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Asia Roundup: Dollar index hits 14-year high, euro falls to 21-month low as Fed increases 2017 rate hike projections, investors eye BoE policy outcome - Thursday, December 15th, 2016

Market Roundup


  • DXY highest since January ’03, USD/JPY highest since February
  • Fed lifts rates, sees a faster pace of hikes in Trump’s first year – Reuters.
  • FOMC Chair Yellen – Bank safety rules should be kept in place – Reuters.
  • Moody’s – Fed rate hike reflects economic strength.
  • Fitch – Fed hike heralds step up in normalization.
  • Most US primary dealers still see only two Fed hikes in ’17 – Reuters poll.
  • Japan PM advisor Nishimura – Weak JPY positive for the economy, will lift corp  profits, natural for USD to rise if US economy strong, BoJ likely to continue to ease though changes in US policy will have effect – Reuters.
  • BoJ mulls upgrading economic outlook – Nikkei.
  • BoJ Tankan corporate price expectations survey – CPI forecast at +0.7% one year out, +1.0% in three, +1.1% in five, previous +0.6%, +1.0%, +1.0%, though changes small firms up inflation outlook for first time since March ‘14.
  • MoF flow data week-ended Dec 10 – Japanese sell net Y61.3 bln foreign stocks, buy Y267.4 bln bonds, sell Y36.2 bln bills; foreign investors buy net Y278.4 bln Japanese stocks, Y731.0 bln bonds, Y981.8 bln short-term bills.
  • Japan Dec PMI Mfg – flash 51.9, highest since January, Nov final 51.3.
  • Tokyo to chip in Y1 trln for UK nuclear project – Nikkei.
  • PBOC fixes CNY at 6.9289 vs USD, highest since June ’08, reports state-owned banks selling USD in onshore market – Reuters.
  • China non-fin’l outbound direct investment +55.3% y/y, CNY1.07 trln, Nov  alone +76.5%, CNY $15.7 bln, Jan-Nov FDI +3.9% y/y, CNY731.8 bln.
  • Australia Nov employment +39.1k, unemployment 5.7%, participation 64.6%, +20k, 5.6% and 64.5% forecast, full-time employment +39.3k, Oct employment revised up to +15.2k from +9.8k.
  • Australia Dec MI inflation expectations +2.2% AR weighted mean, +3.4% trimmed mean, Nov +2.3%, +3.2%, result mixed, expectations still subdued.
  • New Zealand Nov BNZ/BNZ PMI 54.4, off 0.7 point, 13-month low but still positive.
  • New Zealand Q3 value of residential building work +2.4% q/q, non-residential flat.

Economic Data Ahead

  • (0300 ET/0800 GMT) France Dec PMI mfg       – flash, 51.9 forecast; last 51.7.
  • (0300 ET/0800 GMT) France Dec PMI services  – flash, 52.0 forecast; last 51.6.
  • (0300 ET/0800 GMT) France Dec PMI composite – flash, 51.6 forecast; last 51.4.
  • (0330 ET/0830 GMT) Germany Dec PMI mfg       – flash, 54.5 forecast; last 54.3.
  • (0330 ET/0830 GMT) Germany Dec PMI services  – flash, 54.9 forecast; last 55.1.
  • (0330 ET/0830 GMT) Germany Dec PMI composite – flash, 54.8 forecast; last 55.0.
  • (0330 ET/0830 GMT) Sweden Nov unemployment, 6.3% nsa forecast; last 6.4% nsa, 6.9% sa.
  • (0400 ET/0900 GMT) Eurozone Dec PMI mfg       – flash, 53.7 forecast; last 53.7.
  • (0400 ET/0900 GMT) Eurozone Dec PMI services  – flash, 53.8 forecast; last 53.8.
  • (0400 ET/0900 GMT) Eurozone Dec PMI composite – flash, 53.9 forecast; last 53.9.
  • (0430 ET/0930 GMT) Great Britain Nov retail sales, +0.2% m/m, +5.9% y/y forecast; last +1.9%, +7.4%.
  • (0430 ET/0930 GMT) Great Britain Nov - ex-fuel,    +0.1% m/m, +6.1% y/y forecast; last +2.0%, +7.6%.
  • (0830 ET/1330 GMT) United States Q3  c/a balance, $111.6 bln deficit forecast; last $119.9 bln deficit.
  • (0830 ET/1330 GMT) United States Nov CPI,    +0.2% m/m, +1.7% y/y forecast; last +0.4%/+1.6%, index 241.73.
  • (0830 ET/1330 GMT) United States Nov – core, +0.2% m/m, +2.2% y/y forecast; last +0.1%/+2.1%, index 248.98.
  • (0830 ET/1330 GMT) United States Nov real weekly earnings, -0.2% m/m forecast; last unch.
  • (0830 ET/1330 GMT) United States Dec Philly Fed business sentiment index, 9.0 forecast; last 7.6.
  • (0830 ET/1330 GMT) United States Dec NY Fed Empire State manufacturing index, 4.0 forecast; last 1.5.
  • (0830 ET/1330 GMT) United States w/e initial jobless claims, 255k forecast; last 258k.
  • (0945 ET/1445 GMT) United States Dec Markit PMI mfg – flash; last 54.1.
  • (1000 ET/1500 GMT) United States Dec NAHB housing market index, 63.0 forecast; last 63.0.
  • (1130 ET/1630 GMT) United States Nov Cleveland Fed CPI; last +0.2%.

Key Events Ahead

  • N/A   ECB Pres Draghi at European Council meeting, ECB General Council meeting.
  • (0330 ET/0830 GMT) SNB policy announcement, no change in -0.25-1.25% 3-mo LIBOR target forecast.
  • (0400 ET/0900 GMT) Norges Bank policy announcement, no change in 0.5% deposit rate forecast.
  • (0430 ET/0930 GMT) Spain E1.5-2.5 bln 0.75% and 1.33% 2021 and 2026 Bono auctions.
  • (0500 ET/1000 GMT) Sweden 3.5% each 2022 and 2039 government bond auctions.
  • (0500 ET/1000 GMT) Ireland E500 mln 12-month treasury bill auction.
  • (0700 ET/1200 GMT) BoE MPC policy announcement, no policy changes/9-0 forecast, bank rate 0.25%.
  • (1100 ET/1600 GMT) Fed open meeting on debt, banking in Washington, DC.
  • (1115 ET/1615 GMT) BoC Gov Poloz, DepGov Wilkins presser on Financial System Review.
  • (1600 ET/2100 GMT) United States Treasury int’l capital flows report (TIC), last $152.9 bln outflow.

FX Beat

DXY: The dollar rallied to multi-week highs versus its major peers after the Federal Reserve raised rates and boosted the number of projected interest rate hikes for 2017. The greenback against a basket of currencies traded 0.1 percent up at 102.30, having hit a fresh 14-year high of 102.62 earlier in the session. FxWirePro's Hourly Dollar Strength Index stood at 115.59 (Highly Bullish) by 0500 GMT.

EUR/USD: The euro hit a 21-month low below the 1.0500 handle, as the greenback boosted across the board after the Federal Reserve raised interest rates for the first time in a year and projected more interest rate hikes for 2017. However, the major attempted a minor recovery, regaining some ground to trade just above the 1.0500 level. Moreover, monetary policy divergence between both continents and hawkish Fed statement, which signaled acceleration in the Fed’s rate hike prospects for next year, weighed on the euro bulls sentiment. The European currency trades 0.2 percent down at 1.0515, having touched a low of 1.0468, its lowest since Mar. 2015. FxWirePro's Hourly Euro Strength Index stood at 60.51 (Bearish) by 0400 GMT. Investors will continue to digest the Fed decision, ahead of flash manufacturing PMI from the Eurozone economies and the U.S. inflation figures. Immediate resistance is located at 1.0573 (5-DMA), a break above targets 1.0620 (21-DMA). On the downside, support is seen at 1.0468 (Session Low), a break below could drag it lower 1.0400.

USD/JPY: The dollar rallied above the 117.00 handle to hit a fresh 10-month high after the Federal Reserve hiked the federal funds rate to a target range of 0.50 percent and 0.75 percent and signaled a faster pace of increases in 2017. The relatively hawkish Fed stance came as the central bank adapted to the U.S. president-elect Donald Trump administration's promises of tax cuts, spending, and deregulation. The major trades 0.4 percent higher at 117.48, having touched an early high of 117.85, its strongest since early Feb. FxWirePro's Hourly Yen Strength Index stood at -115.70 (Highly Bearish) by 0400 GMT. Investors will continue to track board based market sentiment, ahead of the U.S. CPI figures for further momentum on the pair. Immediate resistance is located at 118.00, a break above targets 118.30/ 118.60. On the downside, support is seen at 115.97 (5-DMA), a break below could take it near 114.89 (10-DMA).

GBP/USD: Sterling slumped to a fresh 2-week low, as the greenback continued to rise following Fed interest rate hike and unexpectedly hawkish Dots plot chart. However, the major is seen making a minor recovery as investors now turn attention their attention towards the Bank of England monetary policy decision due later in the day. Sterling trades 0.2 percent down at 1.2540, after declining as low as 1.2513, its lowest since Dec. 1. FxWirePro's Hourly Sterling Strength Index stood at 55.21 (Bullish) by 0400 GMT. Investors’ will closely watch the UK retail sales data, ahead of BoE interest rate decision, where it is expected to refrain from changing rates or its quantitative easing bond-buying programme. Immediate resistance is located at 1.2600, a break above could take it over 1.2634 (10-DMA). On the downside, support is seen at 1.2500, a break below targets 1.2449 (Nov- 4 Low). Against the euro, the pound trades 0.04 percent lower at 83.82 pence, still within the sight of a 1-week high of 83.42 pence hit on Tuesday.

AUD/USD: The Australian dollar declined to a 2-week low after the FOMC policy decision, however, it recovered some ground to trade above the 0.7400 handle following better-than-expected Australian jobs report. The data showed employment rose a net 39,100 in November, beating forecasts of a 20,000 gain, while the unemployment rate edged up to 5.7 percent, from a three-year low of 5.6 percent. Separately, another survey showed Australia's consumer inflation expectations in December rose 3.4 percent, versus previous 3.2 percent, boosting bullish sentiment around the major.  The Aussie trades 0.2 percent higher at 0.7420, retreating from an early low of 0.7383, it’s lowest since Nov. 16. FxWirePro's Hourly Aussie Strength Index stood at 31.72 (Neutral) by 0500 GMT. Markets will continue to absorb Australia's employment report, ahead of the U.S. consumer price index and unemployment benefit claims data. Immediate support is seen at 0.7370 (Dec 1 Low), a break below could drag it near 0.7350/0.7311. On the upside, resistance is located at 0.7468, a break above targets 0.7500.

NZD/USD: The New Zealand tumbled, extending losses to hit a fresh 10-day low, after the Fed raised the interest rate and hinted at adopting a faster pace of tightening than investors had anticipated. On Wednesday, the major rose as high as 0.7238 to touch a 1-month high, however, it eased to 0.7116 following FOMC decision. The Kiwi trades 0.3 percent lower at 0.7097, after falling to a low of 0.7076 earlier in the session, it’s lowest since Dec. 5. FxWirePro's Hourly Kiwi Strength Index was at -77.96 (Slightly Bearish) by 0500 GMT. The major will be driven by overall market sentiment, ahead of series of U.S. economic data and domestic current account report for further direction on the major. Immediate resistance is located at 0.7160, a break above could take it near 0.7200. On the downside, support is seen at 0.7066 (Nov 29 Low), a break below could drag it lower 0.7050.

Equities Recap

Asian shares tumbled, as a rally in the dollar and the U.S. bond yields following Federal Reserve interest rates hike, weighed on emerging market currencies.

MSCI's broadest index of Asia-Pacific shares outside Japan slumped 1.2 percent.

Tokyo's Nikkei advanced 0.5 percent at 19,345.74 points, Australia's S&P/ASX 200 index fell 0.78 percent to 5,540.90 points and South Korea's KOSPI was trading 0.1 percent up at 2,039.40 points.

Shanghai composite index declined 0.6 percent to 3,120.33 points, while CSI300 index was trading 0.9 percent lower at 3,348.46 points.

Hong Kong’s Hang Seng was trading 1.87 percent down at 22,036.45 points. Taiwan shares shed 0.1 percent at 9,360.35 points.

Commodities Recap

Crude prices steadied, after declining more than 1 percent in the previous session, as prospects of a tighter fuel market in 2017 due to planned production cuts boosted market sentiment. International benchmark Brent crude was 0.4 percent higher at $53.93 per barrel by 0356 GMT, having hit a 6-day low of $53.55 in the previous session. U.S. West Texas Intermediate crude rose 0.4 percent at $50.94 a barrel, after falling as low as $50.65 on Wednesday, its lowest since Dec 8.

Gold prices fell to a fresh low in more than 10 months as the dollar rallied after the U.S. Federal Reserve raised interest rates for the first time in a year and indicated further rate hikes for 2017. Spot gold was trading 0.04 percent lower at $1,142.68 an ounce by 0402 GMT, having touched a low of 1,134.72 an ounce earlier in the session, its lowest since Feb. 3. U.S. gold futures dropped nearly 2 percent to $1,141.80 per ounce, having slumped to $1,136.4 an ounce earlier in the day, their lowest since Feb. 1 and biggest percentage fall in one month.

Treasuries Recap

The 10-year U.S treasury yield stood at 2.5727 percent higher by 0.05 bps, while 5-year yield was up by 0.051 bps at 2.0447 percent.

The Australian government bonds witnessed a heavy sell-off as investors moved away from safe-haven buying after the Federal Reserve in its last monetary policy statement of 2016 raised short-term interest rate by 25 basis points and signaled a faster pace of interest rate hike next year. The yield on the benchmark 10-year Treasury note rose more than 8 basis points to 2.89 percent, the yield on 15-year note jumped 11 basis points to 3.36 percent and the yield on short-term 2-year bounced 6 basis points to 1.91 percent.

The New Zealand government bonds plunged as the U.S. Federal Reserve presented a hawkish outlook in its last monetary policy meeting for 2016 late Wednesday. The yield on the benchmark 10-year bond rose more than 10 basis points lower at 3.42 percent (highest level in 2016), the yield on 7-year note jumped 13 basis points to 2.98 percent and the yield on short-term 2-year note bounced 9 basis points at 2.27 percent.

Canadian government bond prices moved lower across a flatter yield curve in sympathy with U.S. Treasuries. The 2-year fell 5.5 Canadian cents to yield 0.807 percent and the benchmark 10-year declined 28 Canadian cents to yield 1.789 percent. On Tuesday, the 10-year yield touched its highest since June 2015 at 1.794 percent.

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