US Producer Sentiment Remains Depressed in January

January 26, 2016

FX News Today

The Shanghai Composite has plummeted, presently showing a 6.5% loss in late PM session there, and the tech-laden Shenzhen Composite is off by 7.2%. The losses come with oil prices extending yesterday’s 5%-odd declines, with NYMEX crude down by another 2.5%-plus. Stock investors’ concerns haven’t been assuaged by the PBoC’s continued liquidity injections into the financial system, which was today CNY 440 bln via reverse repurchase agreements today. Japan’s Nikkei 225 is down 2.35%, though some markets in the Asia-Pacific region managed gains, most notably Australia, where the ASX 200 closed with a 1.8% gain (though that was before the worse of China’s losses).

ECB’s Draghi earlier spoke on the uncertain 2016 global outlook, which has been a challenge to ensure that headwinds from it do not blow the domestic recovery off course. He said the ECB is doing its part to secure a cyclical recovery by fulfilling its price stability mandate, but to turn it in to a structural recovery others have to do their part. This involves action on the fiscal front, structural reforms and reducing the debt overhang. For the ECB the key has been about credibility and the bank will meet its objective. With the markets now expecting Bazooka II in March, however, he will still have his work cut out.

FOMC meeting to go ahead as planned Tuesday and Wednesday, announced the Fed. Those policymakers who will be unable to attend in person due to the blizzard can take part via a video conference. Washington, D.C. remains shut today due to the storm. Any releases scheduled for today will be postponed until the next business day government offices are open.

US Producer Sentiment Remains Depressed in January. We’ve seen divergent swings in early month sentiment measures, with the Empire State plunging to a post-recession low and the Philly Fed edging up to a still negative -3.5. Their ISM-adjusted measures followed the headlines thanks to big divergent swings in shipments, though we saw the opposite divergent swings in the jobs components around weak levels. We expect the ISM-adjusted average of the major surveys to hold steady at just 50 for a fifth consecutive month, as the factory sector remains under pressure.

US Dallas Fed manufacturing index dropped to -34.6 in January, sliding another 13.0 points after plunging 16.7 points to -21.6 in December (revised from -20.1). It’s a 13th straight month in contractionary territory, and the lowest since April 2009, as the collapse in oil prices weighs.

Main Macro Events Today

BoE Governor Carney speech. We look forward to Carney’s commentary on the back of our expectation the BoE to hike the repo rate by 25 bp to 0.75% in  Q2 2016.  This would be the first policy change since March 2009, and the first hike since July 2007.

US January Consumer Confidence is expected to increase to 97.0 from 96.5. This compares to a low of 25.3 in February of 2009. Forecast risk: upward, given the increase in the first Michigan release. Market risk: downward, as weaker data could impact rate hike timelines. Confidence spiked last the winter as falling gasoline prices bolstered consumers but market volatility is now weighing on those gains.

US The November Case-Shiller index for November is expected to come in at 5.7%. Case-Shiller home price index rose 0.1% in October for the 20-City index. On an annual basis, the price index is up 5.5% y/y from 5.4% y/y in September.

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