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China CPI Dec mm +0.5% vs +0.4% exp
Chinese inflation data out over the weekend
Not really a lot to glean from this data, or anything that will make immediate impact on the Asian opening.
Slightly stronger than expected CPI, albeit a good improvement on last month, is tempered by the worse than expected PPI although that's understandable given the slump in commodity prices.
That's not to say that we won't get more fireworks from China this week and we must of course stay on high alert.
For a full calendar of 2016 Chinese data check out the National Bureau of Statistics
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The Week Ahead: Is It Really Time To Buy The Dip? After the worst start in history for U.S. stocks, everyone will be searching for meaning. One S&P 500 strategy has worked for almost seven years, but what about now?
Is it time to “buy the dip?”
In my last WTWA I predicted that the start of a new year would focus attention on one of the several different “January effects.” This proved to be a secondary consideration. Instead, news from China rippled around the world, pressuring U.S. trading before Monday’s opening. The China story continued through Thursday. Even a strong employment report on Friday could not reverse the selling pressure. There are some still debating the seasonal effects, but it was a minor theme last week. You can see the sad story for stocks from Doug Short’s weekly chart. (With the ever-increasing effects from foreign markets, you should also add Doug’s World Markets Weekend Update to your reading list).
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Top 5 Things to Know In the Market on Monday 1. China stocks plunge again
Chinese stocks markets plunged again on Monday, with the Shanghai Composite Index and the CSI300 Index both closing down more than 5% despite efforts by Beijing to stabilize the market.
Last week, the Shanghai Composite lost all of its 2015 gains, falling by 10% in just five days.
The rest of Asia also closed down, with markets in Australia and Hong Kong both closing deep in the red.
2. Europe and U.S. markets look to shake off latest slide in China
European stocks saw a more steady start on Monday, with Germany’s DAX gaining ground as investors chose to ignore the downward trend in Asia and ongoing concerns over Chinese growth.
Elsewhere, U.S. stock futures were up between 0.2% and 0.4%, suggesting a strong open on Wall Street later in the day after stocks closed out their worst start to the year ever on Friday.
3. Oil swings lower on fresh worries
Oil prices held near the lowest levels in more than a decade on Monday, as further turmoil in the Chinese stock market added to concerns over the Asian nation’s economy.
China is the world's second largest oil consumer after the U.S. and has been the engine of strengthening demand.
Brent was last down 78 cents, or 2.3%, at $33.15, as of 11:15 GMT, or 6:15AM ET, while U.S. crude fell 67 cents, or 2.02%, to $32.49.
4. Copper sinks to 6-1/2 year lows
Copper futures tumbled to the lowest level since April 2009 on Monday, as investors continued to focus on the deteriorating outlook for China and its impact on future demand prospects.
The Asian nation is the world’s largest copper consumer, accounting for nearly 45% of world consumption.
5. Alcoa (N:AA) unofficially kicks off Q4 earnings season
This week marks the start of fourth-quarter earnings season. 11 S&P-listed companies and two Dow components are set to report this week, with earnings ramping up the following week.
Alcoa will report after the market closes on Monday, in what is expected to be its worst quarterly results since early 2014.
JPMorgan Chase (N:JPM), Wells Fargo (N:WFC), Citigroup (N:C) and Intel (O:INTC) are scheduled to report results at the end of the week.
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Top 5 Things to Know In the Market on Tuesday 1. Oil prices fall towards $30
Oil prices fell towards $30 a barrel on Tuesday, as ongoing worries over the health of China’s economy fueled concerns that a global supply glut may stick around for longer than anticipated.
China is the world's second largest oil consumer after the U.S. and has been the engine of strengthening demand.
Brent was last down 22 cents, or 0.71%, at $31.66, as of 10:35 GMT, or 5:35AM ET, after sinking to a session low of $30.77, a level not seen since April 2004.
U.S. crude fell to $30.42, the lowest level since December 2003, before recovering to $31.06, down 35 cents, or 1.1%.
2. China stocks recover, while Nikkei sinks
Chinese stocks markets recovered in choppy trade on Tuesday, as the yuan stabilized for the third straight day. Chinese authorities fixed the yuan at 6.5628 per U.S. dollar (USD/CNY), similar to Monday’s fix of 6.5626.
The rest of Asia closed mostly lower, amid sliding oil prices. Japan’s Nikkei 225 ended at the lowest level in a year, while markets in Hong Kong and Australia both closed in the red.
3. Europe and U.S. markets look to shake off latest slide in oil
European shares rallied on Tuesday, with Germany’s DAX rising 2% as investors chose to ignore the downward trend in oil futures.
Elsewhere, U.S. stock futures were up between 0.5% and 0.6%, suggesting a strong open on Wall Street later in the day. U.S. markets closed mixed on Monday, as declines in commodity prices weighed.
4. Copper slides to new 6-1/2 year low
Copper fell to a new six-year low on Tuesday, as investors continued to cut holdings of the red metal amid persistent worries about future demand from top consumer China.
Prices of the red metal are down nearly 8% so far in 2016 as a meltdown on China’s stock market and a rapid depreciation of the yuan rattled investor sentiment.
The Asian nation is the world’s largest copper consumer, accounting for nearly 45% of world consumption.
5. British pound plunges after weak data
The pound fell to fresh five-year lows against the U.S. dollar on Tuesday, after data showed that U.K. industrial and manufacturing production dropped sharply in November, adding to evidence that the economy slowed down toward the end of last year.
Sterling has been under pressure in recent days due to waning expectations of a rate hike by the Bank of England as well as uncertainty over a referendum on whether or not Britain should stay in the European Union.
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China Can’t Stop Big Currency Moves t has been another busy 24 hours in the foreign-exchange market with GBP falling to fresh 5-year lows and CAD at 13-year lows against the dollar. But the big story continues to be China. Overnight, China took fresh steps to discourage speculators from selling the yuan off-shore by driving up margin lending rates to staggeringly high levels. The Hong Kong Interbank Offer Rate or HIBOR surged from 13.4% to 66.8%, a record high. Before the weekend, the HIBOR rate was a more modest 4%, which marks a 16-fold increase from those levels. The HIBOR is volatile but this kind of volatility can’t come from anything except for central-bank intervention. In other words, before the weekend it was relatively cheap to borrow and sell the yuan but today, it has become exorbitantly expensive. Existing short sellers will be squeezed out of their positions, which is exactly what the PBoC aims to achieve. The gap between the on-shore CNY and off-shore CNH hit record levels last week and after intervening in the on-shore yuan on Monday, the PBoC turned its focus to the off-shore currency.
Chinese banks are the largest liquidity providers for CNH and they can determine how much it costs to borrow the currency. China’s SAFE confirmed that they asked banks to limit yuan outflows. In directing the banks to limit the supply of the yuan and raising the cost of borrowing, they made it extremely costly to sell the off-shore currency, which is not subject to the same trading band as the on-shore CNY. The gap between the CNY and CNH rate narrowed significantly as a result and at one point, CNH was stronger than CNY. But that did not last for long as market dynamics took over. Tuesday’s steps stabilized the on- and off-shore currency along with Chinese equities, but lets see how long the PBoC can keep this up because China is burning through its reserves and intervention in a freely traded currency -- even one like the CNH which tracks CNY -- is rarely successful.
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BoE to Stay Put on Rates as Economists Push Back Hike Expectations The Bank of England (BoE) is most likely to keep its policy stance unchanged at its January meeting. The rate will have remained at its record low of 0.5% for nearly seven years, and the volume of quantitative easing will stay at £375 billion.
Ian McCafferty is again expected to remain the only rate-setter voting for an immediate rate increase, just as he has been doing since August last year, although some analysts expect him to join the majority in the upcoming months if the price of oil continues to tumble, and exert significant downward pressure on domestic consumer price inflation.
Both the global and domestic financial and economic environments have skewed downward since the BoE's November Inflation Report, and the economic growth in the UK has slowed more than expected in the second half of 2015. The price of crude oil continue to hover near 12-year lows, and possible detrimental spillovers from emerging markets volatility pose a threat to financial stability and trade. The upcoming EU referendum in Britain, expected to take place as early as this coming summer, adds to this detrimental uncertainty and short-term risks.
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USD/JPY: Forming A Base; EUR/USD: Neutral Indicators - UOB The bearish USD/JPY phase that started early last week is losing momentum rapidly and it is getting increasingly likely that this pair is trying to form a base for a stronger recovery. However, confirmation of a short-term low is only upon a break above 118.40.
In the meanwhile, another leg lower is not ruled out but at this stage, we are looking at a very strong support near 116.45 and we do not expect to see a sustained move below this level. To put it another way, those who shorts should consider taking profit on any approach towards 116.45.
We moved to a neutral stance last Friday and since then EUR/USD has been trading mostly sideways (roughly holding between 1.0800 and 1.0970).
Most indicators remain neutral and at this stage, we continue to expect the current range trading to persist, at least until the early part of next week.
Dollar rises against yen as yuan firms up The dollar regained some ground against the safe haven yen on Monday as China’s yuan gained after the central bank unveiled fresh measures to curb speculation and also guided the currency higher.
USD/JPY rose 0.26% to 117.34, up from overnight lows of 116.73 and Friday’s four-and-a-half month trough of 116.50.
The People's Bank of China said Monday it is to start implementing a reserve requirement ratio on offshore banks' domestic deposits, a move intended to deter offshore speculators betting that the currency will continue to fall.
The PBOC also set a firmer mid-point rate for the yuan than on Friday.
China's currency has fallen around 5% against the dollar since August, sparking fears that the slowdown in the world’s second-largest economy is deeper than had been feared.
The low-yielding euro was weaker against the dollar, with EUR/USD sliding 0.29% to 1.0884.
Investors remained cautious as oil prices fell below $28 per barrel on Monday, the lowest level in 12 years.
The renewed fall in oil prices came as Iranian exports were set to resume after Western sanctions were lifted, fueling fears over increased supplies amid a global supply glut and slowing demand.
The Canadian dollar fell to fresh 12-year lows against the greenback, with USD/CAD hitting highs of 1.4606 before easing back to 1.4512.
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Top 5 Things to Know In the Market on Monday 1. Brent oil turns higher after falling below $28
Brent oil futures turned higher after falling below the $28-level on Monday, as international sanctions against Iran’s nuclear program were lifted over the weekend, opening the door to a wave of new oil and adding to concerns that a global glut will linger.
Analysts say the country could quickly ramp up exports by around 500,000 barrels. The surge in Iranian shipments is viewed as bearish for crude, which has fallen approximately 75% from its peak of $115 two summers ago, amid a glut of oversupply on markets worldwide.
Brent sank to a session low of $27.67 a barrel, a level not seen since October 2003, before recovering to trade at $29.09 by 11:05GMT, or 6:05AM ET, up 14 cents, or 0.5%.
U.S. crude rose 10 cents, or 0.35%, to $30.49 after falling to a daily low of $29.35, the weakest level since October 2003.
2. China stocks regain footing after Beijing acts on yuan
The People's Bank of China said Monday it is to start implementing a reserve requirement ratio on offshore banks' domestic deposits, a move intended to deter offshore speculators betting that the currency will continue to fall.
The PBOC also set a firmer mid-point rate for the yuan than on Friday. China's currency has fallen around 5% against the dollar since August, sparking fears that the slowdown in the world’s second-largest economy is deeper than had been feared.
The Shanghai Composite Index finished up 0.4%, after falling on Friday into bear market territory. The benchmark is down 17.7% this year.
The rest of Asia closed mostly lower, amid a renewed slide in oil prices and following an uninspiring handoff from Wall Street on Friday. Japan’s Nikkei 225 tumbled 1.1%, while Australia’s ASX 200 closed down 0.7%. Both benchmarks have lost roughly 19% from their recent highs, nearing bear-market territory.
3. Europe stock markets fluctuate near 1-year lows
European stock markets swung between small gains and losses on Monday, as a move by China’s central bank lent some support to market sentiment despite concerns over declining oil prices.
Germany’s DAX inched up 0.3%, France’s CAC 40 tacked on 0.25%, while London’s FTSE 100 gained 0.2% in volatile trade.
Markets have suffered one of the worst starts to the year on record, with European equities dropping to their lowest level since December 2014 on Friday.
4. U.S. stock futures rise
U.S. stock futures rose on Monday in a shortened session of trading, rebounding from lows seen on Friday when Wall Street slumped to levels not seen since August last year.
Stock futures will trade until 18:00GMT, or 1:00PM ET. U.S. stock and bond markets are closed Monday for the Martin Luther King Jr. holiday.
5. Dollar regains ground vs. rivals
The dollar regained ground against the other major currencies on Monday, after China’s central bank unveiled fresh measures to curb speculation and also guided the yuan higher.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.14% at 99.12.
USD/JPY rose 0.26% to 117.34, off overnight lows of 116.73 and Friday’s four-and-a-half month trough of 116.50, while EUR/USD fell 0.20% to trade at 1.0894.
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What's Next For The USD Near-Term? - Barclays We expect the USD to continue strengthening particularly vis-à-vis EM currencies as market volatility continues to trend higher. Concerns about the mishandling of the financial turmoil in China have exacerbated uncertainty surrounding growth and financial stability. Coupled with a global slowdown in economic activity, commodity prices continue to decline, as supply has not decreased at the pace it was expected before.
Despite doubts about the capacity of the Federal Reserve to increase rates in such an environment, we think that currencies such as EUR will underperform in the medium term because more stimulus is needed.
Indeed, the USD is not immune to Chinese growth concerns or CNY weakening, but if Fed policymakers are dissuaded from further policy firming, it is even more likely that other major central banks will push back tightening or ease policy further.
In the near term, however, traditional safe havens such as the JPY could find support in line with increased risk aversion (Figure 2).
This week, the most important release will be inflation on Wednesday. We expect core figures for December to show an m/m increase of 0.1% (2.1% y/y), in line with the market consensus.
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