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FOMC minutes push USD slightly higher, Chinese PMI beats forecasts

Summary:

  • Minutes from the last FOMC meeting help the US dollar recoup some of its prior losses
  • Chinese Caixin PMI for services comes in well above projections, Australian PMI marks an improvement as well
  • US stocks end Wednesday’s trading at their fresh highs, Asian counterparts follow those advances

The US dollar gained a foothold yesterday evening following the FOMC minutes from the December’s meeting which confirmed quite a common stance with regard to the future of interest rate hikes. The document underlined that most of members opted for continued but gradual hikes citing the tight labour market which ought to lift inflation after all. On the other hand there were some sceptics as far as the future inflation is concerned mainly on the back of low inflation expectations. The board referred to the yield curve stating that flatness of the curve is not unusual, albeit they did not pin down any risks which could result from this scheme in the foreseeable future. In a nutshell, one may conclude that there was not too much to be surprised as the Federal Reserve sticks to its view to keep on hiking rates this year. Nevertheless given the latest weakness of the US currency the greenback benefited from the release, gains were not particularly significant though.

link do file download linkThe USDJPY bounced off a key support area after the FED minutes which could bring about a resumption of an upward trend. If so bulls could take a stab at testing a pivotal resistance line placed at 114.3. Source: xStation5

Apart from the minutes there was also a release of the Chinese Caixin PMI for services for December. The number came in vastly above the consensus showing as much as 53.9 while just 51.8 had been anticipated. It was the highest reading since August 2014 and thanks to it the composite PMI for December climbed 53 from 51.6 seen in the prior month. The report revealed that although China’s economic growth remains under downward pressure, it is still resilient. However, special attention should be paid to whether future policies will become tighter than expected. On top of that we also got services PMI from the Australian economy which came out at 52 against the prior value at 51.7. To sum up, it was the 10th consecutive month of economic expansion while an improvement was seen in every sector except sales which shrank a bit.

link do file download linkAustralian services PMI improved in December compared to the previous month but remained still behind manufacturing counterpart. Source: Macrobond, XTB Research

The overall improvement in services sectors in China and Australia along with fresh highs registered on Wall Street yesterday contributed to the stellar session across the Asian equity markets. The NIKKEI (JAP225 on xStation5) surged more than 3.2% after Japanese traders came back from New Year holidays in turn the Chinese Hang Seng (CHNComp) moved higher over 1.1%. Do notice that the Japan’s benchmark made its biggest one-day advance since May. All of those gains could be ascribed to new all-time highs hit by US benchmarks on Wednesday even as the FED stuck to its view regarding subsequent interest rate hikes. However, the US 10Y yield gained just moderately as the minutes pointed out just ’gradual’ hikes which might be no so harmful for the US stock market.

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