The dollar index (DXY00) Monday fell by -0.14%. Strength in stocks on Monday curbed liquidity demand for the dollar. Losses in the dollar were contained after T-note yields moved higher and strengthened the dollar’s interest rate differentials. Monday’s US economic news was mixed for the dollar as a gauge of manufacturing activity was weaker than expected, but a gauge of services activity expanded more than expected.
The US Dec Empire manufacturing survey of general business conditions fell -31.0 to 0.2, weaker than expectations of 10.0.
The US Dec S&P manufacturing PMI fell -1.4 to 48.3, weaker than expectations of 49.5. However, the Dec S&P services PMI rose +2.4 to 58.5, stronger than expectations of 55.8.
The markets are discounting the chances at 95% for a -25 bp rate cut at the December 17-18 FOMC meeting.
EUR/USD (^EURUSD) Monday rose by +0.07%. The euro recovered from early losses when dollar weakness sparked short covering in the euro. On Monday, the euro initially moved lower after Moody’s Ratings cut France’s credit rating. Also, dovish comments from ECB President Lagarde weighed on the euro when she said the ECB will cut interest rates further with inflation coming closer to the bank’s 2% target. Monday’s Eurozone economic news was mixed for the euro as the Eurozone Dec S&P manufacturing PMI was unchanged, and the Dec S&P composite PMI unexpectedly increased.
The Eurozone Dec S&P manufacturing PMI was unchanged at 45.2, weaker than expectations of 45.3. However, the Dec S&P composite PMI unexpectedly rose +1.2 to 49.5, stronger than expectations of a decline to 48.2.
Eurozone Q3 labor costs eased to +4.6% from +5.2% in Q2.
ECB President Lagarde said, "If the incoming data continue to confirm our baseline, the direction of travel is clear, and we expect to lower interest rates further."
Moody’s Ratings cut France’s credit rating to Aa3 from Aa2, saying the decision “reflects our views that France’s public finances will be substantially weakened over the coming years.”
Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its next meeting on January 30 and a 7% chance for a -50 bp rate cut.
USD/JPY (^USDJPY) Monday rose by +0.30%. The yen on Monday slid to a 2-1/2 week low against the dollar and has fallen in the last six sessions. The yen has had carryover pressure from last Thursday when a Reuters report said the BOJ sees no need to rush into further rate hikes and is leaning toward keeping interest rates steady when it meets this week. Losses in the yen were limited due to lower T-note yields on Monday.
Japan Oct core machine orders rose +2.1% m/m, stronger than expectations of +1.1% m/m
The Japan Dec Jibun Bank manufacturing PMI rose +0.5 to 49.5. Also, the Dec Jibun Bank services PMI rose +0.9 to 51.4.
The Japan Oct tertiary industry index rose +0.3% m/m, stronger than expectations of -0.1% m/m.
February gold (GCG25) Monday closed down -5.80 (-0.22%), and March silver (SIH25) closed up +0.029 (+0.09%). Precious metals on Monday settled mixed. Dollar weakness on Monday was bullish for metals prices. Precious metals also found support from a decline in global bond yields. Gold has support for increased demand as a store of value, based on dovish comments from ECB President Lagarde, who said the ECB will keep cutting interest rates as inflation subsides. In addition, expectations for the Fed to cut interest rates by -25 bp after Wednesday’s FOMC meeting are bullish for precious metals. Finally, precious metals have safe-haven support after the recent collapse of the Syrian government and the escalation of hostilities in the Ukraine-Russia conflict.
Strength in stocks on Monday curbed safe-haven demand for precious metals. Silver prices were under pressure after the US and Eurozone Dec S&P manufacturing PMIs were weaker than expected, a bearish sign for industrial metals demand. In addition, China Nov new home prices fell -0.2% m/m, the eighteenth consecutive month new home prices have fallen, a negative factor for industrial metals demand.
