Nonfarm Payrolls, ISM Manufacturing Index, European Inflation
The US dollar recovered on Thursday and extended its gains by Friday morning against other major currencies according to the move of the US Dollar Index (USDX). Emerging market currencies moved mixed against the dollar, with the Turkish lira (TRY) and South African (ZAR) pushing stronger, while the Mexican peso (MXN) moved further to the downside. According to analysts the Mexican peso is adversely affected by the decision of the rating agency Fitch to downgrade its rating for the state-owned oil company Pemex.
After both gold and oil hit new multi-month highs on Thursday they traded moderately lower by Friday morning. With the support of production cuts from OPEC countries, in particular Saudi Arabia, oil prices ended the series of declines that lasted three months and with the gains in January recovered all losses from December.
Stock indices opened mostly positive in Europe, while US futures saw some slight downside. By Friday morning the Volatility Index VIX sharply declined well below the lows from last week. The VIX represents to some a so-called “fear indicator”, showing uncertainty and movement in the relevant market index.
On Friday manufacturing PMI numbers from Switzerland, Germany, the United Kingdom and the European Union are expected to come in. Also the harmonized index of consumer prices (HICP) for January will be published by the European Union.
Data from the United States will include the nonfarm payrolls (NFP), unemployment rate, average hourly earnings and work week, the ISM manufacturing index, construction spending and wholesale trade data.
With the stronger dollar the EUR/USD ended the series of gains on Thursday, after briefly touching the 1.15 level. Economic data from Europe was to some extent disappointing, with German retail sales unexpectedly declining by 4.3% m/m (expected -0.5%) in December. French consumer prices (CPI) fell also below the expected 1.3% to just 1.2% y/y. This comes after the German CPI was also reported below expectations at just 1.4% y/y on Wednesday. The European Central Bank’s (ECB) target for inflation is to keep them closely below 2% and inflation figures play also a role in determining if or when to raise or lower interest rates.
The development with the Italian gross domestic product (GDP) were also a concern for investors, with negative growth for the second consecutive quarter indicating an economic recession according to one definition of the term.
Several European countries like Italy, France, Germany, and the EU will publish manufacturing PMI data on Friday. Another key release will be the inflation statistic from the EU.
Gold prices edged further up on Thursday to a new nine-months high, before retracing on Friday morning. Unconfirmed reports indicate that Maduro’s Venezuelan administration sold 20 tons of gold to Dubai.
As gold is traded predominantly in US dollar, data from the US has potential to also influence this market. On Friday the nonfarm payrolls, unemployment rate, the ISM manufacturing index and other relevant economic data is expected from the United States.
As the Commodity Futures Trading Commission (CFTC) did not publish its reports on the Commitments of Traders (COT) during the government shutdown, the organization will slowly catch up with the missing reports, publishing this Friday the report was due to be released at the end of December. The COT reports give insight in the speculative positions on futures of products like gold, silver or soybeans.
Oil prices retraced after hitting a new two-months high on Thursday. Indicators that the US shale oil production is still growing could have affected prices. A company operating a pipeline from the Permian oil fields reportedly will repurpose an existing natural gas pipeline starting February to transport crude oil.
On the other hand a recent survey conducted by Reuters indicated a further decline in production from OPEC countries, with the survey indicating oil production down by 0.89 million barrels compared to the previous month.
On Friday the US Baker Hughes Oil Rig Count will be published. The last few weeks there was sizable movement in the number of operating oil rigs, with an increase of 10 reported last week, after a previous weekly drop by 21 oil rigs.
US stock indices traded mostly again stronger on Thursday, spurred by better than expected earnings reported by companies like Facebook and General Electric. However the Dow (US 30) due to its nature encompassing only a small range of companies traded mostly unchanged at the end of the day.
Utilities (US Utilities ETF +2.41%) and consumer non-discretionary (US Non-cyclicals ETF +2.12%) stocks were overall trading stronger, while losses were seen in particular in the banking (US Banks ETF -0.77%) and materials (US Basic Materials ETF -1.355%) sector.
Shares of the ecommerce giant Amazon declined in after-hours trading despite earnings and revenues surpassing expectations. Investors however were disappointed by a relatively weak guidance for the first quarter.
The chemical company DowDuPont’s (-9.53%) shares traded sharply lower after the company missed the expected results in terms of earnings, due to influences of foreign currency exchange markets and weak demand from the automotive sector.
Among other companies Chevron and Honeywell will release their quarterly results on Friday. Next week earnings from companies like Walt Disney, Snapchat, Twitter, and Alphabet (the parent company of Google) are expected to be released.
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