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Dollar Digests Gains after PCE Inflation Data, Aussie Broadly Lower

Dollar retreats mildly today after PCE inflation data posted no surprises. While there is some profit taking, the greenback remains the strongest one for the week by some distance. Selling focus has turned from Euro to commodity currencies today, as lead by Aussie. The overall close would still depend on development in risk sentiment, which has been very volatile recently.

In Europe, at the time of writing, FTSE is down -1.42%. DAX is down -1.97%. CAC is down -1.79%. Germany 10-year yield is up 0.0395, still negative at -0.016. Earlier in Asia, Nikkei rose 2.09%. Hong Kong HSI dropped -1.08%. China Shanghai SSE dropped -0.97%. Singapore Strait Times dropped -0.42%. Japan 10-year JGB yield rose 0.0094 to 0.169.

US PCE price index rose to 5.8% yoy, core PCE rose to 4.9% yoy

US personal income rose 0.3% mom, or USD 70.7B in December, below expectation of 0.5% mom. Spending dropped -0.6% mom, or USD -95.2B, matched expectations.

PCE price index accelerated slightly from 5.7% yoy to 5.8% yoy, below expectation of 6.1% yoy. Core PCE price index jumped from 4.7% yoy to 4.9% yoy, above expectation of 4.8% yoy.

Eurozone economic sentiment indicator dropped to 112.7, EU down to 111.6

Eurozone Economic Sentiment Indicator dropped from 113.8 to 112.7 in January. Industry confidence dropped from 14.6 to 13.9. Services confidence dropped from 10.9 to 9.1. Consumer confidence dropped from -8.4 to -8.5. Retail trade confidence rose from 1.1 to 3.8. Construction confidence dropped from 10.1 to 8.1. Employment Expectations Indicator dropped from 113.5 to 113.3.

EU ESI dropped from 113.0 to 111.6. EEI dropped from 113.6 to 113.1. Amongst the largest EU economies, the ESI rose in Germany (+0.8) and Spain (+0.6) while it worsened in Italy (-6.1), Poland (-4.2), France (-2.8) and the Netherlands (-1.3).

Germany GDP contracted -0.7% qoq in Q4, still -1.5% lower than pre-pandemic level

Germany GDP dropped -0.7% qoq in Q4, worse than expectation of -0.2% qoq. GDP was still -1.5% lower than pre-pandemic level in Q4, 2021. For whole of 2021, GDP grew 2.8%.

Destatis said, “after economic output grew again in the summer despite increasing supply and material bottlenecks, the recovery of the German economy was halted by the fourth corona wave and renewed tightening of corona protection measures at the end of the year.”

“Private consumption in particular decreased in the fourth quarter of 2021 compared to the previous quarter, while government consumer spending increased. Construction investments fell compared to the third quarter of 2021.”

France GDP grew 0.7% in Q4, up 7% in 2021

France GDP grew 0.7% qoq in Q4, above expectation of 0.5% qoq. On average over 2021, GDP increased by 7.0% after -8.0% in 2020. GDP was 0.9% above pre-pandemic level in Q4 2019. But the average level of GDP in 2021 was still -1.6% below its average level in 2019.

Looking at some details, final domestic demand (excluding inventories) contributed to +0.5 points. In particular, the growth rate of household consumption expenditure (+0.4%) was similar to that of gross fixed capital formation (GFCF, +0.5%). Contribution of foreign trade to GDP growth was slightly negative this quarter at -0.2 points. contribution of inventory changes to GDP growth was positive this quarter (+0.4%).

Swiss KOF economic barometer rose to 107.8, various subgroups developing unevenly

Swiss KOF Economic Barometer rose from 107.2 to 107.8 in January, above expectation of 106.0. KOF said the ” various subgroups of the barometer are developing unevenly.”

Outlook has improved for consumer spending and for financial and insurance service providers. The outlook also tends to brighten for the accommodation and food service activities. However, in the goods production sector (manufacturing and construction), indicators for almost all sub-​aspects of business activity are weakening, especially for profit development, production activity and capacity utilisation.

IMF: BoJ’s commitment to prolonged monetary accommodation appropriate

IMF said in a report that BoJ’s commitment to maintaining prolonged monetary accommodation remains “appropriate”. It expects that a “prolonged period of monetary policy accommodation, flexible fiscal policy, and inclusive growth-oriented reforms will be required to durably lift inflation expectations and inflation to the target.”

Further measures could be considered for making monetary support “more sustainable”. On option could be to “steepen the yield curve by shifting the yield target from the 10-year to a shorter maturity”. This could help “mitigate the impact of prolonged monetary accommodation on financial institutions’ profitability”. If underlying inflation momentum remains weak, “cutting the policy rate should be the first option”.

AUD/USD Mid-Day Report

Daily Pivots: (S1) 0.6998; (P) 0.7060; (R1) 0.7095; More…

AUD/USD drops further to as low as 0.6966 so far today and intraday bias remains on the downside. Sustained break of 0.6991/2 support will confirm resumption of 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. On the upside, break of 0.7089 minor resistance will mix up the near term outlook and turn intraday bias neutral first.

In the bigger picture, focus remains on 0.6991 key structural support. Sustained break there 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. Meanwhile, strong rebound from 0.6991 will retain medium term bullishness. That is, whole up trend from 0.5506 is still in progress.

Economic Indicators Update

23:30JPYTokyo CPI Core Y/Y Jan0.20%0.30%0.50%
00:30AUDPPI Q/Q Q41.30%0.90%1.10%
00:30AUDPPI Y/Y Q43.70%2.70%2.90%
06:30EURFrance Consumer Spending M/M Dec0.20%0.20%0.80%0.90%
06:30EURFrance GDP Q/Q Q4 P0.70%0.50%3.00%
07:00EURGermany Import Price Index M/M Dec0.10%1.80%3.00%
08:00CHFKOF Economic Barometer Jan107.8106107107.2
09:00EURGermany GDP Q/Q Q4 P-0.70%-0.20%1.70%
09:00EUREurozone M3 Money Supply Y/Y Dec6.90%6.90%7.30%
10:00EUREurozone Economic Sentiment Indicator Jan112.7114.5115.3113.8
10:00EUREurozone Services Sentiment Jan9.114.911.210.9
10:00EUREurozone Industrial Confidence Jan13.91514.914.6
10:00EUREurozone Consumer Confidence Jan F-8.5-8.5-8.4
13:30USDPersonal Income M/M Dec0.30%0.50%0.40%0.50%
13:30USDPersonal Spending Dec-0.60%-0.60%0.60%0.40%
13:30USDPCE Price Index M/M Dec0.40%0.50%0.60%
13:30USDPCE Price Index Y/Y Dec5.80%6.10%5.70%
13:30USDCore PCE Price Index M/M Dec0.50%0.50%0.50%
13:30USDCore PCE Price Index Y/Y Dec4.90%4.80%4.70%
13:30USDEmployment Cost Index Q41.00%1.20%1.30%
15:00USDMichigan Consumer Sentiment Index Jan F68.668.8
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