Mixed price action for financial markets this week but the overall theme seems to be one of ‘risk aversion’ as safe haven currencies have consistently outperformed the risk-taking majors.
As usual in this environment, the Japanese Yen and Swiss Franc took the top spot versus the rest of the FX majors, while Crypto and Equities took a backseat gold.
Notable news and economic updates:
UK consumer prices rose 5.4% – the highest since March 1992 – versus 5.2% expected and 5.1% in November.
Australia’s economy added 64.8k jobs in December versus 60k forecast, 366.1k previously
Canadian inflation hits 30-year high at +4.8%
The PBOC cut lending rates on Thursday in a bid to boost credit supply and growth
Bank of Russia Calls for Total Ban on Crypto Trading and Mining; property would be allowed
US jobless claims climb to a three-month high of 286,000
BOJ’s Kuroda: “Absolutely not thinking of raising rates or changing our easy monetary policy”
President Lagarde reiterates that the ECB will tighten if inflation conditions meet its criteria
Intermarket Weekly Recap
Broad risk sentiment seemed to be the dominant theme this week as stocks, crypto assets and risk currencies failed to find supply while safe havens like the US dollar, gold and Japanese yen looked green for most of the week.
It is likely that the negative sentiment stems from an accumulation of drivers, beginning with negative pandemic-related headlines from China earlier in the week (Chinese cities in peak COVID-19 alert as Lunar New Year travel season begins), followed by the ever-present fears of high inflation and rising interest rates (as evidenced by bond yields, including the US 10-year Treasury yield, which is nearing the 1.90% level).
We also saw renewed fuel for growing speculation that global growth could slow in the coming months, including weaker Chinese and UK retail sales, rising US jobless claims and mixed business survey data from around the world.
We had a brief moment of risk-on sentiment on Thursday, sparked by news of the People’s Bank of China cutting lending rates, but that proved a short-lived rebound as traders resumed selling risky assets during the US session. It was a reversal arguably fueled by the ongoing sell-off in the technology sector as traders tend to flee riskier assets in a rising interest rate environment.
This may also have been the reason for the negative turn in crypto assets, but we can also argue that stories like Crypto.com being hacked for $34 million and another SEC rejecting a spot Bitcoin ETF (this time Spot Bitcoin ETF Proposal) may have had an impact crypto bias such as.
With risk aversion dominating this week, it came as no surprise that the Japanese yen took the lead in FX markets, followed by the Swiss franc and US dollar. The Canadian dollar also looked much greener this week despite the negative risk environment, more likely driven by rising oil prices thanks to geopolitical headlines (Oil hits a seven-year high of $87.10 after a major Iraqi-Turkish oil pipeline was destroyed by an explosion).
USD pairs
The NY Empire State Manufacturing Index fell to -0.70 in January versus an expected drop to 25.0
US housing starts rose 1.4% in December to 1.7 million units.
US jobless claims rise to three-month high on Omicron impact
Fed officials say higher immigration could ease US labor shortages
Philadelphia Federal Reserve manufacturing conditions rose 8 points to 23.2 in January.
US Existing Home Sales collapsed -4.6% m/m in December
Finance Minister Yellen expects inflation to slow significantly next year
GBP pairs
Asking prices for UK property are up 7.6% yoy – the fastest pace since 2016
Employers in the UK added a record 184,000 jobs in December; UK unemployment rate down from 4.2% to 4.1% in November
Rising inflation could weaken demand, slow price growth – BoE’s Bailey
UK consumer confidence falls to -19 from -15 on inflation and interest rate concerns
UK retail sales collapse -3.7% versus -0.6% forecast in December.
BOE politician Catherine Mann says the Bank of England must fight inflation
EUR pairs
The German ZEW economic climate index jumps from 29.9 to 51.7 in January.
The ZEW economic sentiment index for the euro zone also rose to 49.4 from 26.8
Producer prices in Germany increased by +24.2% yoy in December
Eurozone inflation hits record high of 5% in December
Accounts of the ECB meeting (15-16 December 2021): a scenario of “prolonged higher” inflationary conditions could not be ruled out; ready to act if price pressures persist
CHF pairs
The Swiss producer price index fell by -0.1% to 105.1 in December
CAD pairs
Businesses and consumers expect inflation to exceed 3.0% over the next two years: BOC survey
Canada’s manufacturing sales rose 2.6% in November despite floods in BC
Canada’s housing construction in December 22% slower than November but “remains at historically high”
Canadian inflation hits 30-year high at +4.8%
Canada added 19.2k jobs in December – ADP
Canadian retail sales rose 0.7% in November to $58.1 billion
New home prices in Canada rose 0.2% in December
NZD pairs
Global milk prices have increased by +4.6% since the last auction
New Zealand PM says restrictions on community transmission of Omicron could be tightened again
Business NZ manufacturing index improves to 53.7 from 50.6 in December.
AUD pairs
Australia consumer sentiment slips 2% to 102.2 in January on Omicron surge
Australia’s economy added 64.8k jobs in December versus 60k forecast, 366.1k previously
Australia’s unemployment rate improved to 4.2% from 4.6% versus 4.5% consensus
Australian MI inflation expectations fell to 4.4% from 4.8%
JPY pairs
Japan’s core machinery orders rose 3.4% versus 1.4% expected in November
BOJ raises inflation estimates to 1.1% in fiscal 2022 from 0.9%, says risks are ‘broadly balanced’
The BOJ cuts FY2021 growth forecasts to 2.8% from 3.4% but raises FY2022 growth to 3.8% from 2.9%
Japanese exports hit 17.5% yoy while imports rose 41.1% in December
Fuel costs and a weak yen push Japan’s annualized core consumer prices up 0.5% in December