Weekly Market Recap (15-19 January)

<p>Monday</p><p>Taiwan's Presidential
election was held over the weekend. William Lai, of the pro-sovereignty
Democratic Progressive Party (DPP) has been elected President. The party has
governed Taiwan for the past eight years. This will be
its third consecutive presidential term.</p><ul><li>Lai won 40% of the
vote.</li><li>Ahead of the main
opposition Kuomintang (KMT) party's Hou Yu-ih (the KMT is friendlier with
the mainland CCP) on 33%.</li><li>The third candidate
Ko Wen-je, from the Taiwan People's Party, scored just over a quarter of
the vote.</li></ul><p>Voters also chose
legislature candidates, Seats won:</p><ul><li>Kuomintang (KMT) won 52.</li><li>Democratic
Progressive Party (DPP) won 51 seats, a net loss of 11 seats, dropping
from 62.</li><li>Taiwan People's
Party (TPP) won 8.</li><li>two independent
legislators won seats, both of whom are ideologically most aligned with
the KMT.</li></ul><p>Thus:</p><ul><li>The DPP has lost its
majority.</li><li>The opposition KMT
gained ground.</li><li>No party has enough
seats to control Parliament, this would require 57 seats.</li><li>Taiwan political
pundits expect the most likely parliamentary outcome is for the KMT and
TPP to hammer out a deal to govern.</li></ul><p>The PBoC left the
MLF rate unchanged at 2.50% vs. 2.40% expected:</p><ul><li>MLF 2.50%.</li><li>Injected cash via
MLF for the 14th month in a row.</li><li>Added net CNY 216bn.</li></ul><p>The Eurozone
November Industrial Production came in line with expectations:</p><ul><li>Industrial
Production M/M -0.3% vs. -0.3% expected and -0.7% prior.</li><li>Industrial
Production Y/Y -6.8% vs. 6.6% prior.</li><li>Durable consumer goods -2.0%.</li><li>Capital goods -0.8%.</li><li>Intermediate goods -0.6%.</li><li>Energy 0.9%.</li><li>Non-durable consumer goods 1.2%.</li></ul><p>ECB’s Holzmann
(hawk – non voter in January) pushed back aggressively on rate cuts
expectations:</p><ul><li>Should not count on
rate cuts at all this year.</li><li>Rate cut
expectations are optimistic.</li><li>Geopolitical developments
pose a risk to prices outlook.</li><li>Does not see a real
recession coming to the Eurozone.</li></ul><p>ECB’s Nagel (hawk
– voter) pushed back against rate cuts expectations:</p><ul><li>It is too early to
talk about rate cuts.</li><li>Markets are
sometimes overly optimistic.</li><li>We are data dependent.</li><li>Inflation is still
too high.</li><li>Maybe can wait until
summer break before contemplating rate cuts.</li></ul><p>The BoC Business
Outlook Survey showed even more contraction in Q4 2023:</p><ul><li>Sentiment fell every
month in Q4, from 22% at the start of the quarter to 9% at the end.</li><li>38% of firms expect
a recession in the year ahead vs. 33% in Q3.</li><li>54% of firms expect
inflation to remain above 3% for the next two years vs. 53% in Q3.</li><li>75% of firms think
wage growth will be back to normal by 2025.</li><li>Consumer survey
inflation expectations for 5 years to 2.62% from 2.75%.</li><li>Future sales 20% vs. 14%.</li><li>Indicators of future
sales vs. a year ago -10% vs. 0% prior.</li><li>Firms see slight
improvement in labour availability.</li></ul><p>Tuesday</p><p>The Japanese December
PPI beat expectations:</p><ul><li>PPI M/M 0.3% vs. 0.0%
expected and 0.2% prior.</li><li>PPI Y/Y 0.0% vs.
-0.3% expected and 0.3% prior.</li></ul><p>The UK December
Labour Market report showed job losses and lower wage growth:</p><ul><li>December Payrolls
change -24K vs. 9K prior (revised from -13K).</li><li>November ILO
unemployment rate 4.2% vs. 4.2% expected and 4.2% prior.</li><li>November employment
change 73k vs. 50k expected and 50K prior.</li><li>Average weekly
earnings 6.5% vs. 6.8% expected and 7.2% prior.</li><li>Average weekly
earnings (ex bonus) 6.6% vs. 6.6% expected and 7.2% prior (revised from
7.3%).</li></ul><p>The German January
ZEW index improved further:</p><ul><li>ZEW 15.2 vs. 12.0
expected and 12.8 prior.</li><li>Current conditions
-77.3 vs. -77.0 expected and 77.1 prior.</li><li>Expectations 15.2 vs. 12.8 prior.</li></ul><p>ECB’s Villeroy
(neutral – voter) pushed back against the aggressive rate cuts expectations:</p><ul><li>Too early to declare victory over inflation.</li><li>Next
move will be a rate cut some time this year.</li></ul><p>ECB’s Centeno
(dove – non voter in January) he sounded a bit more neutral compared to his
previous dovish comments:</p><ul><li>Need to be prepared
for all topics, including rate cuts.</li><li>Recent data have
confirmed December projections.</li><li>But inflation was
slightly below forecast.</li><li>We should avoid
undershooting on inflation.</li><li>Q1 GDP is still looking
stagnant.</li><li>Do not see reasons
for concern about wages.</li><li>Inflation trajectory is good.</li></ul><p>ECB’s Valimaki
(hawk – voter) pushed back against the aggressive rate cuts expectations:</p><ul><li>Must not jump the
gun on rate cuts.</li><li>Better to wait a bit
longer than cut rates prematurely.</li><li>Inflation is on the
right track, but the job is not done.</li><li>Restrictive monetary
policy is still called for.</li><li>Soft landing for the
economy is still the baseline but risks are tilted to the downside.</li></ul><p>The US January
Empire State Manufacturing Index missed expectations by a big margin with the
lowest reading on record (excluding covid):</p><ul><li>Empire State
Manufacturing Index –43.7 vs. -5.0 expected and -14.5 prior.</li><li>New orders -49.4 vs.
-11.3 last month.</li><li>Shipments -31.3 vs. -6.4 last month.</li><li>Prices paid 13.2 vs.
16.7 last month.</li><li>Prices Received 9.5
vs. 11.5 last month.</li><li>Employment -6.9 vs. -8.4 last month.</li><li>Average Employee
workweek -6.1 vs. -2.4 last month.</li><li>Unfilled orders
-24.2 vs. -24.0 last month.</li><li>Delivery times -8.4
vs. -15.6 last month.</li><li>Inventories -7.4 vs. -5.2 last month.</li></ul><p>The 6-month forward index:</p><ul><li>General business
condition 18.8 vs. 12.1 last month.</li><li>new orders 25.2 vs.
11.3 last month.</li><li>shipments 24.6 vs. 15.8 last month.</li><li>prices paid 40.0 vs.
25.0 last month.</li><li>prices received 32.6
vs. 27.1 last month.</li><li>employment 16.8 vs. 10.9 last month.</li><li>average employee
workweek 14.7 vs. 10.4 last month.</li><li>unfilled orders 16.8
vs. 5.2 last month.</li><li>delivery times 11.6 vs.
-1.1 last month.</li><li>inventories 5.3 vs. 9.4 last month.</li><li>capital expenditures
13.7 vs. 4.2 last month</li><li>technology spending
9.5 vs. 10.3 last month</li></ul><p>The Canadian
December CPI report came in line with expectations although the underlying
inflation measures ticked higher:</p><ul><li>CPI Y/Y 3.4% vs.
3.4% expected and 3.1% prior.</li><li>CPI M/M -0.3% vs.
-0.3% expected and 0.1% prior.</li><li>Core CPI Y/Y 2.6% vs.
2.8% prior.</li><li>Core CPI M/M -0.5% vs. 0.1% prior.</li><li>Trimmed Mean CPI Y/Y
3.7% vs. 3.5% expected and 3.5% prior.</li><li>Median CPI Y/Y 3.6%
vs. 3.4% expected and 3.6% prior (revised from 3.4%).</li><li>Common CPI Y/Y 3.9%
vs. 3.9% prior.</li></ul><p>Fed’s Waller (neutral – voter) pushed back against the
aggressive rate cuts expectations although he did it in a balanced way keeping
some optionality on the table:</p><ul><li>Data in the last few
months allowing Fed to consider cutting rates this year.</li><li>Changes in policy
path must be 'carefully calibrated' and 'not rushed'.</li><li>I am more confident
that we are within striking distance of achieving sustainable 2% inflation.</li><li>We are close but I
will need more info in coming months to be sure.</li><li>I view risks to
Fed's mandates as more closely balanced.</li><li>Fed will be able to
cut rates this year as long as inflation doesn't rebound or stay high.</li><li>This view is
consistent with Fed projections for three 25 bps cuts in 2024.</li><li>Timing and actual
number of cuts will depend on data.</li><li>Economic activity has moderated.</li><li>Setting of policy
needs to proceed with more caution to avoid over-tightening.</li><li>Financial conditions remain restrictive.</li><li>Highlights signs
that the labour market continues to come into better balance.</li><li>Data on job openings
indicates ongoing moderation in labour demand.</li><li>It will be up to
committee on timing of when to start cuts.</li><li>The economy is doing
and giving us the flexibility to move carefully and methodically.</li><li>We have to see firm
evidence of improvement on rates.</li><li>If we think we have
to move faster on rates, we can but key is that we have flexibility.</li><li>We're in an unusual
place where we can move rates down without a shock to the economy.</li><li>There are things we
want to be careful about.</li><li>Whether we miss the
timing on rate cuts by six weeks, it hard to believe that's going to have
a big effect on the economy.</li><li>Once supply
adjustment is complete [from the pandemic], it will be clearer whether
demand is falling enough to finish the inflation fight, it's an issue to
watch.</li><li>Approx endpoint for
reserves is likely around 10-11% of GDP … overnight repo doesn't need to
have anything in it.</li><li>4% wage growth is a
'little high' but not much.</li></ul><p>ECB’s Simkus (hawk- voter) pushed back against the
aggressive rate cuts expectations:</p><ul><li>I am far less
optimistic than markets on rate cuts.</li><li>Cuts may begin
around the summer.</li><li>Wage data is going
to be very important.</li></ul><p>ECB’s Muller (hawk- voter) pushed back against the
aggressive rate cuts expectations:</p><ul><li>Market expectations
for 2024 ECB rate cuts are aggressive. </li><li>Wage growth is not
in line with the inflation target. </li></ul><p>Wednesday</p><p>The Chinese Q4 GDP missed expectations slightly
although still above the 5% CCP target:</p><ul><li>Q4 GDP Y/Y 5.2% vs.
5.3% expected and 4.9% prior.</li><li>GDP Q/Q 1.0% vs.
1.0% expected and 1.5% prior.</li></ul><p>The Chinese December Industrial Production beat
expectations:</p><ul><li>Industrial
Production Y/Y 6.8% vs. 6.6% expected and 6.6% prior.</li></ul><p>The Chinese December Retail Sales missed expectations:</p><ul><li>Retail Sales Y/Y
7.4% vs. 8.0% expected and 10.1% prior.</li></ul><p>The UK December CPI report beat expectations across
the board:</p><ul><li>CPI Y/Y 4.0% vs. 3.8%
expected and 3.9% prior.</li><li>CPI M/M 0.4% vs.
0.2% expected and -0.2% prior.</li><li>Core CPI Y/Y 5.1%
vs. 4.9% expected and 5.1% prior.</li><li>Core CPI M/M 0.6%
vs. 0.4% expected and -0.3% prior.</li></ul><p>ECB’s Lagarde (neutral – voter) pushed back against
the aggressive rate cuts pricing:</p><ul><li>Confident inflation
will reach 2% target.</li><li>Inflation is not
where the ECB wants it.</li><li>But on the right
path towards 2% target, though no victory yet.</li><li>Too optimistic
markets not helpful in fight against inflation.</li></ul><p>ECB’s Knot (hawk – non voter in January) pushed back
against the aggressive rate cuts expectations:</p><ul><li>Markets are getting
ahead of themselves on rate cuts.</li><li>A lot must go well
for inflation to hit 2% in 2025.</li><li>We need to see a
turnaround in wages.</li><li>Policy easing, if
and when it happens, will be very gradual.</li><li>Rate path priced by
markets can be self-defeating.</li><li>The more easing
markets are doing, the less likely we'll cut.</li></ul><p>ECB’s Panetta (dove – voter) kept a neutral stance with
a focus on incoming data to confirm the disinflationary trend:</p><ul><li>Disinflation is
happening, is strong and will continue.</li><li>Monetary conditions
should adjust but awaiting data first to confirm disinflation outlook.</li><li>Awaiting data to
confirm disinflation outlook.</li></ul><p>The US December Retail Sales beat expectations across
the board:</p><ul><li>Retail Sales Y/Y
5.6% vs. 4.0% prior.</li><li>Retail Sales M/M
0.6% vs. 0.4% expected and 0.3% prior.</li><li>Ex-autos M/M 0.4% vs.
0.2% expected and 0.2% prior.</li><li>Control group M/M
0.8% vs. 0.2% expected and 0.5% prior (revised from 0.4%).</li><li>Retail sales ex gas
and autos M/M 0.6 vs. 0.6% prior.</li></ul><p>The US December Industrial Production beat
expectations:</p><ul><li>Industrial
Production Y/Y 1.0% vs. -0.6% prior (revised from -0.4%).</li><li>Industrial
Production M/M 0.1% vs. 0.0% expected and 0.0% prior (revised from 0.2%).</li><li>Capacity utilization
78.6% vs. 78.7% expected and 78.6% prior (revised from 78.8%).</li></ul><p>The US December NAHB Housing Market Index beat
expectations:</p><ul><li>NAHB 44 vs. 39
expected and 37 prior.</li><li>Single family 48 vs. 41 prior.</li><li>Next six months 57
vs. 45 prior.</li><li>Traffic of
prospective buyers 29 vs. 24 prior.</li></ul><p>The Federal Reserve released the Beige Book for Q4
with most districts reporting little or no change in economic activity:</p><ul><li>Of the four
Districts that differed, three reported modest growth and one reported a
moderate decline. </li><li>Consumers delivered
some seasonal relief over the holidays by meeting expectations in most
Districts and by exceeding expectations in three Districts.</li><li>Contacts from nearly
all Districts reported decreases in manufacturing activity.</li><li>Districts continued
to note that high interest rates were limiting auto sales and real estate
deals; however, the prospect of falling interest rates was cited by
numerous contacts in various sectors as a source of optimism.</li><li>concerns about the
office market, weakening overall demand, and the 2024 political cycle were
often cited as sources of economic uncertainty.</li><li>Seven Districts
described little or no net change in overall employment levels, while the
pace of job growth was described as modest to moderate in four Districts. </li><li>Six Districts noted
that their contacts had reported slight or modest price increases, and two
noted moderate increases. Five Districts also noted that overall price
increases had subsided to some degree from the prior period, while three
others indicated no significant shift in price pressures.</li><li>Firms in most
Districts cited examples of steady or falling input prices, especially in
the manufacturing and construction sectors, and more discounting by auto
dealers.</li><li>Premium increases
for property and casualty insurance and for health insurance continue to
impact most firms.</li></ul><p>Thursday</p><p>The Australian December Labour Market report missed
expectations by a big margin:</p><ul><li>Employment Change
-65.1K vs. 17.6K expected and 72.6K prior (revised from 61.5K).</li><li>Unemployment Rate
3.9% vs. 3.9% expected and 3.9% prior.</li><li>Participation Rate
66.8% vs. 67.1% expected and 67.3% prior (revised from 67.2%).</li><li>Full-time
employment -106.6K vs. 57K prior.</li><li>Part-time
employment 41.4K vs. 15.7K prior (revised from 4.5K).</li></ul><p>The US Jobless Claims beat expectations by a big
margin (this report corresponds with the NFP survey week):</p><ul><li>Initial Claims 187K
vs. 207K expected and 203K prior (revised from 202K).</li><li>Continuing Claims
1806K vs. 1845K expected and 1832K prior (revised from 1834K).</li></ul><p>The US December Housing Starts and Building Permits
beat expectations:</p><ul><li>Housing starts
1.460M vs. 1.426M expected and 1.525M prior (revised from 1.560M).</li><li>Housing starts M/M
-4.3% vs. 10.8% prior (revised from 14.8%).</li><li>Building permits
1.495M vs. 1.480M expected and 1.467M prior.</li><li>Building permits M/M
1.9% vs. -2.1% prior.</li></ul><p>The New Zealand December Manufacturing PMI fell
further into contraction:</p><ul><li>Manufacturing PMI
43.1 vs. 46.7 prior.</li></ul><p>Friday</p><p>The Japanese December CPI eased further across all
measures:</p><ul><li>CPI Y/Y 2.6% vs.
2.8% prior.</li><li>Core CPI Y/Y 2.3%
vs. 2.3% expected and 2.5% prior.</li><li>Core-Core CPI Y/Y
3.7% vs. 3.8% prior.</li></ul><p>The UK December Retail Sales missed expectations by a
big margin:</p><ul><li>Retail sales M/M
-3.2% vs. -0.5% expected and 1.4% prior (revised from 1.3%).</li><li>Retail sales Y/Y
-2.4% vs. 1.1% expected and 0.2% prior (revised from 0.1%).</li><li>Retail sales (ex
autos, fuel) M/M -3.3% vs. -0.6% expected and 1.5% prior (revised from
1.3%).</li><li>Retail sales (ex
autos, fuel) Y/Y -2.1% vs. 1.3% expected and 0.5% prior (revised from
0.3%).</li></ul><p>The Canadian November Retail Sales missed
expectations:</p><ul><li>Retail Sales M/M
-0.2% vs. 0.0% expected and 0.5% prior (revised from 0.7%).</li><li>Retail Sales Y/Y
1.8% vs. 1.9% prior (revised from 2.2%).</li><li>Ex auto M/M -0.5%
vs. -0.1% expected and 0.4% prior (revised from 0.6%).</li><li>Ex auto and gas M/M
-0.6% vs. -1.2% prior.</li><li>December advance estimate 0.8%.</li></ul><p>Fed’s Goolsbee (dove – non voter) reiterated that rate
cuts can come just from inflation progress but if that progress were to
reverse, then a rate hike would be warranted:</p><ul><li>If we make good
progress on inflation, we need to factor that into rates.</li><li>Goods price
inflation is back to normal and surprising progress on services inflation
too.</li><li>Says they need to
see more progress on housing inflation.</li><li>When the
unemployment rate goes up, it tends to go up rapidly; we haven't had that.</li><li>We're coming into
2024 in a much better place than we came into 2023.</li><li>The market should be
focusing on economic data.</li><li>"We are
definitely not off the Golden Path".</li><li>The Fed is not
facing an imminent threat from the labour market.</li><li>If inflation
progress reverses, it could merit a rate hike.</li></ul><p>The January University of Michigan Consumer Sentiment
survey beat expectations across the board:</p><ul><li>Consumer sentiment 78.8 vs. 70.0 expected and
69.7 prior.</li><li>Current
conditions 83.3 vs. 73.3 prior.</li><li>Expectations
75.9 vs. 66.4 prior.</li><li>One-year inflation 2.9% vs. 3.1% prior.</li><li>Five-year inflation 2.8% vs. 2.9% prior.</li></ul><p>The highlights for next week
will be:</p><ul><li>Monday: PBoC LPR, New Zealand Services PMI.</li><li>Tuesday: BoJ Policy Decision, New Zealand CPI, Australia
Flash PMIs.</li><li>Wednesday: Japan/Eurozone/UK/US Flash PMIs, BoC Policy
Decision.</li><li>Thursday: ECB Policy Decision, US Durable Goods Orders, US
Jobless Claims, US Q4 Advance GDP.</li><li>Friday: Tokyo CPI, US PCE.</li></ul><p>That’s all folks. Have a nice weekend!</p>

This article was written by Giuseppe Dellamotta at www.forexlive.com.