All eyes and ears were on the U.S. PPI release, but volatility remained elevated while major asset classes responded to individual catalysts.
Crude oil snapped its three-day winning streak on talks of a Hamas ceasefire deal while U.S. equities ended mixed and bitcoin struggled to keep its head afloat.
Here are the headlines influencing price action lately.
Headlines:
- Japan Economy Watchers Sentiment index up from 49.4 to 49.9 in Dec (49.4 forecast)
- BOJ member Himino says they are likely to hike rates if our economic forecasts are realized, must carefully watch various upside, downside risks at home and abroad
- China new loans up from 580B CNY to 990B CNY in Dec (890B CNY forecast)
- Israel and Hamas agreed to ceasefire deal “in principle” – CBS
- U.S. NFIB Small Business index up from 101.7 to six-year high of 105.1 in Dec (101.3 forecast)
- U.S. headline PPI in Dec: 0.2% m/m (0.4% forecast, 0.4% previous); core PPI in Dec: 0.0% m/m (0.2% forecast, 0.2% previous)
- U.S. RCM/TIPP Economic Optimism index in Jan: 51.9 (55.1 forecast, 54.0 previous)
- FOMC member Schmid: Fed will act on tariffs changes if it disrupts their mandates
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
It was another mixed day in the financial markets, as traders braced for the U.S. PPI report that could provide clues ahead of the highly-anticipated CPI release the next day.
Headline producer prices showed a meager 0.2% monthly uptick in December versus the expected 0.4% gain while the core version of the report stayed flat. Annual readings, however, remained comfortably at 3.5% and 3.3% respectively, still at levels enough to keep overall consumer inflation above the 2% target.
With that, Treasury yields remained supported for the most part of the U.S. session as underlying inflation data pointed to the possibility of the Fed staying on hold for much longer. Equities, however, tossed and turned throughout the day, as the Dow chalked up back-to-back daily gains while the Nasdaq chalked up its fifth consecutive session in the red.
Meanwhile, crude oil ended its three-day winning streak on reports of Israel and Hamas reaching a ceasefire deal in principle, easing supply concerns in the Middle East. Bitcoin, on the other hand, staged a slow but steady climb to hold on to the $96K level while gold also remained in positive territory.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
Dollar pairs moved more or less in lockstep compared to the previous trading day, with clearer directional shifts in the Asian and London sessions, before USD/JPY veered away from the pack once again.
A bit of yen weakness was already evident during Asian market hours when BOJ member Himino spoke of potentially hiking rates as soon as their economic forecasts are met, further dashing any immediate tightening hopes.
While the Greenback weakened across the board upon seeing weaker than expected U.S. PPI figures, USD/JPY remained elevated and even went on to surpass its intraday highs, closing 0.21% higher for the day.
The U.S. dollar closed in negative territory against the rest of its counterparts, most notably EUR (-0.80%) followed by CHF (-0.62%).
Upcoming Potential Catalysts on the Economic Calendar:
- Japan preliminary machine tool orders at 6:00 am GMT
- U.K. headline and core CPI at 7:00 am GMT
- Eurozone industrial production at 10:00 am GMT
- U.S. headline and core CPI at 1:30 pm GMT
- U.S. Empire State manufacturing index at 1:30 pm GMT
- FOMC member Barkin’s speech at 2:20 pm GMT
- FOMC member Kashkari’s speech at 3:00 pm GMT
- U.S. EIA crude oil inventories at 3:30 pm GMT
- FOMC member Williams’ speech at 4:00 pm GMT
- FOMC member Goolsbee’s speech at 5:00 pm GMT
- U.S. Fed Beige Book at 7:00 pm GMT
The market focus may be on the U.S. CPI release during the New York session, but volatility among GBP pairs could already pick up during the U.K. CPI report that could also influence BOE policy expectations.
Keep your eyes and ears peeled for Fed commentary during the speeches of Barkin, Kashkari, Williams and Goolsbee since any major change in rhetoric could influence USD direction and overall market sentiment.