· Dollar up before payrolls, yuan slips on China virus woes
The dollar held near a two-week high versus the yen on Friday on upbeat U.S. economic data ahead of a key jobs report, while the yuan eased and financial markets remained on tenterhooks as the death toll from a new coronavirus in China jumped yet again.
Sterling traded near a six-week low against the greenback and nursed losses versus the euro, dogged by persistent worries about negotiations between Britain and the European union for a post-Brexit trade deal.
Recent upbeat U.S. economic data and China’s stimulus steps gave traders some respite from heightened concerns about the new virus, though the uncertainty about the impact of the epidemic on global growth looks set to keep most investors risk-averse — at least in the short run.
The dollar traded at 109.97 yen on Friday in Asia, just below a two-week high hit earlier. For the week, the dollar was on course for a 1.5% increase versus the yen, which would be its biggest weekly gain since July 2018.
In the onshore market, the yuan fell 0.1% to 6.9796 per dollar.
For the week, the onshore yuan fell 0.6% as Chinese financial markets took a battering after resuming trade on Monday following an extended Lunar New Year holiday.
In contrast, the offshore yuan was on course for a 0.3% gain this week, supported by central bank stimulus and Thursday’s surprise Chinese announcement of tariff cuts on U.S. imports.
For now, the focus has shifted to the closely-watched U.S. nonfarm payrolls report due later on Friday, which is forecast to show job creation accelerated in January.
The mood for the dollar improved on Thursday after unemployment benefits dropped to a nine-month low and worker productivity rose.
Investors are nervous that British Prime Minister Boris Johnson is taking a hard line in trade talks with the EU, which need to conclude before the end of the year to avoid a potentially disruptive break in trading relations.
The pound was little changed at $1.2938, close to the lowest since Dec. 25 and down 2% for the week.
· EUR/USD TECHNICAL ANALYSIS: BEARISH
The Euro recoiled from resistance guiding it lower against the US Dollar since the beginning of the year. The barrier found added reinforcement at the underside of former support establishing the floor of the single currency’s recovery in the fourth quarter of 2019.
Prices have now returned to challenge the 1.0968-90 area, which has capped the downside for almost four months. Breaking below that with confirmation on a daily closing basis seems likely to open the door for a subsequent test of the October 1 swing bottom at 1.0879.
Reclaiming a foothold above 1.1149 – again, with daily-close confirmation – is probably a prerequisite for neutralizing near-term selling pressure. That would shift gears to “neutral”, with a subsequent push above the December high at 1.1239 needed to set the stage for a more overtly constructive view.
· GBP/USD finds its feet above fresh 2020 lows, Brexit, NFP eyed
GBP/USD is hovering around 1.2950, above the six-week lows. The US dollar remains robust ahead of the Non-Farm Payrolls while concerns of a no-trade deal Brexit is weighing on the pound.
Sellers look for entry below 100-day SMA, now around 1.2900, to target November 22, 2019, low near 1.2820. On the contrary, buyers will stay away unless the pair manages to cross a 21-day SMA level of 1.3045.
· Fed's Randal Quarles says he is optimistic about the outlook but notes risks threatening growth. He also added that "careful monitoring" of the economic impact of the coronavirus.
· Japanese telco SoftBank Corp on Friday reported a 15% rise in third-quarter operating profit, beating estimates, underpinned by its mobile business.
SoftBank also raised its full-year operating profit forecast to 900 billion yen ($8.19 billion) from 890 billion yen previously.
· Japanese household spending fell at a much faster pace than expected in December, sliding for the third straight month in a sign consumers are having a hard time coping with a sales tax hike.
The world’s third-largest economy is struggling to regain momentum after last October’s sales tax hike led consumers to curb spending. China’s coronavirus epidemic also poses a new threat to the global growth outlook and Japan’s output and exports.
Household spending slipped 4.8% in December from a year earlier, government data showed on Friday, coming in well below a median forecast for a 1.7% decline.
· Japan’s economy likely shrank at the fastest pace since 2014 in the December quarter as a sales tax hike and a typhoon dented consumer spending and sluggish exports hit capital expenditure, a Reuters poll showed on Friday.
Adding to pressure to the outlook is China’s virus outbreak, which has threatened exports and factory output and has already hit tourism in Japan.
Gross domestic product (GDP) is expected to have contracted an annualized 3.7% in the October-December quarter, the poll found, having grown 1.8% in the third quarter.
It would be the first contraction in the five quarters and the biggest fall since a 7.4% decline in April-June 2014, which was the last time Japan raised its sales tax.
· Japan’s Abe wants government to pull out all stops to limit economic impact
Japanese Prime Minister Shinzo Abe has reportedly called on his government to take “all necessary steps” in order to limit the economic impact of the virus outbreak. That could include dipping into budget reserves, Reuters said.
“There’s a risk the coronavirus outbreak could hurt consumption, so we need to watch developments carefully,” Economy Minister Yasutoshi Nishimura was quoted as saying on Friday, reported Reuters citing Jiji Press.
Japan, which is preparing to host the 2020 Summer Olympics in July and August, is also concerned about the impact on inbound tourism, the report said.
· China to send team to Wuhan amid public outcry over whistleblower doctor’s death
China will be sending a team to Wuhan city, the epicenter of the outbreak, “to comprehensively investigate the matters regarding Dr. Li Wenliang raised by the public,” according to China’s Central Commission for Discipline Inspection.
Dr. Li Wenliang, a 34-year-old Chinese doctor in Wuhan, died early Friday morning after being infected by the virus, according to the Wuhan Central Hospital where he worked. The ophthalmologist was one of the first people to warn about the dangers of the virus, but was reprimanded by authorities for “spreading rumors.”
His death has ignited a public outpouring of grief and criticism of the government on social media. The hashtag #IWantFreedomOfSpeech has been censored on Chinese social media, Weibo.
· Chinese President Xi Jinping spoke on Friday with US President Donald Trump on the novel coronavirus outbreak and urged Washington to respond "reasonably" to the epidemic, state media reported.
Xi told Trump on the phone that China was "fully confident and capable of defeating the epidemic", and that "the long-term trend of China's economic development for the better will not change", according to state broadcaster CCTV.
The viral outbreak, which is believed to have originated in central China late last year, has now infected at least 31,000 people and caused 636 deaths, mostly within China.
· Chinese President Xi Jinping assured his U.S. counterpart on Friday that China was doing all it can to contain a new coronavirus that has killed almost 640 people, including a doctor who sounded the alarm only to be threatened by police.
China was gradually achieving results and was confident it could defeat the epidemic with no long-term consequences for economic development, Xi told President Donald Trump in a telephone call, according to state television.
The call to the White House, which China has accused of scaremongering over the epidemic, came as China’s central bank vowed to step up support for the economy to cushion the blow of the outbreak.
First-quarter growth in the world’s second-biggest economy could slow by 2 percentage points or more, from 6%, in the last quarter, analysts say, but could rebound sharply if the outbreak peaked soon.
· U.S. payroll gains seen picking up, benchmark revisions under spotlight
U.S. job growth likely picked up in January, with unseasonably mild temperatures seen boosting hiring in the weather-sensitive sectors, indicating the economy will probably continue to grow moderately despite a deepening slump in business investment.
The Labor Department’s closely watched monthly employment report on Friday is, however, expected to show job gains from April 2018 through March 2019 were not as robust as originally estimated. Any steep downgrade to payrolls during that period would suggest a significant slowdown in job growth this year.
“The employment report will support expectations that the economic expansion is going to continue at a moderate pace,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. “But benchmark revisions will show weaker momentum in the labor market, which should weigh on the markets’ expectations for payroll growth going forward.”
According to a Reuters poll of economists, the government’s survey of establishments will probably show nonfarm payrolls increased by 160,000 jobs in January, likely driven by hiring in construction and leisure and hospitality industries.
While that would be higher than the 145,000 jobs created in December, payrolls would be below the monthly average of 176,000 jobs in 2019. Employment gains are seen slowing in February as the coronavirus, which has killed hundreds in China and infected thousands globally, disrupts supply chains, especially for electronics producers such as Apple .
· German industry output suffers biggest slump since 2009
German industrial output registered its biggest drop in more than a decade in December, highlighting the weakness of the manufacturing sector that is dragging on overall growth in Europe’s largest economy.
Industrial production tumbled by 3.5% on the month, undershooting expectations for a 0.2% fall, figures released by the Statistics Office showed. The drop was the biggest since January 2009, a Statistics Office official said.
The November output reading was revised to an increase of 1.2% after a previously reported 1.1% rise.
Separate trade figures showed seasonally adjusted exports edged up by 0.1% on the month while imports fell by 0.7% in December.
· S&P slashes China GDP forecast for 2020
Ratings agency S&P has revised lower China’s GDP forecast for this year — from 5.7% before the virus outbreak to 5%.
“Most of the economic impact of coronavirus will be felt in the first quarter, and China’s recovery will be firmly in place by the third quarter of this year,” S&P Global Ratings APAC Chief Economist Shaun Roache said in a Friday report.
Looking ahead, S&P expects an “above-trend” growth of 6.4% versus a previous forecast of 5.6% for 2021.
· Oil prices rose on Friday after Russia said it backs a recommendation for the OPEC and its producer allies to deepen output cuts amid contracting demand for crude as China battles the coronavirus epidemic that has hit global markets.
Brent crude futures rose 32 cents, or 0.6%, to $55.25 a barrel by 0104, after falling 0.6% on Thursday. U.S. West Texas Intermediate (WTI) crude futures were up 26 cents, or 0.5%, at $51.21 a barrel, having gained 0.4% the previous session.
A panel advising the Organization of Petroleum Exporting Countries (OPEC) and allies led by Russia, known as the OPEC+ group, suggested provisionally cutting output by 600,000 barrels per day (bpd), three sources told Reuters on Thursday.
Reference: CNBC, Reuters,FXstreet
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