Swiss Franc, Dollar and Yen on Risk Aversion as Ukraine Tensions Escalate

Market overviews

Swiss Franc, Dollar and Yen rise strongly today on risk-off sentiment as geopolitical tensions around Ukraine escalate. Aussie is currently the worst performing one, followed by Sterling and then Kiwi. Euro and Canadian are mixed. In the back ground, markets are also preparing for some hawkish comments from Fed later in the week to set the stage for the start of rate hike cycle in March. In other markets, cryptocurrencies are extending recent free fall. Silver weakens notably but Gold is steady. Oil is extending range trading.

Technically, AUD/USD’s break of 0.7128 support suggests that recent choppy rebound from 0.6992 has completed at 0.7313. USD/CAD ‘s break of 1.2619 also indicate that fall from 1.2963 has completed at 1.2588. Even worse, NZD/USD has already resumed the choppy fall from 0.7463. It looks like sentiment will only get worse before getting better.

In Europe, at the time of writing, FTSE is down -1.37%. DAX is down -2.16%. CAC is down -2.16%. Germany 10-year yield is down -0.025 at -0.089. Earlier in Asia, Nikkei rose 0.24%. Hong Kong HSI dropped -1.24%. China Shanghai SSE rose 0.04%. Singapore Strait Times dropped -0.35%. Japan 10-year JGB yield rose 0.0027 to 0.139.

UK PMIs: Consumer facing businesses hit hard, but others encouragingly robust

UK PMI manufacturing dropped form 57.9 to 56.9 in January, below expectation of 57.9. PMI Services ticked down from 53.6 to 53.3, well below expectation of 55.0. PMI Composite dropped from 53.6 to 53.4. All three indexes were at their 11-month low.

Chris Williamson, Chief Business Economist at IHS Markit, said: “A resilient rate of economic growth in the UK during January masks wide variations across different sectors. Consumer-facing businesses have been hit hard by Omicron and manufactures have reported a further worrying weakening of order book growth, but other business sectors have remained encouragingly robust.”

Eurozone PMI composite dropped to 11-mth low at 52.4

Eurozone PMI Manufacturing rose from 58.0 to 59.0 in January, above expectation of 57.5, a 5-month high. PMI Services dropped from 53.1 to 51.2, below expectation of 52.2, 1 9-month low. PMI Composite dropped from 53.3 to 52.4, a 11-month low.

Chris Williamson, Chief Business Economist at IHS Markit said: “The Omicron wave has led to yet another steep drop in spending on many consumer-facing services at the start of the year, with tourism, travel and recreation especially hard hit. However, so far the overall impact on the wider economy appears relatively muted, and most encouraging is the further easing of manufacturing supply chain delays despite the renewed virus wave. Not only has the alleviating supply crunch helped factories boost production, but cost pressures in manufacturing have also moderated.

Germany PMI composite jumped to 54.3, surprisingly resilient performance

Germany PMI Manufacturing rose from 57.4 to 60.5 in January, above expectation of 57.0, a 5-month high. PMI Services also rose from 48.7 to 52.2, above expectation of 48.0. PMI Composite rose form 49.9 to 54.3, a 4-month high.

Phil Smith, Economics Associate Director, at IHS Markit said: “January’s flash PMI numbers came in comfortably above consensus to show a surprisingly resilient performance from the German economy at the start of the year… Manufacturing is expected to stage a recovery in 2022 as supply bottlenecks ease… January’s services numbers, showing activity recovering slightly after the decline at the end of last year, were another positive surprise… Still, rising costs remain a concern for businesses, with the survey data showing that input prices are continuing to rise sharply and on multiple fronts.”

Bundesbank: Germany inflation to remain extraordinarily high at 2022 beginning

Bundesbank said in the monthly report that real GDP grew by 2.7% in 2021, not enough to compensate the -4.50% contraction in 2020. It added, “setbacks caused by the pandemic and bottlenecks on the supply side dampened the recovery in the past year.”

Overall, prices was at an above-average rate of 3.2% in 2021. The factors driving up inflation are “also having an effect into the new year.” Bundesbank added, “the rate at the beginning of 2022 is likely to remain extraordinarily high….In addition, due to the significant rise in market quotations for natural gas, the corresponding end customer tariffs will be raised significantly.”

France PMI composite dropped to 52.7, a 9-month low

France PMI Manufacturing ticked down from 55.6 to 55.5 in January, matched expectations. PMI Services dropped notably from 57.0 to 53.1, below expectation of 55.3, a 9-month low. PMI Composite dropped from 55.8 to 52.7, a 9-month low too.

Joe Hayes, Senior Economist at IHS Markit said: “Given the surging number of daily COVID-19 cases we’ve seen in France, it’s no surprise to see softer PMI numbers in January…. Supply chain issues continue to impact the economy, particularly manufacturers, but we do appear to have seen the worst as delivery times lengthened to a far weaker extent than seen during much of 2021. That being said, the inflationary side effects remain in play and are being exacerbated by rising staff costs and energy prices.”

Japan PMI manufacturing ticked up to 54.6, services tumbled to 46.6

Japan PMI Manufacturing ticked up from 54.3 to 54.6 in January, below expectation of 55.0. PMI Services dropped sharply from 52.1 to 46.6. PMI Composite also dropped from 52.5 to 48.8.

Usamah Bhatti, Economist at IHS Markit, said: “Flash PMI data indicated that activity at Japanese private sector businesses dipped into contraction territory for the first time in four months at the start of 2022. The pace of decline was modest, and led by the sharpest fall in services activity since August, while manufacturers commented on a slight quickening in output growth.”

Australia PMI composite dropped to 45.3, slipped from strong recovery to contraction

Australia PMI Manufacturing dropped from 57.7 to 55.3 in January. PMI Services tumbled sharply from 55.1 to 45.0. PMI Composite also dropped from 54.9 to 45.3, first contraction follow three months of growth. All are at their 5-month low.

Jingyi Pan, Economics Associate Director at IHS Markit, said: “The Australian economy had slipped from a state of strong recovery in end-2021 to being affected by the surge in COVID-19 infections at the start of 2022… Supply issues meanwhile remained prevalent… This had led to input price inflation worsening Employment levels were unchanged.”

AUD/USD Mid-Day Report

Daily Pivots: (S1) 0.7155; (P) 0.7193; (R1) 0.7213; More…

AUD/USD’s break of 0.7128 support dampens our original bullish view and indicates that corrective rebound from 0.6992 has completed at 0.7313. Intraday bias is back on the downside for retesting 0.6991/2 support zone. Further break there will resume larger down trend from 0.8006, and carries larger bearish implication. Next target will be 100% projection of 0.7555 to 0.6992 from 0.7313 at 0.6750. For now, risk will stay on the downside as long as 0.7313 resistance holds, in case of recovery.

In the bigger picture, strong rebound from 0.6991 key structural support will retain medium term bullishness. That is, whole up trend from 0.5506 is still in progress. Firm break of 0.7555 resistance will target 0.8006 high and above. However, sustained break of 0.6991 will argue that the whole up trend from 0.5506 might be finished at 0.8006, after rejection by 0.8135 long term resistance. Deeper decline would then be seen back to 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:00 AUD Manufacturing PMI Jan P 55.3 57.7
22:00 AUD Services PMI Jan P 45 55.1
00:30 JPY Manufacturing PMI Jan P 54.6 55 54.3
08:15 EUR France Manufacturing PMI Jan P 55.5 55.5 55.6
08:15 EUR France Services PMI Jan P 53.1 55.3 57
08:30 EUR Germany Manufacturing PMI Jan P 60.5 57 57.4
08:30 EUR Germany Services PMI Jan P 52.2 48 48.7
09:00 EUR Eurozone Manufacturing PMI Jan P 59 57.5 58
09:00 EUR Eurozone Services PMI Jan P 51.2 52.2 53.1
09:30 GBP Manufacturing PMI Jan P 56.9 57.9 57.9
09:30 GBP Services PMI Jan P 53.3 55 53.6
14:45 USD Manufacturing PMI Jan P 56.8 57.7
14:45 USD Services PMI Jan P 55 57.6