NFP and Wage Growth Figures and Powell Put the Dollar in Focus

With China’s service sector PMI easing some market angst, focus shifts to the Dollar and wage growth, NFP numbers and FED Chair Powell.
Bob Mason

Earlier in the Day:

Following a tumultuous Thursday, it was almost business as usual through the Asian session this morning, with economic data released early on in the day including finalized December manufacturing PMI numbers out of Japan and service sector PMI numbers out of China.

For the Japanese Yen, December’s finalized PMI stood at 52.6, coming in ahead of a prelim and forecasted 52.4, November’s PMI having stood at 52.2. According to the latest Markit Economics report:

  • Output growth accelerated to an 8-month high, with new orders also rising at a faster pace, while still moderate overall.
  • Export sales declined, with employment rising at a weaker rate, leading to a pickup in backlogs.
  • The rate of job creation was the slowest in 3-months.
  • Business confidence fell to its lowest level in just over 2-years, the decline attributed to the impending consumption tax hike, while finding some support from the 2020 Olympic Games.

The Japanese Yen moved from ¥107.708 to ¥107.764 upon release of the figures before easing to ¥108.04 at the time of writing, down 0.33% for the session, the Yen giving back some of Thursday’s gains off the back of China’s service PMI.

Out of China, the December Caixin Services PMI rose from 53.8 to 53.9, coming in ahead of a forecasted 52.9. According to the latest figures released by Markit Economics:

  • The business activity index struck a 6-month high at 53.9, contributing to the composite output index hitting a 5-month high of 52.2
  • New orders saw a modest increase in the service sector, with new work from overseas expanding at the quickest pace in 6-months.
  • Service companies continued to hire, though the pace of hiring eased to a 3-month low.
  • Unfinished business increased for the first time in 4-months.
  • Service sector companies saw input prices rise, the increase attributed to higher raw material prices and salary costs, with selling prices also rising moderately at the end of the year.
  • Business confidence improved across the service sector, though remained subdued by historical standards.

The Aussie Dollar moved from $0.70107 to $0.70164 up on release of the figures, before rising to $0.7024 at the time of writing, a gain of 0.26% for the session. With China’s services sector now accounting for 50% of the economy, the upward momentum offset the slowdown in the manufacturing sector, easing some immediate pressure on the Aussie Dollar that managed to recover from sub-$0.70 levels upon release of the data.

Elsewhere, the Kiwi Dollar was also in positive territory, up 0.04% to $0.6696 at the time of writing.

The Day Ahead:

For the EUR, economic data scheduled for release through the morning is on the heavier side, with key stats including finalized inflation figures out of France, Italy and more importantly the Eurozone, with December unemployment numbers out of Germany and service sector PMI numbers out of Italy, Spain and finalized service sector PMI numbers out of France, Germany and the Eurozone also in focus.

While we would traditionally expect the Germany unemployment and Eurozone inflation numbers to be the key drivers through the day, though with increased sensitivity towards economic outlook, the service sector PMI numbers will likely have a greater influence.

Outside the numbers, market risk sentiment will continue to play a hand, as the markets prepare for FED Chair Powell’s scheduled discussion with his predecessors, which could send the markets into another spin should Powell talk up the need for rate hikes through next year.

At the time of writing, the EUR up 0.05% to $1.1400.

For the Pound, economic data scheduled for release is limited to December’s service sector PMI that will likely have a relatively minor impact on the Pound and December house price figures released earlier in the morning that will likely be brushed aside by the markets.

Any Brexit chatter ahead of the start of next week’s parliamentary debate on the Brexit deal will be key through the day.

As far as the markets are concerned the UK economy could be in 5th gear and even that wouldn’t deliver a strong Pound with so much uncertainty lingering over Brexit.

At the time of writing, the Pound was up 0.07% to $1.2637, with any Brexit chatter through the day likely to overshadow today’s PMI numbers.

Across the Pond, it’s a big day for the Dollar, with key stats scheduled for release including December nonfarm payroll and wage growth figures, which are due out ahead of the economic conference, where Powell will be speaking alongside predecessors Yellen and Bernanke. Finalized service sector PMI figures will likely have a muted impact on the Dollar, barring a material deviation from prelim numbers.

Outside the numbers and the economic conference, the government shutdown and trade war chatter will also be of influence through the day.

At the time of writing, the Dollar Spot Index was down 0.02% to 96.290.

For the Loonie, after a particularly quiet week on the data front, December labour market figures and November’s RMPI are scheduled for release this afternoon, providing the markets with some numbers to digest ahead of the Bank of Canada’s first monetary policy decision of the year next week.

While positive numbers will provide some upside for the Loonie, sentiment towards the global economy may ultimately overshadow the numbers, with the BoC likely to take a more cautious stance with so much uncertainty ahead and the U.S – China trade war yet to be resolved.

The Loonie was up 0.04% to C$1.3483 against the U.S Dollar at the time of writing.

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