Gold, JPY and Resource Dollars rally as USD crumbles, US and Canada payrolls preview

The huge rally staged by the US Dollar had run out of gas by late December. The mighty Greenback had been teetering to start the week and today finally caved in, embarking on an overdue correction. This change in direction sparked major relief rallies across a number of currency markets that had been depressed of late, enabling Gold, EUR, AUD, JPY, CAD, GBP, NZD and other currencies to complete bases that had been forming lately.

The correction started with FOMC minutes Wednesday that jolted traders out of their complacency regarding the Fed outlook for this year. The street had been pricing Trump for perfection expecting 4-5 rate hikes this year based on a combination of fiscal changes and stimulus driving a strong economy and growing inflation pressures. FOMC minutes reminded the street that the higher dollar may have done some of the Fed’s work for it, reining in inflation and economic activity, while members also reminded traders it remains uncertain what Trump plans/is able to actually do.

Adding to the change in sentiment was mixed economic news including a profit warning and reports of weak holiday sales from Macy’s and weaker than expected US ADP payrolls partly offset by better than expected jobless claims and ISM non-manufacturing PMI figures. The Macy’s news took its shares down 14% and dragged on other major retailers as well including Nordstrom which fell 7% and Hudson’s Bay which fell 4%. Struggling retailers and financials could drag on indices while the Dow Industrials continue to have a hard time with the 20,000 big round number.

Energy trading was mixed today following US DOE inventory reports that saw a huge 7 mmbbl drawdown in crude stocks offset by huge increases in downstream gasoline and distillates inventories. The size of the swings and misses suggests that there were big year-end adjustments distorting the numbers. Crude oil rallied 0.5% on reports that Saudi Arabia has fully implemented the production cuts it promised in last month’s OPEC deals, while gasoline fell 0.8%.

In Canada today, gold stocks staged a big rally following the metal price higher which could carry through into Australia trading today. Note that energy stocks were weaker on the day so action in the resource group overall could be varied and volatile.

The biggest event between now and the weekend is the US nonfarm payrolls report. The street is expecting an increase of 175K jobs similar to November. The ADP report, however, indicated that payroll growth may have been stronger in November but the party didn’t carry through into December suggesting that there may not have been as much pent up demand for hiring as there was for getting into the stock market at the end of last year. I think we could see a payroll increase of 160 K and a 20K upward revision to the previous month.

For Canada the street is expecting a small decline again following a 10K increase last month. I think we’ll continue to see small increases in payrolls, and am looking for another 10K increase. Drilling into the data traders may be looking for signs of whether energy

There are also a number of other significant announcements that could move the markets between now and the weekend including US and Canada trade balances, US factory orders and Canada PMI. All of these are likely to be viewed through the lens of what this could mean for monetary policy and currency markets.

Corporate News

There have been no major announcements after the US close today

Economic News

Significant announcements released overnight include:

US ADP Payrolls 153K vs street 175K vs previous 216K
US jobless claims 235K vs street 260K

Canada industrial prices 0.3% vs street 0.5%
Canada raw material prices (2.0%) vs street (1.8%)

US natural gas storage (49 BCF) vs street (84 BCF) vs previous (234 BCF)

US DOE crude oil inventories (7.0 mmbbls) vs street (2.0 mmbbls)
US DOE gasoline inventories 8.3 mmbbls vs street 1.0 mmbbls
US DOE distillate inventories 10.0 mmbbls vs street (0.8 mmbbls)

Service PMI reports:

UK 56.2 vs street 54.7

US Markit 53.9 vs street 53.4

US ISM 57.2 vs street 56.8
US ISM new orders 61.6 vs previous 57.0

Upcoming significant economic announcements include:

(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)

11:30 am AEDT Australia trade balance street ($550M)

7:00 am GMT Germany retail sales street 1.2%
7:00 am GMT Germany factory orders street 3.6%

7:00 am GMT Norway industrial production previous 0.7%
10:00 am GMT Eurozone retail sales street 1.9%

8:30 am EST US trade balance street ($45.4B)
8:30 am EST Canada trade balance street ($1.6B)

8:30 am EST US nonfarm payrolls street 175K vs previous 178K
8:30 am EST US private payrolls street 170K
8:30 am EST US average hourly earnings street 2.8% vs previous 2.5%
8:30 am EST US unemployment rate street 4.7%

8:30 am EST Canada employment change street (2K) vs previous 10K
8:30 am EST Canada full-time jobs previous (9K)
8:30 am EST Canada part-time jobs previous 19K
8:30 am EST Canada unemployment rate street 6.9%

10:00 am EST Canada Ivey PMI previous 56.8

10:00 am EST US factory orders street (2.3%)

11:15 am EST FOMC Evans speaking
1:00 pm EST FOMC Lacker speaking
3:30 pm EST FOMC Kaplan speaking

11:15 am EST Sat FOMC Kashkari speaking
11:15 am EST Sat FOMC Powell speaking