European markets were trading higher initially on Friday but failed to sustain gains and turned negative as investors failed to shrug off the negative signals from the retail and auto sectors. In particular, within an unexpected overhaul of its European business Ford Motor Co. cuts thousands of job, closes a number of plants, as well as cancels low-profit models, citing its poor performance. Meanwhile, Macy’s Inc. cut its sales outlook sending a wave of selling across the retail sector. Against this backdrop, investors switched off from positive developments on the trade front, where a new round of US-China talks will take place in late January.
As such, German DAX 30 sheds 0.64% to 10,851, Italy’s FTSE MIB loses 0.49 per cent to 19,205, Britain’s FTSE 100 sheds 0.43 per cent to 6,913, while France’s CAC 40 declines by 0.80 per cent to 4,767. US stock index futures are trading lower amid the ongoing government shutdown and the generally lower risk appetite across the board.
The markets barely reacted to the US CPI data that came in line with projections. The consumer price index declined 0.1% in December after being unchanged in November. Over the last 12 months, the index increased 1.9%.Meanwhile,real average hourly earnings increased 0.5% from 0.4% in November. As the monthly inflation turned negative, the dollar weakened slightly after the release but the pressure was limited due to further rise in the hourly earnings. So the general picture is more neutral rather negative. Anyway, slowing CPI growth is another argument for leaving Fed rates unchanged.
Following the release, USDJPY broke down of its consolidation phase and touched daily lows marginally above the 118.00 figure. The safe-haven demand continues to underpin the Japanese yen as investor sentiment turned sour at the end of the trading week, partially due to some profit-taking. Earlier this week, the pair failed to recover above the 109.00 level and struggles to resume the upside move since then. Considering unstable global environment, risks for USDJPY are still skewed to the downside, both in the short and medium term.
GBPUSD is having a volatile day amid a flurry of Brexit headlines. Initially, the pair dipped to session lows in the 1.2710 region but quickly rebounded and spiked to end-November highs around 1.2850. Afterwards, the cable has settled close to the 1.28 psychological level. The rally took place amid the reports by Evening Standard (citing Cabinet minister) that Brexit could be delayed beyond 29 March. The uncertainty and volatility ahead of the key parliamentary vote on Tuesday remain elevated, so other abrupt moves in the cable are possible in the days to come.
Brent crude oil was rejected from fresh one-month high of $62.46 earlier in the day as global investor sentiment deteriorated towards the end of the trading week. However, the retreat was limited as the price managed to hold above the key $60 level which now serves as the immediate meaningful support. Anyway, Brent turned slightly negative on the day. Another source of the local weakness is the technical factor as the above mentioned resistance looks too strong to be broken from the first attempts. As such, traders decided to fix profit ahead of the weekend. In the short-term, the market will react to weekly Baker Hughes data, and should the report comes as bullish, the barrels will trim losses and could even turn positive on the day if risk aversion fails to intensify.
Nathan Lambert, Head of Global FX Analytical Department