Early Morning Call: USD unchanged after Fed minutes, awaiting jobs data

Equity market overview

Equity markets rose overnight in the Asia-Pacific region, following the path of the US session yesterday.

Once again, Hong Kong’s Hang Seng, now at a six-month high, outperformed Japan's and Australia's stock exchanges.

Yesterday evening, minutes of the last Federal Reserve (Fed) meeting of 2022 revealed that members remain committed to fighting inflation and expect higher interest rates to stay in place until more progress is made.

The voting members expressed the importance of keeping restrictive policy in place while inflation holds unacceptably high. "A restrictive policy would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to two percent, which was likely to take some time."

The minutes also noted that none of the Federal Open Market Committee (FOMC) members expect rate cuts in 2023, despite market pricing.

Despite these hawkish comments, the US dollar failed to react. Currency traders are now focussing on a series of employment data to be released today and tomorrow.

At 1.15pm, economists forecast that the ADP survey will show 150,000 job creations in the private sector. At 1.30pm, weekly jobless claims are due with economist expecting 225,000 new claimants for last week. Tomorrow will see the December non-farm payrolls (NFPs). The market expects 200,000 job creations, the unemployment rate to remain at 3.7%, and average hourly earnings are forecast to rise by 5% year-on-year (YoY).

In China, Caixin services PMI shrank for a fourth straight month in December. The index rose to 48 from 46.7 the previous month. China abruptly removed its zero-Covid strategy in early December, triggering a surge Covid infections across the country.

Companies in the Caixin/S&P survey reported the falls in output and new work for the fourth straight month in December, and external demand fell into contraction from growth the previous month. Caixin/S&P's composite PMI, which includes both manufacturing and services activity, rose to 48.3 in December from 47.0 in the previous month, remaining in contractionary territory also for a fourth straight month.

Germany's December trade surplus reached €10.8 billion, beating expectations of a €7.5bn surplus, as imports fell more than exports. At 10am, Eurozone producer price index (PPI) is expected to decline for second straight month, by 0.9% in November month-on-month (MoM).

Earnings

Elsewhere on the equity market, Greggs reported a 18% increase in like-for-like sales in the fourth quarter (Q4), and Next raised its profit forecast for the year to January 2023, after stronger-than-expected sales during the last nine weeks of 2022. However, the group expects lower profit in 2023-24.

Amazon's CEO announced in a public staff note yesterday that layoffs will now increase to more than 18,000 roles. The company began letting staff go in November from its devices division, with a source telling Reuters at the time it was targeting around 10,000 cuts. The cuts amount to 6% of Amazon's corporate workforce.

It is also a radical change for a retailer that recently doubled its base pay ceiling to compete more aggressively for talent. Amazon is one of many in the tech industry to reduce its workforce. In 2022, the tech sector shed more than 150,000 workers.

Also yesterday, Salesforce said it planned to eliminate about 10% of staff.

Commodities

Oil prices have settled this morning, after tumbling in yesterday's session, as investors expressed concerns about China's economic growth.

API crude oil inventories unexpectedly rose by 3.3 million barrels last week, which means that in 2022, crude oil stock has risen by just 13 million barrels, while US strategic petroleum reserves have sunk by 221 million barrels to their lowest level since 1983.