap of the S&P 500. Financials and large cap US banks are the initial focus, with markets watching for headlines on provisions, costs and capital plans.
• Morgan Stanley write that the market's attention is to shift from inflation & the Fed to earnings growth and recession concerns. They write that the earnings outlook has worsened, with corporate confidence at historically depressed levels. Meanwhile biz surveys have rolled over while supply chains/backlogs have eased.
• They retain a 2023 price target of 3,900 for the S&P500 (bull case: 4,200, bear case: 3,500). They recommend overweight healthcare, staples, utilities. Underweight discretionary & tech hardware.

EQUITIES: Eurostoxx 50 Extend Recent Climb Towards 4100.00 Handle

EUROSTOXX 50 futures traded higher Friday, extending the recent climb. The contract has pierced resistance at 4043.00, the Dec 13 high and a bull trigger. A clear breach of this hurdle would represent a key short-term bullish development and pave the way for gains towards the 4100.00 handle. Moving average studies are in a bull-mode condition, reinforcing the current positive trend condition. Initial support lies at 3894.60, the 20-day EMA. S&P E-Minis trend signals remain bearish and the contract continues to trade in a range. Key resistance at 3917.50, the 50-day EMA, has been pierced. A clear break of this hurdle is required to suggest potential for a stronger recovery and this would also highlight a possible reversal. On the downside, a break lower would confirm a resumption of the downtrend and open 3778.45, a Fibonacci retracement.

• In China the SHANGHAI closed higher by 18.448 pts or +0.58% at 3176.084 and the HANG SENG ended 396.7 pts higher or +1.89% at 21388.34.
• Across Europe, Germany's DAX trades higher by 39.87 pts or +0.27% at 14649.94, FTSE 100 higher by 14.41 pts or +0.19% at 7714.12, CAC 40 up 7.35 pts or +0.11% at 6868.3 and Euro Stoxx 50 up 14.01 pts or +0.35% at 4031.84.
• Dow Jones mini up 60 pts or +0.18% at 33830, S&P 500 mini up 12 pts or +0.31% at 3927.25, NASDAQ mini up 48.75 pts or +0.44% at 11161.

COMMODITIES: Trend Conditions in Gold Remain Bullish, Eyes 1896.5 Retracement

WTI futures are trading closer to their recent lows. A bearish theme remains intact following the sell-off on Jan 3 and 4. Key support and the bear trigger lies at $70.31, the Dec 9 low. A break of this level would confirm a resumption of the broader downtrend and maintain a bearish price sequence of lower lows and lower highs. This would open $68.19, a Fibonacci projection. On the upside, key resistance is at $81.50, the Jan 3 high. Trend conditions in Gold remain bullish and the yellow metal has started the week on a firm note as it extends the current uptrend. The move higher maintains the positive price sequence of higher highs and higher lows and note that moving average studies remain in a bull mode position - reflecting the current trend condition. The focus is on $1896.5, a Fibonacci retracement. On the downside, support to watch lies at $1825.2, the Jan 5 low.

• WTI Crude up $2.29 or +3.1% at $76.09
• Natural Gas up $0.15 or +3.99% at $3.859
• Gold spot up $6.74 or +0.36% at $1871.64
• Copper up $9.85 or +2.52% at $400.8
• Silver up $0.09 or +0.36% at $23.8994
• Platinum up $3.15 or +0.29% at $1096.23