ISM miss outweighs ADP beat for USD; JPY flash rally pares gains

Summary:

• Strong job figures raise NFP expectations

• Poor ISM report sees USD fall back and Gold rise to 6-month high

• FX markets rocked by JPY flash rally

• DE30: Infineon slumps on the back of Apple sales warning

• Bitcoin Cash gains acceptance among retailers

On the economic data front by far and away the biggest event for the first week of 2019 is the US non-farm payroll report, which is scheduled to be released tomorrow afternoon at 1:30PM. Expectations for the event will have likely been ramped up further this afternoon as the ADP employment change for December smashed forecasts in coming in at 271k against median expectations of 179k. This metric is widely seen as a precursor to Friday’s main event and even though the last month’s reading was revised lower by 22k to 157k there is little doubting the strength of today’s data.  

After a better than expected reading from the ADP employment change earlier this afternoon, the latest look at the manufacturing sector has delivered a sobering message with the ISM PMI dropping to its lowest level in more than two years. For December the print of 54.1 was the lowest since November 2016 and well below the 57.7 expected, while the fall from the prior reading of 59.3 marks the largest month-on-month plunge for this metric since Lehman’s failure in 2008! The US dollar is coming under some pressure today, falling back against the majority of its peers. The only real gains of note come against the Japanese Yen and these are simply a retracement after the large losses seen in USDJPY last night.

There were some dramatic moves in currency markets last night with the Japanese Yen spiking sharply higher across the board shortly after 10:30PM. There was no immediately obvious catalyst for such a sizable move which, due to the convention of using the Yen as the quote currency caused flash crashes in its most widely traded crosses (USD/JPY, GBP/JPY, EUR/JPY, AUD/JPY etc). This wreaked havoc in the FX markets, with the AUD/JPY the worst hit and slumping over 4% in just a matter of minutes before a semblance of calm returned. In addition, the variation in the size of these moves in different JPY pairs caused significant moves in unrelated markets such as the AUD/USD and GBP/AUD. Looking more closely at possible causes for the rapid appreciation it appears to have been a combination of things, with an unexpectedly dour trading update from Apple around 9:30PM the first in a series of contributory events. The tech giant cut its revenue outlook for the first time in almost two decades as CEO Tim Cook warned that company sales for the last quarter would be around $84B - down from earlier estimates of $89-93B.

Unsurprisingly, suppliers of the iPhone maker, including Infineon Technologies (IFX.DE), headed lower in all parts of the World. Infineon is the worst performing DAX member today and the downbeat moods may be here to stay for some time unless a breakthrough in US-China trade talks occurs. Nevertheless, Infineon assured that it is neither surprised nor worried about slowdown in China and that it is sure of meeting 2019 margin target.

945 retailers are already able to accept Bitcoin Cash all around the world, according to the Accept Bitcoin Cash Initiative which delivers a list of merchants accepting this cryptocurrency. What’s more, 670 brick-and-mortar merchants accept Bitcoin Cash as per the data from Marco Coino. A large part of them is localized in Europe (337). In North America we may localize as many as 134 physical stores accepting Bitcoin Cash, and in Australia 120 such merchants. Let us remind that Bitcoin Cash experienced a huge sell-off in several past months, and its hard fork may be considered as one of reasons behind these huge decreases started in November. The market trades down by around 4.5% on the day at the time of the European cash close.