08/01/2025 Market Watch

Market Watch: Job Data & FOMC Minutes

The US dollar is showing strength today, buoyed by a constructive sentiment and stronger-than-expected data from the JOLTS and ISM reports. These developments align with the narrative of American exceptionalism. Meanwhile, the new US administration's disruptive policies are making waves. Controversially, the administration has not ruled out military action to secure regions like Greenland and Panama and has hinted at integrating Canada. Additionally, demands for NATO members to increase military spending to 5%, a threshold the US itself does not meet, have raised eyebrows. Proposals to rename the Gulf of Mexico to the Gulf of America further underline this assertive stance. In the context of heightened tensions with Russia, China, and Iran, some view these moves as potentially beneficial distractions for America's rivals.

The sell-off in US equities yesterday impacted Asia Pacific markets today, while Europe’s Stoxx 600 has risen for the third consecutive session, and US index futures are also higher. European 10-year yields have edged up slightly, while the US 10-year Treasury yield remains steady near 4.68%. The US concludes this week’s bond auctions with the 30-year bond sale, where yields hover around 4.90%, the highest since November 2023.

In commodities, gold remains firm but below its recent high of ~$2664. WTI crude oil has surged, hitting nearly $75.30, its best level since October, spurred by a seven-week decline in US private sector inventories, the longest such streak in three years.

United States of America

The Dollar Index has retraced its rally since the December 18 FOMC meeting and is now rebounding. After settling just above 108 on that day, it climbed to nearly 109.55 at the start of the new year. Earlier this week, it dipped to 107.75 but has since recovered, nearing 109.00 today. Key events for today include the ADP private sector job creation estimate, the conclusion of this week’s bond auctions with a $22 billion 30-year bond sale, and the release of the FOMC minutes.

ADP estimates that the private sector added 489,000 jobs over the three months through November, compared to the BLS estimate of 414,000. For the first 11 months of the year, ADP reports nearly 1.7 million new private-sector jobs, while the BLS estimates 1.57 million. Both the Fed and Chair Powell have acknowledged that the BLS figures may overstate job creation, a factor considered in policy decisions.

In terms of US Treasury supply, the recent 10-year and 30-year bond sales come at a time of rising yields. Economic data like the JOLTS report and ISM services data have exceeded expectations, suggesting stronger economic activity. The Fed's shift in December to focus more on price stability, supported by a steady unemployment rate, has influenced market expectations, with the median projection now indicating two rate cuts this year rather than four. The futures market currently anticipates slightly less than 40 basis points of easing this year.

Key Points:

• The Dollar Index is nearing 109.00 after a recent rebound.
• ADP and BLS job creation estimates differ but show substantial growth.
• Treasury bond sales are coinciding with rising yields.
• Stronger-than-expected economic data has shifted market expectations for Fed policy.
• The futures market anticipates around 40 basis points of easing this year.

Australia

The Australian dollar has faced resistance this week, failing to stay above $0.6300. After peaking at $0.6290 yesterday, it settled near $0.6230 and has since slipped further to about $0.6210. The break below $0.6225 raises concerns about a potential retest of the recent low near $0.6180, the lowest level since October 2022. Notably, options worth A$650 million at $0.6185 are set to expire on Friday.

The November CPI report, which showed a slight increase to 2.3% from 2.1%, had little impact on expectations for the Reserve Bank of Australia's upcoming February meeting. The trimmed mean measure eased to 3.2% from 3.5%, offering some reassurance. The futures market now prices in a nearly 75% chance of a quarter-point rate cut, slightly above previous levels.

Upcoming data could influence the RBA's view on strong demand. Australia's November retail sales, expected to grow by 1%, would mark the largest increase since March 2022. Additionally, November trade figures and household spending data are due soon. Exports rose by 3.6% in October, the highest since August 2023, and household spending increased by 0.8% in October, with a 0.6% rise anticipated for November.

Key Points:

• The Australian dollar struggles to stay above $0.6300, with risks of retesting recent lows near $0.6180.
• November CPI rose to 2.3%, while the trimmed mean fell to 3.2%.
• Futures market prices in a 75% chance of a quarter-point rate cut by the RBA.
• Strong retail sales and household spending data expected in the coming days.

Canada

The Canadian dollar consolidated within Monday’s range yesterday, with the greenback holding steady around CAD1.4370 in late European trading. A notable development capturing attention is the speculation about Mark Carney potentially pursuing the leadership of the Liberal Party. In an ideal scenario, he could win and secure the NDP's support for the minority government, giving him until October to improve the Liberals' standing before the next election. However, this outcome is considered a long shot by many observers.

Key Points:

• The Canadian dollar remains stable within recent ranges, with the greenback near CAD1.4370.
• Speculation surrounds Mark Carney's potential bid for Liberal Party leadership.
• An ideal scenario would see Carney leading a minority government with NDP support until the next election in October.
• Many view this scenario as unlikely.

China

The US dollar remains within the range of CNH7.3055-CNH7.3700 against the offshore yuan, as observed in the final session of 2024. Chinese officials have attempted to curb the dollar's rise by setting the reference rate around CNY7.33 and reducing liquidity in the Hong Kong market, making it more expensive to short the offshore yuan. There are rumors of state banks selling dollars in a potential "stealth intervention," though distinguishing these sales from regular commercial activity, like exporters converting earnings, is challenging.

The Bloomberg survey, showing bank estimates of the fix, has averaged between CNY7.3055 and CNY7.32 in recent days, with today's fix set at CNY7.1887. This rate has remained steady around CNY7.1875-80, placing the 2% trading band between CNY7.0450 and CNY7.3325. The dollar currently trades near the upper end of this band.

Key Points:

• The US dollar trades within CNH7.3055-CNH7.3700 against the offshore yuan.
• Officials set reference rates and reduce market liquidity to curb the dollar's rise.
• Rumors suggest state banks are selling dollars as a form of intervention.
• The current reference rate places the trading band between CNY7.0450 and CNY7.3325, with the dollar near the strong end.

Europe

The euro consolidated in the upper range of Monday’s trading but lost upward momentum. Despite briefly breaching the 20-day moving average intraday, the euro hasn’t closed above it since December 9 and is now near $1.0405. A break below $1.0350 is driving a potential move toward $1.03, with significant options at that level expiring after Friday’s US jobs data.

The eurozone’s preliminary CPI data failed to ignite much reaction, and today's December PPI, which showed a smaller decline than November, is not the main focus. Instead, poor German economic data is weighing heavily on the euro. November retail sales in Germany fell 0.6%, missing expectations for a 0.5% increase. More notably, German factory orders plunged 5.4% in November, far worse than the anticipated 0.2% decline, marking the third drop in four months. Some solace was found in the fact that excluding large orders, factory orders would have shown a modest rise. Tomorrow, Germany will release industrial production and trade figures, while France reported a 7.1 billion euro trade deficit for November, which is nearly 20% smaller compared to the previous year.

Key Points:

• The euro lost momentum after consolidating in the upper range of Monday's session.
• The 20-day moving average remains a resistance level, with the euro near $1.0405.
• German economic data, including weak retail sales and a sharp drop in factory orders, weighs on the euro.
• France's trade deficit narrowed by nearly 20% year-over-year in November.

Japan

The US dollar climbed to JPY158.40 yesterday, marking its highest level since last July. After pulling back to JPY157.50 in Europe, stronger-than-expected US data, including JOLTS and ISM services, pushed the greenback back toward session highs, buoyed by the US 10-year yield reaching an eight-month high of around 4.70%. Today, the dollar is trading within a narrow range of approximately JPY157.90 to JPY158.35.

The yen's recent weakness could fuel speculation about a possible Bank of Japan (BOJ) rate hike later this month, with about 10 basis points already priced in by the swaps market. The upcoming speech by BOJ Deputy Governor Himino on January 14 is seen as a critical event to gauge the central bank's intentions. There is limited technical resistance before the psychologically significant JPY160 level.

Key Points:

• The US dollar reached JPY158.40, its highest since last July.
• Strong US data and a rising 10-year yield supported the dollar.
• Yen weakness raises speculation about a potential BOJ rate hike.
• BOJ Deputy Governor Himino's speech on January 14 is closely watched.
• Limited chart resistance exists before JPY160.

United Kingdom

The UK's economic calendar is relatively light for the rest of the week. Yesterday, sterling nearly reached $1.2575, approaching the 50% retracement of its losses since the last US jobs report. However, as the dollar strengthened in response to robust US data, sterling reversed and fell to about $1.2480, with additional selling pushing it down to $1.2425 today. Unless the US jobs report on Friday is unexpectedly weak, sterling could potentially revisit the eight-month low of around $1.2355 set last week.

Next week's UK data releases include December CPI, which might show a year-over-year decrease from 20.6%, November GDP, and December retail sales, offering further insights into the country's economic health.

Key Points:

• Sterling peaked at ~$1.2575 before reversing due to strong US data.
• Fell to $1.2425, with potential to reach last week's low of ~$1.2355.
• Upcoming UK data: December CPI, November GDP, December retail sales.