Dollar bounce could be short-lived but EUR/USD seasonals can’t be ignored
OVERNIGHT NEWS
# Dollar extends recovery after quiet Asian session, EUR/USD seasonals bearish in January. Euro bond yields flat after sharp retreat yesterday following sell-off in rates last week. USD/JPY breaks below 130, speculation BoJ will raise inflation forecasts.
# Day ahead: Germany CPI, UK and US manufacturing PMI.
# China: Caixin PMI manufacturing falls to 49.0 in December from 49.4 in November. Separately, China Beige Book survey says real GDP probably contracted (both in yoy and qoq terms) in 4Q and full year 2022 growth was up only 2%.
# Turkey CPI slows to 64.27% yoy in December vs 84.39% in November, core rate sows to 51.93% yoy vs 68.91%.
# Euro Stoxx futures -0.7%, EUR 10y IRS +1.5bp at 3.08%, Brent crude +0.2% at $86.1/b, Gold +1.4% at $1,849/oz.
Inflation should drop this year in Germany and France but return to 2% must wait until 2024
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Welcome back – and to 2023! CitiFX Wire hopes that you had a wonderful holiday period and wishes you all the best in this New Year. In our annual recap, we review global market developments over the holidays, our key convictions and discuss the week ahead. Stay tuned for live updates on CitiFX Wire here and check out the Outlook page. There were four talking points over the holidays, despite thin trading volumes into year-end. The extremely hawkish ECB, alongside the surprise decision by the BoJ to widen the YCC 10y target band, suggested that equity bulls should proceed with caution. US data also delivered a blow, with November core PCE and Q3 consumption stronger than expected. The other main talking point for markets was China, as the government rapidly reversed its Covid policies even as cases soared. The January 3 trading session has seen a strong resumption in trading volumes and price action. Germany bonds led the rally overnight after state-level CPI underwhelmed, giving reprieve to global equities but fueling a dollar rally. The USD move seems to have been exacerbated by flows resuming from the holiday period, with JPY continuing to outperform on BoJ speculation. This week brings ISM manufacturing on Wednesday, ISM services on Friday as well as the first jobs report of the year. Here, our economists expect a moderation in payrolls, though other indicators should highlight the continued tightness of the labor market. Do keep an eye out for FOMC minutes on Wednesday, with little scheduled in terms of Fedspeak. Otherwise, we watch out for BoJ source headlines, European nat gas developments and how equity sentiment holds as 2023 markets truly get underway. |