Fed Reserve increased interest rates by 25bps
Fundamental outlook
The US Federal Reserve raised Fed fund interest rates by 25 basis points ( bps). Japan indicated confidence among large manufacturers from the lowered yen value. Bank of England ( BoE) held its interest rate unchanged. Inf lation increased in the UK despite a slowdown in housing demand.
US retail sales grew 0.1 per cent in November, declining from 0.6 per cent in the previous month. Core retai l sales, excluding automobiles, also expanded at a slower pace of 0.2 per cent. Producer prices rose 0.4 per cent, better than forecast.
In another repor t, US indus tr i a l produc t ion, contracted 0.4 per cent, down from a revised 0.1 per cent gains in October. Consumer prices stagnated at 0.2 per cent in November while core prices, excluding food and energy, increased 0.2 per cent. Both matched forecast.
US Fed Phi l adelph i a manufacturing index jumped to 21.5 in December, exceeding expectation and the highest recorded this year. Weekly claims for jobless benefits was at 254,000 for the week ended December 10. US building permits rose 1.2 million in November, down from 1.26 million.
The US Crude inventories declined 2.6 million barrels on a weekly basis, supported by market demand in tandem with the upcoming production cut in January. FOMC meeting announced a rate hike of 25bps and expect another three more tightening in 2017.
China’s industrial output, including utilities and mines, gained 6.2 per cent in November on a year basis, signaling strong continuation of growth in this sector. Retail sales also rose 10.8 per cent from a year ago. Both data pointed to inflation growth.
Japan’s core machinery orders rose 4.1 per cent in October from a negative data in the previous month. In another report, producer prices shrank 2.2 per cent in November from a year ago, matching forecast, and showing a slowdown in manufacturing cost.
Japan’s Tankan index on large manufacturers grew to 10 in the final quarter, the best recorded for the year. Tankan survey on services stayed at 18 on weak sentiments, unchanged from 3Q.
Industrial production in the eurozone contracted 0.1 per cent, improving from minus 0.9 per cent in September. In another report, manufacturing index among 19 nations gained to 54.9 in December, better than forecast. Service index in the current month rose to 53.1, slightly lower from 53.8 in November.
The eurozone reported that consumer prices rose 0.6 per cent in November from a year ago, best recorded this year. Core prices, excluding food and energy, rose 0.8 per cent as expected. In another report, trade surplus gained 19.7 billion euros in October, lower than forecast and down from 24.4 billion euros revised in September.
UK housing price index reported by Rightmove dropped 2.1 per cent in December, the worst this year, especially after housing demand has been falling since June. Consumer prices continued to rise in November by gaining 1.2 per cent from a year ago, despite a slowdown in housing. In a separate report, producer prices reflecting raw material cost of manufacturers shrank 1.1 per cent.
The average earnings of British citizens on quarterly period ended October rose 2.5 per cent, above expectation. Claimants for unemployment benefits were at 2,400 in November, much lower than expectation and after 13,300 revised claims in October. Unemployment rate was at 4.8 per cent.
BoE held the bank’s rates at 0,25 per cent, unchanged from the last meeting. Bond purchase programme would be continued at 435 billion pounds to support market recovery. Technical forecast
US dol lar/ Japanese yen reached 118.66 last week. We expect market trading would slow down until year- end and return in January. This week, mixed trading is expected from 116.5 to 118.5 ranges as traders adjust positions for the new year.
Euro/ US dollar broke a new 13year low last week at 1.0364 levels. Market is expected to move in a tight range amid low trading volume this week from 1.03 to 1.5 regions. We shall observe the market sentiment in January as it might rebound for recovery or slide further into panic selling.
Pound/ US dollar traded in weak demand last week. Market has been moving slowly after BoE retained its policy. This week, we expect the trend to trade from 1.23 to 1.27 regions amid mixed sentiment in case traders adjust their position for the new year. Disclaimer: This article was written for general information only. No liability by the writer or newspapers. Dar Wong is a registered fund manager in Singapore with 27 years of trading experience in global Derivatives & FX markets. He can be reached at dar@ pwforex.com.