Market news & insights

Global markets enter the second week of the new year in cooldown mode with risk assets taking a hit after the red-hot finish to 2023. The NASDAQ having its worst start to a year since 1999, dropping almost 4% on the week, risk sensitive currencies AUD and NZD following not far behind. FX traders have a slew of CPI reports in the coming week to look forward to, with inflation readings out of Switzerland, Australia, China and the US that have the potential to get FX markets moving.

Charts to Watch Gold – XAUUSD Gold faltered last week as higher yields and a US dollar on tear weighed on the precious metal. Attempts by the bulls to push through and hold the key 2070 level were rebuffed and saw XAUUSD drop to a low of 2025 in Fridays NFP inspired volatile session. This weeks US CPI figure will be a big test of the markets pricing of Fed rate cuts, hotter than expected and gold could take another leg down with that 2070 resistance level capping the upside.

Cooler than expected could see the bulls make another attempt to breach and hold that level as support. AUDUSD AUDUSD didn’t have a great week either, having its biggest weekly drop since November. Decembers surge higher in this pair did look like to far too fast when looking at the AU and US rate differential, AUDUSD also hit a zone of resistance between 0.68 – 0.69 where sellers managed to turn the pair around.

This week’s Aussie, Chinese and US CPI readings all set to causing some volatility in the pair. Key level to watch to the upside is the resistance starting at 0.6800, to the downside the big figure at 0.6700 has lent some short-term support to this pair. US Dollar Index - DXY The US dollar has had a resurgence to start 2024 with DXY pushing through key levels 101 and 102 with ease.

Resistance at 102.57, where upside faltered in December and August ’23, has come into play and a couple of attempts to breach were rejected last week. This level also lines up with the 61.8% Fib level measured from the July lows to October highs and will be the key level to watch coming into the US CPI reading. Full calendar of the week’s economic announcements at the link below: https://www.gomarkets.com/au/economic-calendar/

Equity markets enter the second last week of 2023 on a roll, with US equities rallying for seven straight weeks and seeing all time highs in the Dow. The risk on rally was turbo charged last week after a dovish pivot from the US Fed in the December meeting saw yields and the Dollar tank and everything else bid heavily with rallies in Gold, Oil, equities, and other currencies. Looking ahead to this week, we do have a quieter calendar but there a are couple of key figures due for traders to keep an eye on, including the Feds favoured inflation gauge released on Friday.

Charts To Watch GBPJPY With the Bank of Japan set to release their latest monetary policy on Tuesday and UK CPI released Wednesday sets the scene for some volatility in this pair this week. The BoJ is expected to stand pat this time and seek gradual steps towards policy normalization. Traders will be watching for any hints of a BoJ pivot, and we could see a decent move in the Yen if they are forthcoming.

UK CPI will also be of note, after the Bank of England (unlike the Fed) pushed back somewhat against dovish rate expectations in their meeting last week, a figure outside range, especially to the downside should see a move in GBP as rates markets re-price. A widening gap in UK and JP 10 year yield differentials also putting pressure on the pair to the downside. AUDUSD AUDUSD rallied strongly last week on a weak USD and improved risk sentiment propping up the pair.

The 200 Day SMA which AUDUSD had been revolving around was broken decisively to the upside and saw AUDUSD hit 4-month highs before finding some resistance around 0.6728. Tuesday the RBA will be releasing their minutes from the December rate meeting where they could push back at the market’s view that rates have definitely peaked which would lend the AUD another tailwind. Friday see the US core PCE inflation figure released, where it is expected to hold steady at 0.2% for the month on month figure, though a beat to the upside could certainly test the market’s expectations of a dovish Fed going forward.

The weeks full calendar at the link below: GO Markets Economic Calendar

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Jobless claims refer to a weekly statistic published by the U.S. Department of Labor, indicating the number of individuals applying for unemployment insurance benefits. These claims are categorised into two groups: initial claims, encompassing first-time filers, and continuing claims, representing those who were already receiving unemployment benefits but remain unemployed.

These figures serve as significant leading indicators, offering insights into the employment landscape and overall economic well-being. They provide valuable data about the state of employment and the economy, making them a crucial tool for assessing economic health. Key Takeaways Measurement of Unemployment: Jobless claims indicate the number of people unemployed at a specific time.

Initial Jobless Claims: These represent new applicants for unemployment benefits who have recently become unemployed. Continuing Jobless Claims: This category includes individuals who continue to receive unemployment benefits due to ongoing unemployment. Economic Significance: A rising number of jobless claims, indicating more people willing to work but unable to find jobs, is often a concerning sign for the economy.

Volatility and Monitoring: Weekly jobless claims can fluctuate significantly. Therefore, economists often track the moving four-week average to provide a more stable and accurate representation of unemployment trends over time. Understanding Jobless Claims Jobless claims, reported weekly by the Department of Labor (DOL), play a crucial role in macroeconomic analysis.

This report tracks the number of new individuals filing for unemployment benefits in the previous week, providing a valuable insight into the U.S. job market. When more people file for unemployment benefits, it generally indicates a decrease in employment, and vice versa. Investors rely on this report to assess the country's economic performance.

However, due to its weekly reporting frequency, jobless claims data can be highly volatile. To mitigate this volatility, analysts often focus on the moving four-week average of jobless claims, which provides a more stable trend over time. The report is released every Thursday at 8:30 a.m.

ET and has the potential to significantly impact financial markets. Notably, during the economic downturn caused by the COVID-19 pandemic, weekly jobless claims in the U.S. surged to unprecedented levels. Businesses reduced payrolls due to social distancing measures, leading to historic numbers of Americans filing for unemployment benefits between mid-March and April 30th 2020, as reported by the Federal Reserve Bank of St.

Louis. The Impact of Jobless Claims on the Market As previously mentioned, initial jobless claims signify the onset of unemployment, whereas continued claims data reflects the number of individuals still receiving unemployment benefits. Notably, continued claims data becomes available one week after initial claims are reported.

Consequently, initial claims tend to have a more substantial impact on financial markets. Financial analysts often integrate their estimations of the jobless claims report into their market predictions. If the weekly jobless claims release deviates significantly from consensus estimates, it can trigger market movements, either upward or downward.

Typically, these movements align inversely with the report's direction. For instance, a decrease in initial jobless claims often leads to a market rally, whereas an increase in these claims might result in a market decline. The Initial Jobless Claims Report garners considerable attention due to its simplicity and the fundamental premise that a robust job market reflects a healthy economy.

The underlying idea is straightforward: more employed individuals equate to higher disposable income within the economy, fostering increased personal spending and bolstering both personal consumption and gross domestic product (GDP). Why Do Jobless Claims matter to Traders? The mid-month jobless claims report can trigger significant market reactions, especially if it diverges from other recent indicators.

For instance, if various indicators signal an economic slowdown, an unexpected decline in jobless claims might pause equity selling and even boost stock prices. This reaction often occurs when there isn't any other recent data available for analysis. Conversely, a positive initial jobless claims report might go unnoticed on a hectic news day amid Wall Street's activities.

Furthermore, jobless claims serve as essential inputs for creating various models and indicators. For instance, average weekly initial jobless claims form one of the ten components used in the Conference Board's Composite Index of Leading Indicators. Is Jobless the Same as Unemployed?

As per the Bureau of Labor Statistics, the labour force comprises both employed individuals and those seeking employment. Employed individuals have jobs, while the unemployed are those without jobs, actively searching for employment, and available for work. In summary, jobless claims represent the weekly count of individuals applying for unemployment insurance benefits due to their unemployment status.

This metric stands as a vital leading indicator, offering valuable insights into the overall economic health of a nation. The significance of jobless claims lies in their ability to reflect the prevailing economic conditions. When jobless claims are on the rise, it serves as a warning sign indicating a weakening economy.

This trend suggests that more people are losing jobs, potentially due to economic challenges or downturns in specific industries. Growing jobless claims can signify reduced consumer spending, increased financial strain on households, and a general lack of confidence in the job market. Conversely, a decline in jobless claims paints a positive picture, signalling an improving economy.

Decreasing jobless claims indicate that fewer individuals are filing for unemployment benefits, implying a stabilising job market. This trend can boost consumer confidence, encourage spending, and foster economic growth. Moreover, a decrease in jobless claims often aligns with increased hiring by businesses, reflecting a healthier labour market.

In essence, monitoring jobless claims provides policymakers, economists, businesses, and investors with valuable data to assess the economic landscape. These insights are instrumental in making informed decisions, shaping economic policies, and predicting future market trends. By understanding the fluctuations in jobless claims, stakeholders can adapt strategies, allocate resources effectively, and contribute to the overall stability and growth of the economy.

Therefore, the analysis of jobless claims remains an essential practice for anyone involved in economic forecasting, policy-making, or financial investments, serving as a key barometer for the economic well-being of a nation.

CPI is a globally recognised economic indicator used by many countries to measure inflation and assess changes in the cost of living for their citizens. It evaluates the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, such as food, clothing, rent, healthcare, entertainment, and transportation. Compiled by national statistical agencies or organisations in various countries, the CPI reflects the purchasing power of a country's currency.

By monitoring CPI trends, policymakers and economists gain insights into the overall economic health, make informed decisions about monetary policy, and understand how price changes impact the general population's standard of living. In an international context, different countries might have their own versions of CPI tailored to their specific economic circumstances and consumer behaviours. However, the fundamental concept remains consistent: CPI measures the average change in prices paid by consumers, making it a crucial tool for understanding inflationary pressures and making economic comparisons across nations.

Key takeaways CPI functions as a universal tool used by countries around the world to measure inflation and evaluate changes in the cost of living. Here are the key points in this global perspective: Global Measurement of Consumer Prices: The CPI serves as a global standard for measuring changes in the prices of goods and services consumed by households. Each country typically has its own CPI, tailored to its specific consumption patterns, demographics, and economic structure.

Universal Indicator of Inflation: Internationally, the CPI is universally recognised as a crucial indicator of inflation. Central banks, policymakers, economists, and businesses in various countries closely monitor CPI trends. It helps them understand the impact of price changes on their economies and make informed decisions about monetary policies and economic strategies.

Diverse Basket of Goods and Services: The CPI in different countries includes a diverse basket of goods and services that are essential to the local population. This basket is regularly updated to reflect contemporary consumption habits, ensuring that the CPI accurately represents the changing cost of living for people. Data Collection and Analysis: Countries globally conduct extensive data collection efforts to calculate their CPI.

This involves collecting price data from various sources, including retail outlets, service providers, and housing markets. The data collected provides valuable insights into the purchasing power of the local currency and helps assess the economic well-being of citizens. Policy Implications: CPI data influences policy decisions not only at the national level but also in international trade and finance.

It affects decisions related to interest rates, social welfare programs, and economic reforms. Moreover, it plays a significant role in international economic comparisons, enabling policymakers to assess their country's economic performance relative to others. Understanding the CPI For example, the US has the Bureau of Labor Statistics (BLS) conduct extensive data collection efforts to create the CPI data, gathering approximately 80,000 price points every month from 23,000 retail and service outlets.

Despite both CPI variants having the term "urban" in their names, the more comprehensive and widely referenced version covers 93% of the U.S. population. Within the CPI, the housing category, which constitutes a significant one-third of the index, is determined through a survey of rental prices for 50,000 housing units. This data is then utilised to calculate the increase in rental prices as well as the equivalent costs for homeowners.

In particular, the owners' equivalent category factors in the rent equivalent for owner-occupied housing, ensuring an accurate representation of housing expenses in consumer spending. It includes user fees and sales or excise taxes but excludes income taxes and the prices of investments like stocks, bonds, or life insurance policies from CPI calculations. The calculation of CPI indexes incorporates several important considerations.

Firstly, it accounts for substitution effects, recognising that consumers tend to redirect their spending when certain products or categories become relatively more expensive. Additionally, the calculation adjusts price data to accommodate changes in product quality and features, ensuring a more accurate representation of actual consumer spending. Moreover, the weighting of product and service categories in the CPI indexes is based on recent consumer spending patterns, derived from a separate survey.

This weighting reflects the significance of different items in the average consumer's budget, providing a realistic portrayal of how expenditure is distributed across various goods and services. By integrating these factors, CPI indexes offer a nuanced and precise measurement of changes in the cost of living for consumers. CPI Categories The monthly CPI released by the BLS provides a comprehensive overview of economic changes.

This report highlights alterations from the previous month for the overall CPI-U and its significant subcategories, including the unadjusted year-over-year changes. The BLS detailed tables further break down price shifts for a wide array of goods and services grouped under eight overarching spending categories. These detailed tables allow for precise analysis, estimating price variations for items ranging from everyday groceries like tomatoes and salad dressing to services such as auto repairs and sporting event tickets.

For each subcategory, both seasonally adjusted and unadjusted price changes are provided, offering a nuanced understanding of consumer spending patterns. Beyond the national CPI indexes, the BLS also publishes CPI data for US regions, sub-regions, and major metropolitan areas. Notably, metropolitan data can exhibit more significant fluctuations, primarily serving the purpose of identifying localised price changes based on unique regional conditions.

What Makes CPI Significant for Currency Traders? The CPI indicator, often termed "headline inflation" in markets, holds immense significance in the realm of currency trading. This is primarily because inflation has a profound impact on the decisions taken by central banks concerning their monetary policies.

Central banks, like the Federal Reserve and the Bank of Japan, typically have a mandate to maintain inflation at a specific level, often around 2.0% annually (source: the Fed, BOJ). To achieve these targets, policymakers adjust interest rates, employing them as a mechanism to attain the desired inflation levels. Additionally, they might implement other strategies such as bond-purchasing agreements or expanding the money supply.

When inflation levels deviate from these targets, it serves as an important signal for central banks to consider altering interest rates. If inflation exceeds the 2.0% target, central banks like the Federal Reserve might increase interest rates to curb excessive spending. This, in turn, strengthens the dollar against other currencies since a higher interest rate makes the U.S. currency more attractive.

Furthermore, CPI serves as a forward-looking indicator of an economy's performance. In instances where inflation rises sharply, as witnessed in countries like Brazil and Venezuela in recent years, consumers tend to save less as their purchasing power diminishes. This dynamic reflects the broader economic landscape and significantly influences market behaviours and currency values.

When a central bank raises interest rates to counter inflation, it usually leads to a reduction in borrowing. Both individuals, seeking loans for purchases, and businesses, aiming to expand their operations, tend to cut back on borrowing due to the higher cost. This decrease in borrowing activity can have significant implications for a nation's overall Gross Domestic Product (GDP).

How CPI Data Affects the Dollar on the Forex Market? The Federal Reserve operates under a dual mandate: to achieve full employment and maintain a stable, healthy rate of inflation during economic expansion. Consequently, forex traders closely watch both unemployment and inflation data, as these figures influence the central bank's decisions on adjusting interest rates—decisions that significantly affect currency strength or weakness.

Forex traders regard the CPI and Core CPI figures as pivotal indicators for gauging an economy's performance. Among these, Core CPI provides a more insightful perspective by excluding volatile energy and food prices. In the United States, the Labor Department releases these figures, excluding energy and food costs from the measurement.

If the Core CPI surpasses market expectations, the dollar typically strengthens against other currencies. Conversely, if these readings fall short of consensus forecasts, the currency weakens relative to other pairs. Importantly, the impact extends beyond the monthly report.

Like all government data, CPI figures are subject to revisions by economists. Such revisions can spark significant volatility in a currency's value on the global market. This continuous assessment of economic indicators shapes traders' strategies, highlighting the vital role of CPI data in the forex market.

Conclusion CPI is a pivotal measure reflecting pricing dynamics within an economy and serves as a reliable indicator of inflation. Forex traders keenly observe the CPI because it often prompts adjustments in monetary policies by central banks. These policy changes can either bolster or diminish a currency's value relative to its counterparts in the markets.

Additionally, the strength or weakness of a currency profoundly influences the earnings of companies operating in diverse global markets, making CPI a key metric watched closely by both traders and businesses.

Retail sales play a fundamental role in shaping the economic landscape of any country. These sales represent the culmination of consumer demand for finished products, serving as a barometer for economic health and a predictor of market trends. In the United States, this vital metric is meticulously tracked and reported monthly by the U.S.

Census Bureau, making it a cornerstone of economic analysis. Diverse Scope of Retail Sales Data Retail sales data encompasses a wide array of transactions, including both durable and non-durable goods, within a specific timeframe. These transactions emanate from 13 distinct types of retailers, ranging from food services to retail stores.

This broad spectrum of goods and services reflects the intricate tapestry of consumer spending habits, providing invaluable insights into market behaviour. Unravelling the Significance Retail sales offer more than just a glimpse into consumer preferences; they provide a macroeconomic perspective on consumer demand for finished products. By compiling data on durable and non-durable goods, the retail sales report becomes a powerful tool for analysts and investors.

These figures serve as a pulse check for the economy, guiding decisions by shedding light on economic health and identifying potential inflationary pressures. The U.S. Census Bureau's meticulous gathering of data from various establishments ensures the accuracy of retail sales metrics.

This accuracy is imperative due to the pivotal role consumer spending plays in the U.S. economy. Consumer spending, also known as Personal Consumption Expenditure (PCE), constitutes a staggering two-thirds of the country's gross domestic product (GDP). Therefore, understanding retail sales is not just a matter of economic analysis; it is essential for gauging the overall economic well-being of the nation.

Decoding Retail Sales: Insight into Economic Vitality Retail sales do not exist in isolation; they are intertwined with broader economic trends, offering a window into the vitality of the economy. These figures, reported by food service and retail stores, are meticulously compiled by the U.S. Census Bureau.

Utilising sophisticated data sampling techniques, these measurements are extrapolated to model nationwide patterns, providing a comprehensive view of consumer behaviour. The categories of retail sales are diverse, spanning in-store, catalogue, and out-of-store sales of both durable and non-durable goods. This diversity highlights the multifaceted nature of consumer preferences and purchasing behaviours.

From clothing and pharmaceuticals to electronics and furniture, retail sales encompass a myriad of products, each reflecting distinct market dynamics. Influence of Inflation: Navigating Economic Challenges Inflation, a ubiquitous economic phenomenon, significantly impacts retail sales. As prices of goods and services rise, consumers are compelled to recalibrate their spending habits.

Higher inflation often leads to a reduction in overall expenditures, with consumers prioritising necessities and purchases resistant to inflationary pressures. This adjustment underscores the intricate dance between economic forces and consumer behaviour, shaping the trajectory of retail sales figures. Special Considerations in Interpreting Retail Sales Data Interpreting retail sales data requires a nuanced understanding of various factors.

The U.S. Census Bureau's Monthly Retail Trade Survey, released mid-month, provides detailed insights into total sales, accompanied by percentage changes from previous reports. To account for seasonal fluctuations, the report includes year-over-year changes, offering a comprehensive view of consumer-based retail trends.

Economists and analysts face the challenge of interpreting retail sales figures accurately. One such challenge lies in the inclusion of auto and gas sales, both of which are volatile categories. Many experts prefer analysing retail sales data excluding these segments, considering their propensity to fluctuate unpredictably.

Gas station sales, influenced by oil and gas price volatility, are particularly prone to sharp shifts, making them a less reliable indicator of consumer behaviour. Seasonality and Retail Sales: The Impact of Festive Seasons Seasonality significantly shapes retail sales patterns, with the holiday season, notably Christmas, witnessing a surge in consumer spending. This festive period accounts for a substantial portion of annual sales, especially for retailers specialising in hobbies, toys, games, and department stores.

Recognizing these seasonal fluctuations is essential for a nuanced interpretation of retail sales data. It underscores the cyclical nature of consumer behaviour and its intersection with cultural and economic factors. Calculating Retail Sales Data: Precision in Reporting The U.S.

Department of Commerce's Census Bureau plays a pivotal role in compiling and disseminating retail sales figures. Through its Monthly Retail Trade Survey, the Bureau meticulously collects data, summarising the previous month's sales activity. This precision in data collection ensures the accuracy and reliability of retail sales metrics, providing a foundation for informed economic analysis.

The Bottom Line: Retail Sales as Economic Barometer In essence, retail sales represent far more than mere transactions; they encapsulate the collective choices and behaviours of consumers, offering a nuanced portrayal of economic health. As a leading macroeconomic indicator, retail sales serve as a compass, guiding investors, policymakers, and analysts through the complex terrain of economic trends. The surge or decline in retail sales figures echoes the heartbeat of the economy.

Increasing retail sales signify a robust and expanding economy, eliciting positive movements in equity markets. Shareholders of retail companies welcome these high sales figures, indicating enhanced earnings and market stability. However, the story is not devoid of complexities.

Bondholders, sensitive to economic nuances, exhibit mixed sentiments. While a flourishing economy benefits all, lower retail sales and economic contraction can lead to reduced inflation. This prompts investors to turn to bonds, potentially increasing bond prices as they seek stability in the face of economic uncertainty.

In conclusion, understanding retail sales is akin to deciphering an intricate economic code. It requires a keen eye for detail, an understanding of market dynamics, and an awareness of the broader economic landscape. Retail sales are not just numbers on a report; they encapsulate the aspirations, choices, and challenges of a nation's consumers.

By delving into the nuances of retail sales data, analysts and investors gain invaluable insights, enabling them to navigate the ever-changing currents of the global economy. As a barometer of economic health, retail sales continue to be a beacon, guiding stakeholders toward informed decisions and a deeper understanding of the intricate web of economic interactions.