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Germany Services PMI Hits 7-year High

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UK Service Sector
  • Germany Services PMI Hits 7-year High

Germany’s services activity rose to a record high in January as surged in demand fueled business growth and job creation in the services sector.

The Services Purchasing Managers’ Index stood at 57.3 in January, up from 55.8 in December, according to the IHS Markit report released on Monday. The highest in nearly seven months.

Phil Smith, the Principal Economist at IHS Markit said: “With the final services numbers showing a slightly better outturn in January than that signaled by the earlier flash results, the overall rate of private sector output growth edged up since December to the strongest since April 2011.”

The survey also showed job creation rose higher, riding on 2017 momentum — the strongest economic growth in a decade. Meaning, the increase in business activity in the services sector aided job creation, with January seeing the highest job growth in nine months. While business backlogs rose for a 55 straight month in January.

Similarly, the report showed prices charged by businesses in Europe’s largest economy rose to the highest in almost a decade as the cost of business input grew in the month. Another indication of rising inflation and suggested that improved economic growth amid strong global growth will further pressure prices as suggested by the European Central Bank during the last monetary meeting. Businesses attributed the surged in price pressures to increase in oil and fuel prices, salary pressures and rising rental fees.

However, despite rising input costs, firms in the services sector were optimistic about economic growth in 2018. Business optimism was unchanged from what was obtained in December 2017.

“The survey results highlight the best round of job creation in the private sector economy for nearly seven years, which adds further pressure to an already-squeezed labour market. Panellists reported higher salaries contributing to sharply rising operating costs, the outcome of which was a pick-up in inflationary pressures. Prices charged for goods and services showed the steepest monthly increase since records began in late-2002,” said Philip.

The Euro climbed from Friday low of $1.2409 against the U.S. dollar to $1.2468.

EURUSDMonthly

With the increased in price pressures and rising new job creation, the Euro common currency is likely to climb up to $1.2609 against the greenback, especially with the uncertainty in the U.S.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Markets

Stocks Push Higher Again

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China's Stocks Tumble as Markets Reopen After Week-long Holiday

By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

We’re seeing improvements in risk appetite again on Tuesday as fears around Omicron continue to ease following earlier reports of less severe symptoms.

This is still an extremely fragile market but the early signs are offering some hope. The initial announcement a couple of weeks ago had investors fearing the worst and so far, that’s not what we’re seeing. Time will tell whether investors are getting ahead of themselves but a couple of days without a negative Omicron headline has the dip buyers flooding back in.

Given the concern among global leaders and various organisations over the last couple of weeks, I struggle to see all of the updates being as positive which makes more two-way price action a strong possibility.

And if it is, then we just have high inflation and monetary tightening to contend with at a time when the global economy is hardly thriving. Of course, that’s a better outcome than higher inflation, rising rates, and Omicron lockdowns but it’s far from perfect which may spoil the party a little. A Santa rally may be underway but it will be a bumpy ride.

Surprising calm around China

There’s a surprising element of calm around Chinese growth as well; a firm belief that authorities have this under control and will stop the Evergrande crisis from spilling over into something much more devastating. We’ll see how the restructuring goes but with the company now failing to source the funds to make coupon payments, it’s about to get real which is probably at least partly why we’re seeing support is arriving in the form of a RRR cut. Further measures will be necessary but so far it’s been enough to ease the nerves.

Oil continues higher on Omicron optimism

Oil prices are continuing to ride the risk wave higher, having been battered by Omicron headlines at times over the last couple of weeks. Crude hit a low after the OPEC+ decision but quickly recovered on the immediate adjustment caveat and since then it has been trading higher.

That could be a sign that OPEC+ has effectively put a floor under the crude price in order to protect its near-term interests but it’s probably more to do with the timing of the Omicron headlines. Don’t get me wrong, oil prices certainly saw some relief following the meeting but traders love to test the limits in these situations and may well still. But the Omicron updates just aren’t allowing for it currently.

There could still be further to run before we potentially see some profit-taking. We’re already seeing a bit in WTI around $71.50 but could see more on approach to $75, while in Brent $76.50-77.50 is key. Ultimately it comes down to the headlines though and if symptoms prove to be less severe, meaning fewer hospitalisations and fatalities than feared, there’s no reason oil prices can head back towards the levels seen for much of November.

Gold choppy ahead of the Fed

It’s been a bit of a choppy session for gold, which continues to trade in relatively tight ranges despite volatility elsewhere in the markets without making headway in either direction. It’s currently a little higher on the day having recovered small losses suffered in the aftermath of the US data. Higher than expected unit labor costs triggered a jump in the dollar which weighed on the yellow metal, not that it lasted for long.

It seems gold is trading with an eye on the Fed next week and an ear to the ground for Omicron news. The next week will be key, after which I expect it to take off in one direction or the other. The Fed’s response will be critical depending on the new variant as it may be faced with inflation and restrictions. Early signs are promising but that’s all it is.

Can bitcoin find some bullish momentum again?

Bitcoin provided a brief reminder that huge price swings go both ways when it plunged on the weekend but it’s recovered much of those losses in the days that have followed. It’s even climbed back above $50,000 but some big tests remain if it’s going to recapture some bullish momentum in these uncertain times. The next one is $53,500 which was a big area of support last month.

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Energy

South Korea to Contribute $12.3 Million Towards the Construction of Solar Mini-Grid in Nigeria

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The South Korean Government announced that it will contribute $12.4 Million towards the construction of solar mini-grids in Nigeria.

  The Ambassador of South Korea to Nigeria, Mr. Kim Young-Chae disclosed this on Monday the 6th in Abuja at the Stand-alone mini-grid project presentation ceremony organized by the Korea Institute for Advancement of Technology (KIAT), in collaboration with the Ministry of Trade and Energy, ILJIN Electrical, S/D Powernics and Korea Polytechnic.

The Ambassador’s full statement was “The project to be implemented by KIAT was designed to meet rising energy demands of rural communities, by constructing solar power generation systems, in cooperation with the Nigerian Government. It involves the construction of mini-grids in non-electrified rural communities near Abuja, to ensure a stable supply of power, installation of transmission and distribution lines, supply of electric equipment and systems and training for the operation and maintenance of mini-grids The project began as a framework agreement signed by South Korea and Nigeria, and laid the foundation for technological support and related policies.

Ita Enang, the Senior Special Assistant to the President on Niger Delta also present at the event, made the following comments “For this demonstration, it is good it is in the Federal Capital Territory, but it will be better to extend it to other areas so that you will get wider buy-in. I will suggest we go to areas like Lagos, Port-Harcourt, Akwa Ibom and Kano which have a high population density.”

Project Manager, Mr Kim Dohyoung said the project will begin with project designing in April 2022 and extend until December 2024 and it will be delivered in partnership with the necessary government agencies and local businesses. He stressed that the project will boost standard solutions in the power sector, provide environmentally friendly and sustainable energy development, and help to eradicate poverty in the country.

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Receding Concerns

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By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA

Another day, another directional move by markets on whatever the latest omicron headline is. Following on from yesterday’s indicative news from South Africa that the new Covid-19 variant could be milder than previous versions symptom-wise, much the same message was reinforced by the US’ Dr Anthony Fauci overnight.

That was all markets needed to hear really and equity markets in Europe and the US followed Asia’s lead and piled back in. Unsurprisingly, travel and leisure led the way while technology only rose modestly. When looked at in totality, markets appear to be moving rapidly back into pricing up the Fed taper trade. Value (old boring companies) outperformed growth (exciting technology companies), which makes sense as the US yield curve also steepened once again overnight. The theory being that technology and their ilk, with sky-high valuations, are more sensitive to upward moves in interest rates.

The US Dollar and oil also rallied overnight with markets getting back to business as usual. And today in Asia, the region is breathing a sigh of relief with equities performing well across the region. While I hope that we have seen “peak omicron,” if that proves not to be the case, I dread to think about the reversal of direction we will see. As I have previously stated, the winner in December will be volatility and not directional plays. We remain one negative omicron headline away from more of the former, and less of the latter.

That doesn’t mean there is nothing else going on, and a dousing of the omicron fires has allowed other themes to come back into focus. Next week’s FOMC policy meeting will be a critical juncture and the receding omicron threat (allegedly), should allow the FOMC to announce a faster taper and possibly earlier rate hikes. If US CPI prints at 7.0% on Friday, that should be a done deal.

But next week is a veritable all-you-can-eat buffet of central bank decisions. Hungary, Chile, Indonesia, Switzerland, Norway, the European Chief Government Debt Monetiser Bank (ECB), Mexico, Russia and perhaps the most exciting, Turkey. That isn’t an exhaustive list, and the PBOC announces its LPR’s the week after. After yesterday’s RRR cut was announced, the odds are rising of a cut in the 1-year LPR at least. Today, we have Australia, tomorrow India, Canada, Brazil and Poland.

We already know what the ECB, Japan and Australia will do, but the picture is murkier in the Latam, Eastern Europe space where we are likely to see a tightening bias continue. India may hint at a hike in 2022 in a change of direction as stagflationary forces increase. We can safely assume that all of Asia except Singapore and South Korea will be on hold through 2022. Turkey will be the outlier, where a collapsing currency and surging inflation could drive another Erdogan-omics rate cut. The tightening of US monetary policy has not been fully priced or appreciated by markets, and further divergence in that respect from Turkey will continue to make short Lira the easiest trade on the planet. I am just pondering where on my 2022 calendar to pencil in USD/TRY at 20.0000.

The situation in China’s property developer sector remains fluid, with Evergrande and Kaisa both looking to restructure their entire debt holdings, including offshore obligations. But highly-leveraged firms within the sector remain in deeply distressed territory with more obligations on offshore debts due this week. The first seeds of a solution appear to be occurring though, led by the RRR cut and debt restructuring hopes. I emphasise hopes as a positive outcome is far from certain. This story still has a lot more to run and any short-term rallies in the mostly Hong Kong-listed sector should be approached with extreme caution.

The Reserve Bank of Australia left policy rates unchanged today as expected. They did leave a glimmer of wiggle room in the accompanying statement to act sooner on rates if required. We can expect similar get out of jail clauses from a few central banks next week, most likely the ECB. The Australian Dollar has rallied modestly, but both it and its Kiwi cousin, remain at the mercy of nervous global risk sentiment, omicron, FOMC, or otherwise.

Receding omicron fears lift equities.

The modest rallies that started yesterday in Asia, continued to gain momentum overnight across Europe and the US, boosted by comments from Dr Anthony Fauci. That let markets get back to their global recovery trade happy place. However, that same sentiment also steepened the US yield curve and turned the focus back to an expectedly hawkish FOMC next week. Travel and leisure rebounded impressively, but the overriding them was one of value outperforming growth, with the Dow Jones having a stellar day versus the Nasdaq.

The S&P 500 rose 1.17% overnight, with the Nasdaq gaining 0.93% and the Dow Jones recording a stellar 1.87% rally. Futures on all three have continued in the same vein in Asia, rising 0.45% today. That has also reversed sentiment in Asia, notably in Japan and Hong Kong, both bastions of fast-money retail traders.

The Nikkei 225 has leapt 2.15% higher, with the Kospi rising 0.55%. In Mainland China, markets were also boosted by the RRR cut and easing lending conditions. The Shanghai Composite is flat, but the narrower Shanghai 50 is 0.65% higher, while the CSI 300 has risen by 0.60%. Property sector fears continue to cap gains on the Mainland. Hong Kong has rallied strongly, rising 1.85% as investors flocked back into China big-tech listings, which have endured torrid recent sessions.

Singapore has risen by 0.35%, with Kuala Lumpur 0.40% higher and Jakarta climbing by 0.70%. Taipei is unchanged while Manila has edged 0.25% lower with Bangkok jumping 1.05% higher. With the RBA also staying unchanged, Australian markets are also staging a strong recovery led by travel and leisure. The ASX 200 and All Ordinaries have risen by 1.05%.

With a dearth of tier-1 data in Europe today, I expect that sentiment will continue to drive market direction and that should see European stocks enjoy another positive start. As ever, the caveat on the equity rally will be if negative omicron headlines start hitting the news wires.

Currency markets content to range trade.

Currency markets showed little reaction to the Fauci omicron comments overnight, having already put the new variant behind it to focus on the upcoming FOMC meeting next week. That sentiment saw the US Dollar drift higher in a benign session, the dollar index rising 0.15% to 96.30 before falling slightly to 96.24 in Asia as currency markets continue to drift.

The Fed taper once again pushed USD/JPY higher as the US yield curve steepened once again overnight, USD/JPY rising 0.60% to 113.50, before adding another 0.20% to 113.70 in Asia. If we have indeed seen “peak omicron,” the 112.50 lows seen last week could well be the lows for the cross for the foreseeable future.

EUR/USD, GBP/USD are marking time around 1.1290 and 1.3285 with both vulnerable to a resumption of their medium-term downtrends next week if the BOE and ECB remain on hold while the FOMC speeds up tapering. AUD/USD rallied 0.40% today to 0.7080 after the RBA remained on hold but left the door slightly cracked for a faster unwinding of loose policy in the future. NZD/USD is treading water at 0.6760 with some Yen cross buying supporting both. Further gains are likely to be harder to come by if the US Dollar remains firm.

The US Dollar has weakened across the board versus Asian currencies thanks to the rebound in investor sentiment on weaker omicron fears. USD/Asia is down approximately 0.15% today in a quiet session. Looking ahead, as the market swings back to pricing in a fast Fed-taper and earlier rate hike life off, the rally by Asian currencies is likely to stall and reverse into next week.

Oil surges on lower omicron concerns.

The Fauci comments overnight saw more fast money returning to the long oil trade as markets started pricing a resumption of the global recovery and higher oil consumption. Brent crude leapt 5.40% higher to $73.65 a barrel, while WTI jumped 5.45% higher to $70.00 a barrel. In Asia, Brent has added 0.55% to $74.05, and WTI has added 0.90% to $70.65 a barrel.

Both contracts have quite a bit more upside potential, assuming the mild omicron reality is correct. The technical indicators are neutral but most especially, despite OPEC+ raising production quotas once again this month, the grouping continues to struggle to even meet its previously outlined increases. Virus volatility aside, that and OPEC+’s optionality over immediately changing the targets from the last meeting, which remains officially open, should provide a healthy modicum of support on any material pullbacks. Oil will be immune to a more hawkish FOMC next week.

Both contracts have recovered above their respective 100-day moving averages and if investor sentiment remains positive Brent crude can retest $76.00 and WTI $73.00 before the end of the week. I continue to believe that the lows of last week could well be the lows for the next year.

Gold remains marooned

Gold had another directionless session as it remains forgotten by the investor community, particularly those bullish traders who have been so badly whipsawed over the last month.  Gold drifted 0.30% lower to $1778.50 an ounce overnight as US yield firmed, only to reverse that in Asia, rising 0.20% to $1782.50 an ounce.

In the bigger picture, gold looks set to trade in a rough $1770.00 to $1800.00 an ounce range this week, unable to sustain momentum above or below those levels. The 50,100 and 200-day moving averages (DMAs), clustered between $1791.00 and $1793.50 provides immediate resistance, followed by $1800.00. Support lies at $1770.00 and $1760.00.

Gold could still stage a modest recovery this week, but if the US yield curve continues steepening, that may never eventuate, especially if US CPI data on Friday is likely to print around 7.0%. Gold remains a sell on rallies to $1810.00. The balance of risks still favours a move lower towards $1720.00 an ounce.

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