Americas Roundup: Dollar gains after U.S. data suggests possible Fed rate hikes, oil falls in volatile trade-February 6th

Currency Summaries

EUR/USD is likely to find support at 1.045 levels and currently trading at 1.1154 levels. The pair has made session high at 1.1246 and hit lows at 1.1109 levels. The U.S. dollar gained against euro on Friday after data showed U.S. wages picked up in January, indicating greater inflation and denting the view that the Federal Reserve would not hike interest rates at all this year. Average hourly earnings increased 0.5 percent, last month, leaving the year-on-year gain in earnings at 2.5 percent, U.S. Labor Department data showed. The wage data was sufficient to boost dollar against major pairs even though non-farm payrolls increased by just 151,000 jobs last month, against forecast at 190,000. The dollar had declined sharply in the past two sessions on concerns that Federal Reserve would not hike interest rate due to weak global economic growth.

GBP/USD is supported in the range of 1.4410 and currently trading at 1.4501 levels. It reached session high at 1.4587 and hit low at 1.4451 levels. The British pound slipped lower from one-month high against the dollar on Friday, after a poll showed favorable results for Britain to leave the European Union, causing more anxiety among investors. In the early US session, pound lost some ground against the dollar after a key jobs report showed a pickup in U.S. wages in January, indicating greater inflation would still keep the door wide open for rate hike by the Federal Reserve this year. Sterling was down 0.7 percent at $1.4490, having hit a one-month high of $1.4672 on Thursday after Bank of England chief Mark Carney quashed talk that interest rates could be cut in the coming months.

USD/CAD is supported at 1.3795 levels and is trading at 1.3914 levels. It has made session high at 1.3916 and lows at 1.3711 levels. The Canadian dollar weakened against US dollar on Friday after weak Canadian jobs data showed Canadian economy's struggles to cope when there is slump in oil prices, on the other hand oil prices declined modestly after positive U.S. jobs data. U.S. crude prices were down 1.07 percent to $31.38 a barrel, while Brent crude  lost 0.78 percent to $34. bet that U.S. Federal Reserve's  interest rates hike plans could still be on the table after the U.S. employment report showed a long-awaited surge in wages and an unemployment rate at an eight-year low. The currency's strongest level of the session was C$1.3710, while its weakest level was C$1.3816.

AUD/USD is supported around 0.7000 levels and currently trading at 0.7066 levels. It hit session high at 0.7218 and made session lows at 0.7062 levels. The Australian dollar declined against US dollar on Friday after data showed U.S. employment gains slowed more than expected in January as the boost to hiring from unseasonably mild weather faded, but rising wages and an unemployment rate at an eight-year low suggested the labor market recovery remains firm. The Australian dollar edged lower towards $0.7064 after the data, losing all the ground gained on previous session against dollar. Also underpinning the Aussie were comments by the Reserve Bank of Australia (RBA) seeing potential improvement in the economy.In a quarterly report issued on Friday, the central bank reiterated that any cut in interest rates would depend on jobs data and whether recent financial market turbulence pointed to a weaker global economy.

Equities Recap

European equities ended lower after a choppy session on Friday, with the sell-off accelerating in late business after U.S. jobs data left investors guessing about the possibility of an interest rate hike this year.

UK's benchmark FTSE 100 closed down by 0.9 percent, the pan-European FTSEurofirst 300 ended the day down by 0.86 percent, Germany's Dax closed down at 1.3 percent, and France's CAC finished the day down by 0.7 percent.

US stocks declined on Friday following weak forecasts from technology companies, including LinkedIn, and worries about lofty valuations.

Dow Jones closed down by 1.30 percent, S&P 500 ended the day down by 1.85 percent, Nasdaq finished the day down by 3.24 percent.

Treasuries Recap

U.S. Treasury debt prices ended higher on Friday as concerns about falling oil and stock prices added a safety bid to bonds, which had earlier weakened after a report showed wages grew in January.

Benchmark 10-year notes gained 5/32 in price to yield 1.85 percent, down from 1.86 percent late on Thursday.

Commodities Recap

Oil prices ended the week lower in choppy trading on Friday, snapping two weeks of gains, as a frenzy of speculation about a possible deal between top oil producers clashed with concerns about a growing supply glut.

Global benchmark Brent crude futures settled down 40 cents, or 1.2 percent at $34.06 a barrel, after trading between $35.14 and $33.81.U.S. crude futures closed 83 cents, or 0.1 percent lower, at $30.89 a barrel, after touching a high of $32.45.

Gold rose to a three-month high in volatile trade on Friday, as a mixed U.S. jobs report prompted investors to reassess the outlook for U.S. interest rates this year, putting bullion on track for its strongest weekly performance in more than a year.

Spot gold initially rose after the jobs report but then fell to a session low of $1,144.96 an ounce as some focused on the rise in average hourly earnings, which may have revived the prospect of rate hikes. By 3:11 p.m. EST (2011 GMT) it rose to a new high at $1,165.50, up 0.8 percent and the highest since Oct. 28.

Major Asian Indices Technicals

Hang Seng:

• Hang Seng has broken minor resistance 19300 and jumped til 19395. It is currently trading around 19332.
• Short term trend is slightly bullish as long as support 18770 holds.
• Any break above 19300 will take the index to next level around  19600/19800.
• On the lower side minor support is around 19000 and any break below will drag the index till 18800/18500.

It is good to buy at dips around 19000 with SL around 18700 for the TP of 19300/19500.
Nikkei

• Nikkei has retreated after making a slight jump till is currently trading above 16800.
• Short term trend is slightly bullish as long as support 16600 holds.The index major resistance is around 17300 and any break above 17300 will take the index till 17500/17800.
• On the lower side minor support is around 16600 (cloud bottom) and break below targets 16300/16000.

It is good to buy at dips around 16800 with SL around 16600 for the TP of 17300/17800.
ASX200:

• ASX200 is facing strong resistance around 5000 and any break above confirms minor trend reversal . It is currently trading around 4933.
• On the lower side minor support is around 4895(cloud bottom) and breaks below targets 4850/4800 level.
• The major resistance is around 5000 and any break above 5000 will take the pair to next level 5075.

It is good to buy at dips around  4930 with SL around  4895 for the TP 5000/5075 
Kospi :

• Kospi is facing major resistance around 1930 and it is currently trading around 1915.
• On the higher side any break above 1930  targets 1950/1975 in short term.
• The major support is around 1880 and below that level will take the index to next level 1850/1830.

It is good to buy at dips  around 1880 with SL around 1850 for the TP of 1920/1945

Moody's: PBOC's further easing of down-payments is credit positive for Chinese property developers

Moody's Investors Services says that the new down-payment requirements for first and second home owners in China (Aa3 stable) are credit positive for the country's developers because they will support demand for properties in second-tier cities - and lower-tier cities to a lesser extent - by reducing the upfront down-payment hurdle for first-time home buyers, while encouraging more prospective upgraders or investors to purchase homes. 

"While we do not expect a material or immediate increase in residential property sales because the central bank's move lowers the requirement by just 5-10 percentage points, we believe the Chinese authorities will continue to implement policies to lower total home inventory levels in the country," says Stephanie Lau, a Moody's Assistant Vice President and Analyst. 

"Second-tier cities will benefit more from the new down-payment cuts than lower-tier cities, because of the stronger demand from end-users and upgraders in second-tier cities," says Cindy Yang, a Moody's Analyst. 

Moody's analysis is contained in its just-released report titled "Property -- China: PBOC Cuts Down-Payment Requirement Further, a Credit Positive for Developers," and is co-authored by Lau and Yang. 

Moody's report points out that on 2 February 2016, the People's Bank of China (PBOC) announced that banks can reduce the minimum down-payment requirement to as low as 20% from 25% for first-time home buyers in cities that do not have restrictions on home purchases. 

The central bank also reduced the minimum down-payment requirement for second-home buyers who exhibit outstanding mortgages on their first homes to 30% from 40%. 

Moody's report further points out that lower-tier cities face high inventory risks, as indicated by the pressure on home prices in such cities, and slow home sales. Moody's says that these cities will require further government incentives to lower their stock of new homes. 

Moody's also notes that property markets in second-tier cities have been recovering gradually, after the government's relaxation of restrictions over the past 12-18 months. Average property prices in second-tier cities registered their first positive growth in December 2015 since August 2014, reporting 0.6% year-on-year growth versus a 0.2% year-on-year decline in November 2015. 

By contrast, prices in lower-tier cities remain under pressure, registering a continual year-on-year decline of 2.5% in December 2015. 

Market odds of Fed hikes are falling fast

The markets have always reckoned the Fed would hike fewer times than officials themselves thought but it's the swing more than the gap that now catches the eye. Markets priced in close to 3 hikes in 2016 (after the initial one), back in December. Now they put the odds of a single hike at only 50/50.

After an awfully long quiet spell, the Fed officials too now appear to be backpedalling. NY Fed president Dudley noted yesterday that 'financial market conditions are considerably tighter than they were in December' and the Fed would have to take that into account come March (when the FOMC next meets).

Ten-year Treasury yields are 30 basis lower today than in December (1.88% vs 2.25%). Fifteen-year mortgage rates have fallen by 20 basis points. The euro and yen are smack where they were in December (and in fact are stronger than in December following yesterday's weak service sector ISM report). The S&P 500 is down by 7-odd percent since mid-December.

Back in November, the Fed let it be known that within some awfully wide bounds, it didn't care what the data were doing, it was going to hike rates in December and, unless things changed appreciably, it was going to deliver 4 more hikes in 2016. The data have weakened some since then but not by very much and inflation has risen. Interest rates, including mortgage rates, are lower and the dollar is unchanged. Only the stock market is 'tighter'. If this is what the Fed has to consider come March, it's time to get the old Texan Roger Fisher back into the FOMC saddle. He retired last March, of course, and with him, apparently, went his motto: markets should never be coddled.

Euro bounce, fiscal balances in focus 

The sharp overnight jump in the EUR/USD is likely to be strengthen the case for the European Central bank to step up stimulus when policymakers meet next in March. A strong currency combined with weak supply-side pressures pose a fresh threat to inflationary expectations, delaying the scope of meeting the 2% inflation target.

ECB keeps the door open for further policy easing, fiscal developments have also played a cohesive role. In 2009-10 the zone-wide fiscal deficit has narrowed from a peak of -6% of GDP to -3% by 2013 and to -2.0% of GDP by 3Q last year. Primary deficit (excluding interest payments) has improved by a larger extent, turning modestly positive last year. Austerity measures by way of tax hikes, cutback in wasteful expenditure and paring of welfare payments have helped to contain spending, even as revenues took a hit from weak growth.

Lower fiscal deficits meanwhile slowed the built-up in government debt levels, but weak/negative growth in the years since the global financial crisis prevented a decline in the aggregate debt levels. This saw government debt as a percentage of GDP rise from 67% in 2004-05 to 78% in 2009-10. The build-up in debt levels continued in the subsequent years (amidst recessionary conditions) peaking at 93% of GDP early last year, before inching down to 91.6% by 3Q15.

The fiscal/debt metrics are on the mend at the zone-wide level, the improvement is not uniform across member countries. Amongst the core economies, Germany is close to registering a modest fiscal surplus last year, along with a sub-3% deficit reading for Italy. On the other hand, France and Spain are likely to stay above the -3% of GDP mark, exceeding the red-line drawn by the Stability and Growth Pact. Amongst the rest, Portugal's deficit remains above 4%, while on-going fiscal austerity in Greece is likely to lower its deficit to a shade below 4% last year.

Growth is required for austerity to be succeed and by extension, deficits/ debts to narrow. In this respect, while fiscal math is on the mend in the currency bloc, recovery needs to take hold amongst the member countries to ensure the improvement is broad-based and driven by higher revenues rather than aggressive expenditure cuts.

Americas Roundup: Dollar tumbles as Dudley comments, oil jumps 8 percent after U.S. data -February 4th, 2016

Market Roundup

• U.S. private sector adds 205,000 jobs in January -ADP. 
  
  
• Final Markit Services PMI 53.2, -0.5-pt from prelim; lowest since Oct 13. 
  
  
• ISM Jan services index slips to 53.5 vs forecast 55.1. 
  
  
• Fed's Dudley: Tightening financial conditions (weak global economy/USD strength) a concern- MNSI. 
  
  
• Bets against China's yuan build as traders eye G20 deal. 
  
  
• UST Yields fall to one-year lows as data stokes U.S. economic fears. 
  
  
• Oil bounces 8 percent as USD tumbles after U.S. data, Dudley comments. 
  
  
• Bill Gross warns global markets, economies increasingly addled, distorted. 
  
  
• France sees EU proposals for Britain as basis for talks, but within limits.

Looking Ahead - Economic Data (GMT)

• 23:50 Japan Foreign Bond Investment *w/e 475.3b-previous 
  
  
• 23:50 Japan Foreign Invest JP Stock *w/e -189.2b- previous

Looking Ahead - Events, Other Releases (GMT)

• No Significant Events.
  
  
  Currency Summaries
  
  
  EUR/USD is likely to find support at 1.1061 levels and currently trading at 1.1104 levels. The pair has made session high at 1.1147 and hit lows at 1.1106 levels. The dollar sharply declined against the euro on Wednesday after data showed U.S. services sector slowed to two-year low in January, indicating that US economic growth weakened further at beginning of the first quarter. The weaker-than-expected data showed the U.S. economy's services sector expanded in January, but at a modest pace than the previous month, suggested that Fed would not hike interest rate sooner. The euro rose over 2 percent against the dollar to hit $1.11455, the euro was on track to mark its biggest single-day percentage gain since Dec. 3. The currency's strongest level of the session was $1.1147, while its weakest level was $1.1062.
  
  
  GBP/USD is supported in the range of 1.4530 levels and currently trading at 1.4600 levels. It reached session high at 1.4649 and dropped to session low at 1.4522 levels. Sterling rose against US dollar on Wednesday to hit three week high as the poor U.S. data hammered the greenback lower, while data showed British services sector advanced robustly. The sterling was boosted by the release of a draft plan aimed at keeping Britain in the European Union. currency pair was supported by signs of a deal on cards in Brussels later this month that will give British Prime Minister David Cameron something to fight for in a referendum on Britain's EU membership. The pound rose 1.25 percent to $1.4591 in the early US session . Against the euro, sterling was steady at 75.76 pence.
  
  
  USD/CAD is supported at 1.3750 levels and is trading at 1.3791 levels. It has made session high at 1.3930 and lows at 1.3751 levels. The Canadian dollar rallied against US dollar on Wednesday as oil prices bounced 8 percent and the dollar was broadly sold across the board after weak US data. Markets shrugged off government data which showed U.S. crude inventories rose to record levels last week. Crude soared 7.8 million barrels higher, better than analyst's expectation for a rise of 4.8 million barrels. The dollar decline started after poor US services data and New York Fed chief William Dudley said the weakening outlook for the global economy and any further strengthening of the dollar could have significant consequences for the health of the U.S. economy. The currency's reached its strongest level since Jan. 4 at C$1.3785, while its weakest level was C$1.4103.
  
  
  USD/JPY is supported around 117.00 levels and currently trading at 117.87 levels. It hit session high at 117.87 and made session lows at 117.03 levels. The dollar declined against Japanese Yen on Monday after data showed U.S. services sector slowed to a near two-year low in January, suggesting that economic growth weakened further at the start of the first quarter even as the labor market remains resilient. The Institute for Supply Management (ISM) said non-manufacturing activity fell to 53.5 last month, the lowest level since February 2014, from 55.8 in December. The dollar index, which measures the greenback against a basket of six major currencies, hit 96.885, its lowest level in three months. The dollar hit 0.99890 franc, its lowest level against the franc in two and a half weeks. The dollar was last down 1.73 percent against the yen at 117.875 yen while the dollar index was last down 1.59 percent at 97.290.
  
  
  Equities Recap
  
  
  European shares fell sharply on Wednesday as disappointing economic data from the United States further undermined sentiment already hurt by weak earnings updates.
  
  
  UK's benchmark FTSE 100 closed down by 1.41 percent, the pan-European FTSEurofirst 300 ended the day down by 1.61 percent, Germany's Dax ended down by 1.56 percent, France's CAC finished the day down by 1.34 percent.
  
  
  The US stocks turned higher Wednesday, with the Dow rallying 1 percent as energy shares jumped with oil prices and financial shares cut losses to trade flat.
  
  
  Dow Jones closed up by 1.13 percent, S&P 500 ended up by 0.50 percent, Nasdaq finished the day down by 0.30 percent.
  
  
  
  Treasuries Recap
  
  
  U.S. Treasury yields ended higher on Wednesday as oil prices and stocks gained, after earlier falling to one-year lows on data that showed slowing growth in the U.S. service sector, adding to concerns about the weakening U.S. economy.
  
  
  The benchmark 10-year note yields plunged below technical resistance to a low of 1.7930 percent, the lowest since Feb. 5, 2015, before rising back to 1.883 percent.
  
  
  Commodities Recap
  
  
  Oil prices jumped 8 percent higher on Wednesday, snapping a two-day rout, after investors took advantage of a weaker U.S. dollar and shrugged off data showing an unexpected large surge in U.S. crude inventories to record highs.
  
  
  U.S. crude closed with one its biggest gains in five months, rising $2.40, or 8 percent, to $32.28.
  
  
  Brent futures settled up $2.32, or 7.1 percent, at $35.04 a barrel, after rising as high as $35.11.
  
  
  Gold hit three-month highs on Wednesday, buoyed by a slower U.S. services sector and sinking dollar, prompting investors to seek shelter in assets perceived as safer as future Fed rate hikes appeared less likely.
  
  
  Spot gold was up 0.9 percent at $1,138.60 an ounce at 2:44 p.m. EST (1944 GMT), having earlier touched its strongest since Oct. 30 at $1,145.60.
  
  
  U.S. gold for April delivery settled up 1.3 percent at $1,141.30 an ounce.

Indonesia likely to cut interest rate around mid year

Indonesian real GDP expanded by an estimated 4.8% y/y in 2015. The main key drivers behind the lower growth were prolonged delays in government spending, sluggish private investment and the impact of weak global markets. Indonesia also recorded a current account deficit equivalent to 2.2% of GDP in the third quarter of 2015. Moreover, manufacturing activity remained in negative territory and exports were contracted in the previous year. 

According to the fresh estimates from Scotia bank, "Inflation will likely hover near 5% y/y in 2016 -17, as a gradual recovery in commodity prices and a weakening rupiah maintain some pressure on prices. Moreover, it expects another 25 bps interest rate cut around mid-year. In addition economic growth will accelerate slightly to an average of 5.2% in 2016-17."

Mexico remains the favourite destination for the high yield Investment

The ongoing Global downturn along with the weak commodity prices took the MXN to multi year low against US dollar. MXN depreciated to 18.80 per USD on January 21st 2016 and ultimately it is benefited to the Exports of the country. Despite such currency weakness, Mexico is the favourite destination for the high yield investments. Country is likely to take advantage from the underlying strength present in the United States, as it the main hub for the exports. 

However, the Mexican peso is unlikely to influence from the short term global financial market volatility. Above all, there are some positive factors that will continue to support a relatively positive MXN performance in long run. First is a favourable employment condition in the US which indirectly leads to higher remittances flows and demand for Mexican goods. The other factor is long-term interest rate differentials, which have reduced the government's dependence on oil-related fiscal revenue and contributed to inflation containment.