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BoE is not ‘Fed light’: Expect first hike in Q1 17 – Danske Bank

Research Team at Danske Bank, notes that the Bank of England has made it clear that it is definitely not ‘Fed light’.

Key Quotes

“There are many reasons for the BoE to stay on hold for a long time: subdued wage inflation, ECB on an easing bias and Brexit uncertainties to mention a few.

As a consequence, we have moved our call for the first BoE hike to Q1 17, probably in February (previously Q2 16, probably in May).

We have lowered our UK interest rates forecasts across the curve but we still project higher UK interest rates over the medium-term horizon as the BoE is priced too dovishly.

We see EUR/GBP trendless and volatile in the coming months but stress that risks are skewed to the upside around the time of the EU in/out referendum.”

Research Team at Danske Bank, notes that the Bank of England has made it clear that it is definitely not ‘Fed light’.

(Market News Provided by FXstreet)

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US non-farm payrolls preview – RBS

Research Team at RBS, suggests that the three-month moving average of US non-farm payroll growth surged to +284K in December, its highest since January 2015.

Key Quotes

“But while we expect labor market gains to continue at a solid pace, that trend may prove unsustainable into January. Our trading desk economists forecast non-farm payroll growth of 180K in January, slightly below the listed consensus and well below December’s 292K surge.

The bulk of that decline, is centered in just three sectors – transportation and warehousing, professional business services, and government employment. Less supportive base effects in January may mean that the average hourly earnings growth rate in January dips from 2.5% y/y to 2.2% y/y, even though our economists look for a relatively firm +0.3% m/m advance in earnings. The unemployment rate may dip below 5.0% for the first time since 2007 (RBSe 4.9%).”

Research Team at RBS, suggests that the three-month moving average of US non-farm payroll growth surged to +284K in December, its highest since January 2015.

(Market News Provided by FXstreet)

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NZ dairy prices: Lower for longer – ANZ

Research Team at ANZ, have revised their milk price forecast to $3.95/kg MS for 2015/16 and at this early stage $5.00/kg MS for 2016/17 (previously $4.25 and $5.50-5.75/kg/MS respectively).

Key Quotes

“This means for the average Fonterra farmer that is fully share backed cashflow looks like $3.81/kg MS in 2015/16 and $4.89/kg MS in 2016/17. Our estimates suggest a cumulative loss of around $1.50/kg MS over the two seasons if these forecasts become reality, or further cost efficiencies can’t be found over coming months.

Price action is poor and European supply dynamics are very bearish at present. There simply appears too much supply for the market to handle despite some encouraging demand signals and the likes of China’s import requirements having improved.

Two important structural shifts in the form of increased European supply and a lower cost of production are dominating. Both these factors are expected to continue to supress prices and delay expectations for a rebound.

USD dairy prices are weaker and the NZD is more elevated than what we had previously assumed. As such, it’s difficult to maintain a mid-$5/kg MS forecast for 2016/17.

The economic knock-on to the dairy sector and broader economy will be substantial. Lower dairy prices are at the forefront of a near 20% fall in New Zealand’s goods terms of trade over 2016; that’s a huge hit to the economy’s purchasing power and enough to knock up to 3 percentage points off GDP growth over two years.

With low international prices, a lower dairy payout and likely pressure on cash-flow until 2017/18 ups the ante on the OCR needing to move lower (the December MPS included a low export price scenario that required 50bps of easing), we are not yet at that juncture. The rest of the economy is generally vibrant / performing well and until we see material signs of a turn we’ll remain in the no change camp.”

Research Team at ANZ, have revised their milk price forecast to $3.95/kg MS for 2015/16 and at this early stage $5.00/kg MS for 2016/17 (previously $4.25 and $5.50-5.75/kg/MS respectively).

(Market News Provided by FXstreet)

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EUR/USD: phase of consolidation ahead of NFP?

The EUR/USD pair is seen trading around a flat line near 1.12 handle post-China open and remains slightly offered as the USD selling paused in Asia.

EUR/USD rejected at the key resistance near 1.1240

Currently, EUR/USD trades -0.10% lower at 1.1197, recovering from fresh session lows of 1.1191 reached last hours. The bulls took a breather this Friday, with the major correcting the heavy gains seen over two consecutive sessions after the extensive USD sell-off, triggered by Fed’s Dudley’s word of caution and the recent poor run of US fundamentals.

While the common currency was also bolstered by ECB Draghi’s pledge to fight low inflation, in his speech in Germany on Thursday. EUR/UD gained nearly 350 pips over the last two trading sessions, reaching the highest levels since late-Oct at 1.1239.

In the day ahead, the risk remains to the upside for the main currency pair as markets expect sharp drop in jobs additions in the US economy last month, which will weigh on the Fed’s rate hike prospects. The US economy is forecast to have added around 189,000 jobs last month, sharply lower from 292,000 jobs added in December.

EUR/USD Technical Levels

In terms of technicals, the pair finds the immediate resistance is seen at 1.1239/50 (Feb 4 High/ psychological levels). A break beyond the last, doors will open for a test of 1.1270/80 (daily R1/ Oct 2015 levels). On the flip side, the immediate support is placed at 1.1169 (daily pivot) below which at 1.1088/62 (1h 50-SMA/ 5-DMA) could be tested.

The EUR/USD pair is seen trading around a flat line near 1.12 handle post-China open and remains slightly offered as the USD selling paused in Asia.

(Market News Provided by FXstreet)

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Nikkei drags Asian stocks lower, NFP in focus

Asian markets dropped on the final trading day of the week, led by heavy losses in the Japanese indices after the yen strengthened to two-week highs versus its American counterpart.

Moreover, markets remain cautious ahead of the crucial US payrolls data, which will shed more light on the Fed rate hike prospects, especially after the recent poor run of economic data have raised fewer rate hike expectations.

Japan’s stocks headed for weekly loss

The Japanese benchmark index, the Nikkei 225 tanks -1.30% to 16,825 points as the relatively stronger yen continues to pressure the exporters’ stocks. Further, Japan’s auto stocks traded with size-able losses between 2%-4% and dragged the index lower. Meanwhile, USD/JPY is now making recovery attempts from 2-week lows reached at 116.50, but remains capped by 117 handle.

The Australian markets followed suit and fell in the red on the back dismal retail sales and a non-event RBA SoMP, with the ASX 200 index now declining -0.83% to 4,938. The positive sentiment around the mining and resource stocks, on the back of rebound in commodities’ prices, failed to lift the region’s indices.

While the Chinese equities traded marginally lower and wobbled amid a calm session. The benchmark Shanghai Composite index trades modestly lower at 2,780, while China A50 index drops -0.30%.

Asian markets dropped on the final trading day of the week, led by heavy losses in the Japanese indices after the yen strengthened to two-week highs versus its American counterpart.

(Market News Provided by FXstreet)

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