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Euro Stays Weak Despite Better CPI, Dollar Shrugs Strong ADP Job Growth

Economic data released today are largely ignored so far. Euro’s weakness continues despite stronger than expected inflation reading. Swiss Franc and Sterling are also softening slightly. Dollar, on the other hand, struggles to extend gain after much stronger than expected ADP employment. New Zealand Dollar continues to trade as the strongest one, taking the Aussie slightly higher. Yen is mixed while stock markets lack a clear direction for the day.

Technically, EUR/JPY’s break of 126.26 minor support is another sign of near term Euro weakness. A focus will be on 1.0788 minor support in EUR/CHF, to see if the selloff would spread. 1.5760 minor support in EUR/AUD is another level to note. GBP/USD is another one to watch as it’s resiliently holding on to 1.3608 minor support, keeping another rally in favor.

In Europe, FTSE is currently down -0.02%. DAX is up 0.47%. CAC is up 0.23%. Germany 10-year yield is up 0.0161 at -0.471. Earlier in Asia, Nikkei rose 1.00%. Hong Kong HSI rose 0.20%. China Shanghai SSE dropped -0.46%. Singapore Strait Times rose 0.35%. Japan 10-year JGB yield rose 0.0026 to 0.059.

US ADP employment rose 174k, continuing slow recovery

US ADP employment grew 174k in January, well above expectation of 40k. By company size, small businesses added 51k jobs, medium businesses added 84k, large businesses added 39k. By sector, goods-producing jobs grew 19k. Service-providing jobs grew 156k.

“The labor market continues its slow recovery amid COVID-19 headwinds,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Although job losses were previously concentrated among small and midsized businesses, we are now seeing signs of the prolonged impact of the pandemic on large companies as well.”

Eurozone CPI surged to 0.9% yoy in Jan, core CPI rose to 1.4% yoy

Eurozone CPI came in at 0.9% yoy in January, up from December’s -0.3% yoy, well above expectation of 0.4% yoy. Core PPI surged to 1.4% yoy, up from 0.2% yoy, well above expectation of 0.7% yoy. Looking at the main components of Eurozone inflation, food, alcohol & tobacco is expected to have the highest annual rate in January (1.5%, compared with 1.3% in December), followed by services (1.4%, compared with 0.7% in December), non-energy industrial goods (1.4%, compared with -0.5% in December) and energy (-4.1%, compared with -6.9% in December).

PPI came in at 0.8% mom, -1.1% yoy in December, versus expectation of 0.7% mom, -1.3% yoy. Industrial producer prices in the Eurozone in December 2020, compared with November 2020, increased by 2.2% in the energy sector, by 0.4% for intermediate goods and by 0.1% for capital goods and for durable consumer goods, while prices remained stable for non-durable consumer goods. Prices in total industry excluding energy increased by 0.3%.

Eurozone PMI composite finalized at 47.8, predictably tough start to 2021

Eurozone PMI Services was finalized at 45.4 in January, down from December’s 46.4. PMI Composite was finalized at 47.8, down from prior month’s 49.1. Among some member states, Germany PMI Composite dropped to 7-month low of 50.8. France at 47.7, Italy at 47.2, Spain at 43.2 and Ireland at 40.3, were all below 50.

Chris Williamson, Chief Business Economist at IHS Markit said: “The eurozone economy endured a predictably tough start to 2021… especially in the service sector…. A contraction of GDP therefore looks likely in the first quarter, though on current trends this should be modest in comparison to the falls seen in the first half of 2020.

“However, with virus containment measures likely to constrain euro area economies in the coming months, and potentially well into the second quarter given the slow vaccine roll-out, the focus will be on the need to sustain supportive fiscal and monetary policymaking for some time to come, notably to prevent further intensifying job losses in the hardest hit sectors, such as hospitality, tourism, travel and retail.

UK PMI composite finalized at 41.2, sharp contraction in Q1 but businesses remain confident

UK PMI Services was finalized at 39.5 in January, sharply down from December’s 49.4. PMI Composite was finalized at 41.2, down from prior month’s 50.4, and back below the crucial 50 no-change threshold.

Tim Moore, Economics Director at IHS Markit: “While the UK economy is on course to contract sharply during the first quarter of 2021, businesses remain confident that pent up demand and an easing of pandemic restrictions will provide a springboard to recovery later this year.

“Positive news on the UK vaccine rollout pushed up business optimism to its strongest since May 2014 and this improvement contrasted with a decline in confidence reported by service providers in the euro area during January.”

New Zealand employment grew 0.6% in Q4, unemployment rate dropped to 4.9%

New Zealand employment grew 0.6% in Q4, better than expectation of 0.0% growth. Unemployment rate dropped back to 4.9%, down from 5.3%, m