After a quiet couple of weeks, it is nice to see the markets come alive again. The volatility won't suit some, and especially if they are trend following. There is a shift in macroeconomics as we are entering a global rate hike cycle and deficits are being contracted rather than expanded. Time will obviously tell if the market is resilient enough to cope with the shift in policy, but for now, being nimble is the key while we wait for some clear direction from the policymakers and rate-setters.
According to the latest Manufacturing ISM report, manufacturing activity grew in December. US Manufacturing rose month-over-month for the 19th consecutive month, with demand and consumption on the rise. The December manufacturing PMI registered 58.7% a decrease of 2.4% from the November reading of 61.1%. This figure indicates expansion in the overall economy for the 19th month in a row after a contraction in April 2020.
A softening of the Supplier Deliveries Index in December indicates an improvement in supplier delivery rates. There are still signs of improvement in the transportation network, a leading indicator of future supplier delivery performance.
The report explained that due to hiring difficulties and a high turnover of staff at all levels, meeting demand will remain a challenge. This is the second month in a row in which Business Survey Committee panelists have indicated an improvement in hiring, offset by backfilling necessary to address the employee turnover. The ISM data analysis in job retention is reflected in the JOLTS jobs report today too.
The JOLTS jobs report was the other big story from the US session today. In the JOLTS report, it was recorded that the number of job quits reached a series-high of 4.5 million (+370,000). Quit rates reached 3.0%, matching the series high set in September. Quits increased in several industries with the largest increases in accommodation and food services (+159,000); health care and social assistance (+52,000); and transportation, warehousing, and utilities (+33,000).
The data from the US today also matches the anecdotal information I received from around the UK during my travels over the Christmas period. Since the lockdowns and re-openings in the UK businesses across the nation are finding it ever harder to find workers to fill roles in the food and hospitality sectors. People need to know that they will have job security and so they are trying to work in areas of the economy which received the most support during lockdowns. There are also many industries suffering from worker absenteeism in the UK due to the need to isolate from fellow workers when showing signs of being infected with a virus or testing positive for COVID-19.
The forex heatmap is showing a shift into the commodity pairs as the US dollar weakened following US news today.
The DXY stopped at the $96 price level before retracing 30 cents. The flows out of the yen are continuing so I am waiting to see if the intraday support in the greenback has been found or whether the dollar pushes lower despite the yen being sold off. The dollar is more likely to rise as the US 10-year yields are up another 3% today as the fears built around Omicron are dissipating and the market gears up for a US rate hike cycle. At 4 pm GMT Fed member Kashkari who is considered a Dove said that he expects two rate hikes in 2022. This is massive as he was quite sure there would be no need for a rate hike until maybe 2024 a few months ago.
The EURUSD had benefitted from a weakening US dollar, but the price action shows the stops on either side of the Asia-Pac session have now been cleared and that the trend to the downside is still the most likely course of action. However, we shall have to see the intraday low get swept before making the short call for a continuation lower. What we do know is that 1.13200 is acting as resistance, so if we close above that, the buyers would have done quite a bit to take back control.
The global equities had mostly been trading higher today and the S&P500 at the start of the day made new all-time highs. It came back into the holiday range following the ISM and JOLTS data but if it doesn’t close below yesterday’s range, I am looking for a continuation higher and a breakout of the bull flag that is forming. A close lower than yesterday’s low and I could foresee a test of the 4650 level and the base of the run-up into Christmas.