In the wake of the G20 meeting that took place in Shanghai, the Japanese yen strengthened as finance ministers from the world’s 20 major economies failed to allay concerns about the effects of market turmoil and the prospect of lower global growth. USD/JPY plummeted more than 1%, erasing Friday’s gains, and returned below the 113 threshold as risk sentiment struggles to take off. On the downside, the 110.99 level remains the key support, while on the upside a resistance can be found at 114 (Friday’s high). On the data front, after contracting 1.7%m/m in December, industrial production rose 3.7%m/m in January. However, the release of disappointing retail sales (-1.1%m/m versus 0.1% consensus) did not allow the positive sentiment to last.
The last batch of US data surprised to the upside on Friday with fourth quarter GDP revised higher to 1.0% (quarter-over-quarter annualized), while the market was expecting a downward revision to 0.4% from 0.7% first estimate. On the inflation front, the PCE core rose to 1.7%y/y, beating consensus and upward revision of 1.5%. Personal income surged to 0.5%m/m (versus 0.4% consensus), while personal spending rose to 0.5%m/m (versus 0.3% median forecast). Finally, the Michigan sentiment index printed at 91.7, up from 90.7 first estimate and above median forecast of 91. All in all, in spite of the improving inflation outlook, the current highly volatile environment and faltering risk sentiment could jeopardize the Fed’s rate path. For these reasons, we do not expect the USD will appreciate substantially over the upcoming week. USD/JPY should remain under pressure.
On the equity market, the Asian regional markets were broadly trading in negative, with mainland Chinese shares leading the charge. The Shanghai Composite was off 2.86%, while the tech-heavy Shenzhen Composite tumbled 5.37%. Elsewhere, in Hong Kong the Hang Seng was down 1.28%, in Tokyo the Nikkei fell 1% and the Topix 1.02%, in Singapore the STI was flat. In Europe, futures are pointing to a lower open with the Footsie down 0.86%, the DAX -1.19%, the SMI -1.20% and the CAC -1.03%.
The pound sterling consolidated below $1.39 over night as Brexit’s fears continue to weigh on the pair. However, in the late Asian session the pound got some colour back as it found some buying interest. GBP/USD is currently testing the 1.39 level but is lacking the strong boost required to reverse the strong bearish trend. Indeed, over the past few weeks the pair broke a few strong supports and traders are reluctant to take the step and enter long GBP positions. On the downside, the next key support lies at 1.3503 (low from January 2009), while on the upside a closer strong resistance can be found at 1.46.
Today traders will be watching 4Q GDP from Germany; trade balance from Turkey; mortgage approval from the UK; CPI from euro zone and Italy; trade balance from South Africa; Chicago purchasing manager index, pending home sales and Dallas Fed manufacturing activity index.