Daily Market Pulse

U.S. private payrolls rebounded in January


The dollar managed to hold its previous gains yesterday, adding 0.2% against a basket of major currencies. The recent dollar strength was a good reminder that the market holds a significant net short USD position, that may begin to be unwound if the greenback continues to gain ground. Meanwhile, stocks also printed a modest gain. This bullish movement is thanks, partially, to the expectations that the United States is moving towards another big stimulus package and the recent positive job report. The ADP National Employment Report showed private payrolls increased by 174,000 jobs in the month when economists were expecting an additional 49,000. This report is still watched for clues on the labor market's health. Today, the weekly US jobless claims report is set to show a further decline in initial claims to 830,000 (though still elevated). 


The euro was unchanged on news that former European Central Bank chief Mario Draghi had accepted a request to try to form a new Italian government, even as European bond and stock markets rose. Investors hope he begins a new phase of political stability after the collapse of the ruling coalition and he utilizes European Union funds to help the economy recover from Covid-19. Once again, European politics will be at the fore today. The market players will watch for the further developments between the European Union and the U.K. after both have agreed to work hard to settle differences over the Northern Ireland border amid attempts to calm controversy which has threatened to reignite one of the most contentious parts of the Brexit deal. 


Even though U.K’s January Services PMI results were generally better than projected, reporting that Britain’s economic activity was less hit by the third national lockdown than previously feared, the GBP fell 0.18% against the USD on Wednesday. Earlier this morning, the U.K. health officials said it has passed the peak of the Covid-19 pandemic as it hit a milestone of vaccinating 10 million people, albeit, with a warning that should current restrictions be lifted too quickly, it would put enormous pressure on the National Health Service. Meanwhile, today sees the first Bank of England decision of the year, which also happens to be the first post-Brexit BoE decision. It is expected that all policy instruments will remain unchanged. 


The Japanese yen notched its sixth straight daily loss against the U.S dollar on Wednesday, with the JPY struggling to capitalize on market sentiment. The Japanese’s shares also retreated as the Nikkei index shed 1.06% and the Topix index slipped 0.32%. It is important to note, though there has been some risk-aversion over the past week, the Japanese Yen has failed to benefit from it much. This has been largely due to a strong rebound in demand for the Yen’s rival, the US Dollar. Today, the Household Spending data for December and Foreign Reserves figures for January are expected and may provide some interest. 


The Loonie was little changed (-0.04%) against the greenback on Wednesday, with the CAD holding on to gains from the day before as oil prices rose to a one-year high and stock markets gained ground. Reflecting the upbeat OPEC+ (an alliance of OPEC members and 10 other friendly oil-producing nations) meeting, oil prices touched levels above $58 per barrel for Brent and $55 per barrel for WTI. Nonetheless, the OPEC+ members expressed concern about the unpredictability of the economic recovery as long as the end of the Covid-19 pandemic remains uncertain. Looking ahead, Canadian traders will keep an eye on the U.S Jobless Claims report. This may drive the CAD to a bearish zone if employment gains in the US are relatively stronger. 


Cases and deaths related to Covid-19 continue to increase in Mexico, as the country runs out of vaccines. The country reported a near-record 1,707 confirmed Covid-19 deaths Wednesday. Mexico’s government approved Russia’s Sputnik V vaccine Tuesday, but has not yet signed a purchase contract and does not have a firm date for its first delivery. As a result, the Mexico peso slid 0.31% on Wednesday against the USD. However, losses were limited after an upbeat meeting for OPEC+ (an alliance of OPEC members and 10 other friendly oil-producing nations), which provided a bullish sentiment to the oil market, spilling over into the MXN. 


Yesterday, the People’s Bank of China (PBoC) made several remarks about the monetary policy path for 2021. Among them, the PBoC will maintain the interest rate at an appropriate level and avoid flood-like stimulus in 2021, while maintaining necessary support to economic recovery. However, the PBoC’s comments had little to no impact on the Chinese yuan, which dropped 0.04% against the U.S dollar. On the economic front, the Services PMI index dipped from 56.3 in December to 52.0 in January, signaling a modest expansion of Chinese business activity. Firms widely expect customer demand to recover and activity levels to expand once the Covid-19 pandemic comes to an end. However, uncertainty over the trajectory of the virus weighed on overall confidence. 


In Brazil, the service sector fell back into contraction territory at the start of 2021 with a renewed decline in new business due to a squeezed personal income and a subsequent deterioration in demand, reported the Services PMI on Wednesday. At 47.0 in January, the index posted below the critical 50.0 threshold for the first time in five months. The downbeat reading, along with worries about rising Covid-19 cases in the country, put additional pressure on the BRL, which closed down 1.2% against the greenback on the day. Also, worth noting that the inflation data for São Paulo, gauged by the IPC-Fipe index, rose 0.86% in January. In the 12 months to January, the IPC-Fipe accumulated inflation of 6.22%. The figures came above expectations and raised additional worries about inflationary pressure.


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