Forex Markets Show Hesitation, Gold on the Rise

Today’s trading in the forex markets reflects a sense of indecision among investors. Dollar, which initially showed signs of recovery, faced an abrupt halt following unexpected decline in US PPI for December. British Pound, despite the release of stronger-than-expected UK GDP data, failed to garner significant support. Japanese Yen is attempting a modest recovery, capitalizing on retreat in global benchmark yields. However, momentum behind Yen’s recovery remains relatively weak. Euro, meanwhile, continues to trade within a narrow range against major counterparts like Dollar Sterling, and Swiss Franc.

In contrast to the lackluster movements in currency pairs, Gold rebounds strongly after being supported by near term rising channel. Current development suggests that near term up trend in gold remains intact. Next focus is 2063.74 minor resistance. Break there should pave the way through 2088.24 resistance towards 2134.97.

In Europe, at the time of writing, FTSE is up 0.70%. DAX is up 0.78%. CAC is up 0.78%. Germany 10-year yield is down -0.0090 at 2.206. UK 10-year yield is down -0.029 at 3.813. Earlier in Asia, Nikkei rose 1.50%. Hong Kong HSI fell -0.35%. China Shanghai SSE fell -0.16%. Singapore Strait Times fell -0.30%. Japan 10-year yield fell -0.0149 to 0.591.

US PPI down -0.1% mom in Dec

US PPI for final demand fell -0.1% mom in December, below expectation of 0.1% mom. PPI goods was down -0.4% mom while PPI services was unchanged. PPI less foods, energy and trade services rose 0.2% mom.

For the 12-month period, PPI rose from 0.8% yoy to 1.0% yoy, below expectation of 1.3% yoy. PPI less foods, energy and trade services rose from 2.4% yoy to 2.5% yoy.

UK GDP grew 0.3% mom in Nov, but down -0.2% in the three month period

UK GDP grew 0.3% mom in November, above expectation of 0.2% mom. Services output rose 0.4% mom. Production output grew 0.3% mom. Construction sector fell-0.2% mom.

However, in the three months to November, GDP fell -0.2% compared with the prior three months period to August. Services showed no growth, production output fell by -1.5% and construction fell by -0.6% over the same period.

NIESR forecasts 0.2% UK GDP growth in Q1

NIESR estimated UK’s GDP remained “flatlined” in the final quarter of 2023. Looking ahead, NIESR forecasts modest uptick in GDP growth for the first quarter of 2024 by 0.2%. This forecast aligns with broader trend observed in UK economy, characterized by “low, but stable economic growth”.

While UK’s GDP showed 0.3% growth in November, a broader look at the three-month period leading up to November paints a different picture. In this timeframe, GDP experienced a -0.2% decline compared to the preceding three months up to August.

“These three-monthly data, which are less volatile than the monthly figures, suggest that the bigger picture remains one of sluggish growth,” NIESR said.

China’s CPI improved to -0.3%, deflation persists for the 3rd month

China’s CPI rose from -0.5% yoy to -0.3% yoy in December, better than expectation of -0.4% yoy. That’s nonetheless the third consecutive month of negative reading. On a month-on-month basis, the CPI increased by 0.1% , versus -0.5% decline in November. Core CPI, which excludes volatile food and energy prices was at 0.6% yoy, unchanged from November.

NBS said pork prices, the main factor impacting year-on-year CPI, fell -26.1% yoy, narrowed from -31.8% yoy in November. Services inflation, however, rose steadily with tourism and hotel accommodation prices increasing by 6.8% yoy and 5.5% yoy, respectively.

PPI rose from -3.0% yoy to -2.7% yoy, worse than expectation of -2.5% yoy. That’s the 15th straight month of decline. NBS said the PPI decline was affected by factors including declining international prices of oil and insufficient demand for some industrial products.

China’s exports rise 2.3% yoy in Dec, down to US, EU and ASEAN

In December, China’s exports increased by 2.3% yoy to USD 303.6B, surpassing expectation of 1.7%. However, this growth was not uniform across all regions. Notably, shipments to US saw a significant decline of -6.89% yoy. Similarly, exports to EU and ASEAN countries also dropped, by -1.93% yoy and -6.14% yoy respectively.

On the import front, China experienced a marginal increase of 0.2% yoy to USD 228.2B, which was slightly below the expected 0.3% yoy growth. Consequently, trade surplus widened from USD 68.3B to USD 75.3B, which was above the anticipated USD 74.8B.

For the entire year of 2023, China’s trade figures painted a scenario of contraction. Exports decreased by -4.6% to USD 3.38T, while imports saw -5.5% contraction to USD 2.56T.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2711; (P) 1.2742; (R1) 1.2795; More…

No change in GBP/USD’s outlook as range trading continues below 1.2826. On the upside, decisive break of 1.2826 high will resume whole rally from 1.2036. Nevertheless, break of 1.2611 will bring deeper correction to 1.2499 support instead.

In the bigger picture, price actions from 1.3141 medium term top are seen as a corrective pattern to up trend from 1.0351 (2022 low). Rise from 1.2036 is seen as the second leg that’s in progress. Upside should be limited by 1.3141 to bring the third leg of the pattern. Meanwhile, break of 1.2499 support will argue that the third leg has already started for 38.2% retracement of 1.0351 (2022 low) to 1.3141 at 1.2075 again.

Economic Indicators Update