China GDP to Set the Tone Today
AUD
AUD trades largely lower against its counterparts, due to a souring market sentiment. Asian equities were mixed on the close to start the week with the Nikkei down 1.1%, the CSI +1.56% (leading to a YTD gain of 6.9%), and the ASX adding 0.82% with gains across most sectors. A mixed day for commodities, with Gold and Silver flat, Iron Ore losing out -0.9%, and Copper dipping -1.8%. Yesterday was a quiet day on the data front, with MI Inflation Gauge m/m being released at 0.2% versus a previous result of 1.0%. The World Economic Forum’s annual meeting began in Davos with corporate executives and economists warning a global recession is likely this year. Of 4,410 business leaders surveyed by PWC in October and November last year, 73% predicted global growth to decline over the coming 12 months. The reading was the worst since the consulting firm began polling in 2011. Two out of five even expressed concern their companies may not last a decade. A separate survey of chief economists, released by the Forum, found two-thirds expect a worldwide recession in 2023 as businesses cut costs; 18% viewed such a downturn as “extremely likely.” China reports a slew of December data to be released first thing this afternoon, including Q4 GDP. The economy was fragile before the exit from zero-Covid policy, and the median forecast in Bloomberg’s survey calls for a 1.1% quarter-over-quarter contraction. The market continues to look through the near-term woes and anticipates a stronger recovery. Foreign investors continue to pour back into Chinese stocks. Looking ahead, Employment Data will be released on Thursday.
USD
The AUDUSD pair hovers around 0.6950, consolidating intraday losses. The pair peaked at 0.7018 at the beginning of the day, but the rally faded alongside the market’s optimism. Signs that inflation is relaxing its grip on the United States economy have investors hopeful that borrowing costs there might not have to rise too much more, and that any economic hit from them will be manageable. A slow session to start the week with the US out for Martin Luther King Day - US equity and bond markets were closed. Tomorrow, in the US, the Empire State manufacturing survey is due. It is the first reading for January, and it is expected to improve to -8.6 from -11.2. NY Fed President William will also cross the wires. Wednesday also brings Retail Sales (likely weak), PPI (softer), and Industrial Production (likely the third consecutive decline). The Fed’s Bostic Harker, and Logan are also scheduled to speak. On Thursday, the Beige Book will be released early in the morning, and the November TIC data on portfolio capital flows as the equity market closes.
EUR
AUDEUR opens lower this morning, reaching one-week-highs of 0.6455 before the trend reversed, trading at 0.6427 at time of writing. There wasn’t much data for traders to digest on Monday, but suspicions that Eurozone borrowing costs will rise sharply keep the Euro supported. The Eurozone has in any case been more exposed than Australia to price rises stemming from the conflict in Ukraine. It has also, arguably, been slow to respond to these. Finnish central bank chief Oli Rehn said last week that the European Central Bank must still raise interest rates ‘significantly’ in the coming months in order to dampen inflation, which has been far too high. Rehn sits on the ECB’s rate-setting governing council. The ECB has increased its interest rates by a combined 2.5 percentage points since last July. Consumer price growth slowed in December to 9.2% from 10.1%, but ‘core’ inflation remains stubborn and rose again last month. Whether the ECB can bring prices to heel without risking a damaging recession, especially in the weaker eurozone economies, remains a huge question, but, for the moment, the prospect of significantly higher rates keeps the single currency bid in a day lacking significant data cues. Reuters reports that over 70% of analysts expect a 0.5 percentage point rise in February, with as many as 28% going for a three-quarter point increase.
GBP
AUDGBP trades lower this morning, having briefly tested fresh two-month-highs of 0.5717 yesterday before losing momentum, giving up the 0.57 handle to trade at 0.5697 at time of writing. Early this morning the Bank of England Governor Andrew Bailey said that inflation looks set to fall markedly this year as energy prices decrease. However, he said that a shortage of workers in the labour market poses a "major risk" to this scenario. "I think that going forwards the major risk to inflation coming down ... is the supply side - and in this country particularly, the question of the shrinkage of the labour force," Bailey told lawmakers on parliament's Treasury Committee. Meanwhile, Employment data will be released today and inflation numbers on Wednesday. Looking ahead to next month's BoE interest rate meeting, a tenth consecutive hike is expected and the money markets are pricing in a 65% chance of a 50 bps hike and a 35% chance of a 25 bps increase. ''Even if the BoE has good reason to step up a hawkish tone, there were various instances last year when this failed to boost GBP, given the backdrop of weak investment growth, low productivity and overhanging uncertainties about the UK’s post-Brexit relationship with the EU,'' analysts at Rabobank said.
NZD
AUDNZD trades lower this morning, reaching highs of 1.0938 before cooling-off and opening at 1.0894 at time of writing. This morning, we saw the release of the NZIER Business Confidence, coming in below expectations of -42 with a result of -70. According to the Quarterly Survey of Business Opinion (QSBO), “New Zealand's business confidence in the fourth quarter of last year hit its lowest level since 1974 as companies grapple with higher interest rates, cost pressures and soft demand.” The survey also mentioned that business confidence is the weakest since the survey started in 1970 if adjusted seasonally. “The survey was undertaken following the more hawkish than expected central bank meeting in November and this was weighing on sentiment,” said NZIER along with the findings. Looking ahead, the GDT Price Index is due out tomorrow.