Daily Market Outlook, February 20, 2020 

The US market rebounded in a record setting session overnight as traders turned optimistic on China’s latest move to mitigate Covid-19 outbreak’s economic fallout via assistance to domestic businesses. 

The Dow Jones Industrial Average added 116pts or 0.4% of which Apple shares were seen to have recovered most of Tuesday’s losses. S&P 500 and NASDAQ added 0.5% and 0.9% respectively to record highs. Elsewhere, the Stoxx Europe 600 closed at all-time high while stocks also finished higher in Japan and Hong Kong. 

Gold prices extended a 0.6% gain to $1,611.7/ounce, its highest since late 2012, markets appeared to have turned less risk-averse with bond yields recovering slightly along the curve- 10Y UST yield rose 1bp to 1.57% alongside much lower JPY. Oil prices spiked more than 2% following US’ move to blacklist a Rosneft-owned trading brokerage that could reduce global supply- Brent crude settled 2.4% higher at $59.12/barrel.

FOMC minutes reaffirms steady rate in 2020: The latest FOMC meeting minutes reaffirmed the Fed’s commitment to keep the fed funds rate unchanged for the rest of 2020. The minutes published overnight, revealed that policy makers concurred that maintaining the current stance of policy would allow for fuller assessment on economic activity, following last year’s shift to a more accommodative stance. The committee expects growth to continue at a moderate pace, adding that some trade uncertainties had diminished recently and there were some signs of stabilization in global growth. Officials agreed that “uncertainties about outlook remained including those posed by the outbreak of coronavirus”. Regarding consumption outlook, spending growth has moderated in 4Q, but consumption spending would likely remain on firm footing, supported by strong labour market, rising incomes and healthy household balance sheets. Officials expect inflation to move closer to 2% in the coming months as the unusually low readings in early 2019 drop out of the 12-month calculation.  

Solid US homebuilding data: Housing starts fell a mere 3.6% MOM (Dec: +17.7% revised) to a seasonally adjusted annual rate of 1.567m units in January (Dec: 1.626k revised). Analysts had been expecting housing starts to slump 11.2% following an outsized gain in the December. Building permits, a leading indicator for housing starts meanwhile surged 9.2% MOM (Dec: -3.7% revised) to a rate of 1.551m units (Dec: 1.42k revised), a 13-year high. Solid homebuilding data confirmed strength and resilience in the US housing market that is currently supported by low interest rates. On a separate note, mortgage applications however slipped 6.4% last week (previous +1.1%) as demand for purchases and refinancing applications fell on higher mortgage rates.  

US PPI jumped on higher service prices: The producer price index for final demand advanced 0.5% MOM in January (Dec: +0.2%), its largest gain in more than a year thanks to a surge in services prices (+0.7% vs 0.0%). Core PPI (less food and energy) also gained 0.5% MOM (Dec: +0.1%). Compared to the same month last year, headline PPI increased at an impressive 2.1% YOY rate, its fastest since May last year, surpassing analysts’ estimate of 1.6% gain. Core PPI inflation also jumped to 1.7% YOY (Dec: +1.1%). The higher PPI print came after a firmer CPI reading last week, offering tentative signs that inflation is on a recovering trajectory and could help propel the core PCE price inflation, the Fed’s key inflation gauge nearer to its 2% target next week.  

UK CPI inflation surprised to the upside, accelerating to 6-month high: UK headline CPI topped estimate to hit a 1.8% YOY gain in January (Dec: +1.3%), its fastest pace of growth in six months thanks partly to a rebound in energy cost. Analysts had been expecting CPI to print a 1.6% reading. The increase in core CPI (+1.6% vs +1.4%) was less impressive, still below the average rate of 1.7% recorded last year. That said, overall January inflation data (inclusive of higher retail prices and producer prices) offered some immediate comfort to the BOE that inflation is coming back nearer to its 2% target after seeing muted gains for months. This helps ease some concerns over yesterday’s weaker pay growth, suggesting that the BOE will hold rate for the rest of the year.  

Australia added more jobs than expected but pay growth held steady: The Australian economy added more jobs than expected in January as headline employment change came in at 13.5k (Dec: +28.7k revised) this morning. The latest print reflects a surge in new full-time jobs (+46.2k vs -1.9k) that was partially offset by the slump in part time jobs (-32.7k vs +30.5k). Unemployment rate meanwhile rose to 5.3% (Dec: 5.1%) higher than expectation of 5.2%, thanks to a rise in the labour participation rate (66.1% vs 66.0%) that indicates an expansion of workforce. A separate release yesterday however showed that wage growth remained benign- the wage price index added 0.5% QOQ in 4Q (3Q: +0.5%), in line with analysts’ expectations. Compared to the same quarter last year, the index also recorded a steady gain of 2.2% YOY (3Q: +2.2%) and hence reaffirming a subdued momentum in pay growth that was partly keeping both headline and core inflation low in the system

Today’s Options Expiries for 10AM New York Cut (notable size in bold)

  • EURUSD: 1.0775 (EUR306mn); 1.0900 (EUR489mn)
  • GBPUSD: 1.2980 (GBP233mn); 1.3000 (GBP280mn); 1.3020 (GBP227mn); 1.3100 (GBP274mn); 1.3110 (GBP222mn); 1.3125 (GBP228mn)
  • USDJPY: 109.00 (USD1.6bn); 109.50 (USD1.1bn); 109.75 (USD372mn); 110.00 (USD2.8bn); 111.00 (USD365mn)
  • AUDUSD: 0.6675 (AUD348mn); 0.6700 (AUD2.0bn); 0.6750 (AUD481mn)

Technical & Trade Views

EURUSD (Intraday bias: Bearish below 1.0820 Bullish above)

EURUSD From a technical and trading perspective, the sustained trade through 1.0850 will now have bears mounting a move to fill the French Election ‘GAP’ at 1.0778/1.0821. EUR continues to feel the full force of the USD relentless bid. With the DXY testing 2019 highs and the EUR filling the GAP, there is a window for some near term relief, however, a failure to mount a meaningful assault on 1.0820 would suggest that contrarian players will once again throw in the towel and we likely get a test of bids and stops below 1.0750

GBPUSD (Intraday bias: Bearish below 1.2920)

GBPUSD From a technical and trading perspective, prices back testing range support below 1.29 as 1.2950 caps upside attempts bears will now look to target 1.2830 as the next downside objective ahead of a more meaningful confluence target towards 1.27, only a close back through 1.30 would frustrate bears again and extend further range trading conditions

USDJPY (intraday bias: Bullish above 111.00 Bearish below)

USDJPY From a technical and trading perspective, test of offers and stops to 110.50 saw little to know resistance offered, yesterday’s surge now targets a test of offers and stops above 112.50, would anticipate that this area will likely see profit taking emerge and the potentially for a correction to retest bids back towards 111

AUDUSD (Intraday bias: Bearish below .6670 Bullish above)

AUDUSD From a technical and trading perspective the failure below .6700 would suggest another failed upside attempt and open another test of bids towards .6670, the failure to find sufficient buying here opens a move to test the equality target down to .6600


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