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No Follow Through in Risk Appetite after US Stocks Rebound

US equities staged a impressive rebound overnight and that’s actually the strongest since 2009. DOW closed up 4.98% or 1086.25 pts at 22878.45. S&P 500 rose 4.96% to 2467.70. NASDAQ jumped even more by 5.84% to 6554.36. Reactions in Asia were mixed though. Nikkei closed up 3.88% to 20077.62, reclaimed 20000 handle. Singapore Strait Times is trading up 1.71% at the time of writing. But Hong Kong HSI and China Shanghai SSE are down -0.39% and -0.2% respectively.

The currency markets also show little confidence on return of risk appetite. Commodity currencies were originally higher earlier today. But they’re now the weakest ones at the time of writing, led by New Zealand Dollar. Swiss Franc is the strongest for today for now, followed by Euro and then Yen. The forex markets are somewhat back to “normal”.

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One more thing to note is that Japan 10 year JGB yield is currently down -0.001 at 0.026%. It hit as high as 0.039 earlier today but reversed. It’s certain not the kind of relief signal. Also, in the US, yield curve remains inverted from 1-year (2.631) to 2-year (2.628) and 3-year (2.606).

Technically, EUR/JPY and GBP/JPY has likely formed temporary bottoms ahead of 124.89 and 139.29 support respectively. Some consolidations would be seen first but there is no sign of bullish reversal yet. AUD/USD and USD/CAD’s corrective recover and retreat were rather shallow. But currencies could try to extend recent decline against Dollar today. EUR/USD, USD/CHF and GBP/USD remain range bound, breakout awaited.

White House adviser Hassett: Powell’s 100% safe, Trump very happy with Mnuchin

Kevin Hassett, chairman of the Council of Economic Advisers of the US, said in an interview yesterday that Fed Chair Jerome Powell’s job is 100% safe. He told the WSJ that “The president has voiced policy differences with Jay Powell, but Jay Powell’s job is 100% safe. The president has no intention of firing Jay Powell”.

In addition to Trump’s dissatisfaction on Powell, there were also reports that he has turned his anger to Treasury Secretary Steven Mnuchin. Mnuchin is the one whose’s meeting Powell once a week regularly. And it’s said that Trump is considering to add one of his advisers to the regular meetings. But Hassett said “I am highly confident that the president is very happy with Secretary Mnuchin.”

EU Oettinger: Will tolerate France deficit as one-time exception, but urged Macron to continue fiscal reforms

EU Budget Commissioner Guether Oettinger said that French President Emmanuel Macron has “lost authority” by having a budget that exceed EU’s 3% limit. He referred to France announcement last week that the budget deficit could rise to 3.2% in 2019, instead of 2.8% as originally planned.

Though, Oettinger expressed his empathy that Macron was under political pressure from violent protests to ease the impact of fiscal reforms. He said an interview that “under this condition, we will tolerate a national budget deficit higher than three percent as a one-time exception.” However, he also emphasized “it must not continue beyond 2019.”

Oettinger said Macron “remains a strong supporter of the European Union”. And, “It crucial now that Macron continues his reform agenda, especially in the labor market, and that France remains on its growth track.”

On the data front

Japan housing starts dropped -0.6% yoy in November, below expectation of -0.1% yoy. ECB will release monthly bulletin in European session.

The US Department of Commerce said they will not publish economic data during the partial government shut down. On the other hand, Labor Department will release the data it complies. So, jobless claims, house price index and Conference Board consumer confidence will be featured in US session.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 139.96; (P) 140.41; (R1) 141.18; More…

A temporary low should be in place at 139.59 with the current recovery, ahead of 139.29/47 key support zone. Intraday bias in GBP/JPY is turned neutral for consolidation first. Stronger recovery could be seen through 4 hour 55 EMA (now at 141.46). But near term outlook will stay bearish as long as 143.93 resistance holds. On the downside, decisive break of 139.29/47 will carry larger bearish implications.

In the bigger picture, as long as 139.29 cluster support (50% retracement of 122.36 to 156.59 at 139.47) holds, up trend from 122.36 (2016 low) could still extend beyond 156.69 high. However, decisive break of 139.29/47 will suggest that such up trend is completed and turn outlook bearish. In that case, next target is 61.8% retracement at 135.43.

Economic Indicators Update

5:00JPYHousing Starts Y/Y Nov-0.60%-0.10%0.30%
9:00EURECB Monthly Bulletin
13:30USDInitial Jobless Claims (DEC 22)220K214K
14:00USDHouse Price Index M/M Oct0.30%0.20%
15:00USDNew Home Sales Nov569K544K
15:00USDConsumer Confidence Index Dec133135.7
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