Asian stocks recover, USD extends losses following Powell’s comments

Summary:

• Stocks in Asia move up after heavy gains on Wall Street

• Donald Trump threatens to announce a national emergency to get funds for a wall

• US dollar extends its losses following Powell’s comments

Risk-on in Asia

The beginning of a new trading week is bringing notable gains across Asian indices in response to a splendid session registered on Wall Street on Friday. Stocks there closed with massive increases with the NASDAQ (US100) reaching a stunning 4.3% rate of return. The SP500 (US500) closed 3.4% higher while the Dow Jones (US30) added 3.3%. Let us remind that these gains came after the Labour Department showed the firm jobs report for December producing 300k+ new jobs last month and an uptick in wage growth. Therefore, one may say that the goldilocks economy continues with a rapid pace of jobs creation and contained price growth - a mixture causing that economists are scratching their heads around the world. On top of that, the US stock market was also buoyed by remarks from Federal Reserve Chairman Jerome Powell who said that the central bank could be patient in assessing risks to the US economy and would adjust policy quickly if needed. In terms of balance sheet policy Powell said that the balance sheet roll-off would be a part of any reassessment suggesting that the Fed stands ready to slow down the pace assets are removing from its balance sheet. Earlier Powell seemed to present quite a clear stance that the balance sheet run-off was on a so-called ‘autopilot’. Although Powell called the employment report figures a “very strong report” market participants read between the lines that he could take a wait-and-see mode before raising interest rates again. Note that market is currently assigning 27% odds for a rate cut till the end of this year. While the US 10Y yield spiked on Friday rising toward 2.66% from 2.54% it stalled during Asian hours trading on Monday. Summarising the Asian session it needs to write that the NIKKEI (JAP225) added 2.4%, the Australian benchmark closed 1.1% higher while indices in Shanghai and Hong Kong are adding 0.7% each before the final bell.

The huge white candlestick drawn on Friday could bode well for buyers in the nearest future as the price managed to close above its recent highs. While the longer-term scenario seems to be unchanged, market participants could expect the NASDAQ to recover toward 6865 points if the pace of gains from Friday keeps momentum. Source: xStation5

Dollar gives back gains

US dollar is still struggling following the speech delivered by Jerome Powell at the end of the past week. Despite the tremendous increase in yields they stalled in early trading hours on Friday and the dollar index is falling 0.2% at the time of writing. Gains across the G10 space are quite even while the US 10Y yield is hovering around 2.66%. It is worth mentioning Trump’s latest comments regarding his contentious idea to build a wall with Mexico. On Friday Trump said that he was ready to announce a national emergency redirecting defense spending money in order to build a wall. It sounds ridiculously as a state of emergency is announced in case of a war, however, Trump seems to be desperate being prepared to use this tool to get funds for his idea. Nevertheless, even if Donald Trump announced a national emergency aimed at circumventing the Congress, budget experts say that the Congress would still need to allocate the funds. On top of that, there were also some talks that a potential wall will be made from steel instead of concrete, a move aimed to persuade Democrats to vote for the idea. Meanwhile, the US government shutdown is entering the 17th day being on course to be the longest one ever. The weekend’s meeting between a Trump’s team and Democrats’ representatives ended with a debacle signalling the shutdown could last much longer.

The stellar jobs report from the US and quite the weak release from Canada pushed the USDCAD lower on Friday. As a result, we got the bearish candlestick which could bode well for bears in the weeks to come. The lower limit of the bullish channel could be a target for them. Source: xStation5

In the other news:

• US and China are set to kick off trade talks on Monday in order to strike a deal during a 90-day truce

• French Finance Minister Le Maire said over the weekend that the government sticked to its GDP growth forecast despite a batch of ‘uncertainties’ lurking around the corner

• Japan’s services PMI fell to 51 from 52.3 in December, the composite gauge ticked down to 52 from 52.4

• Australian manufacturing PMI/AIG decreased to 49.5 from 51.3 in December