Dollar Lifted Mildly as PPI Hit Near 6 Year High, But No Follow Through Buying Yet

Dollar trades with an undertone for most of the day, but it’s trying to regain some ground after stronger than expected up stream inflation data. Nonetheless, momentum is so far too weak for the greenback to resume recent rebound. Traders will still likely wait for tomorrow’s CPI data and FOMC statement/projections before making up their minds. Meanwhile, Sterling also fails to ride on stronger than expected CPI data and is stuck in tight range. Commodity currencies remain the strongest ones for today and for the week.

US PPI hit near 6 year high

US headline PPI rose 0.4% mom, 3.1% yoy in November, versus expectation of 0.4% mom, 3.0% yoy. The annual rate is notably higher than October’s 2.8% yoy. That’s also the fastest pace in nearly six years since January 2012. PPI core rose 0.3% mom, 2.4% yoy, versus expectation of 0.2% mom, 2.4% yoy. Annual rate of PPI core was unchanged from October’s figure, which was the fastest since 2014.

UK CPI above 3% for the first time since nearly six years.

UK CPI accelerated to 3.1% yoy in November, up from 3.0% yoy and beat expectation of 3.0% yoy. Core CPI was unchanged at 2.7% yoy. The Office for National Statistics Head of Inflation Mike Prestwood comments and said that "CPI inflation edged above 3 per cent for the first time in nearly six years, with the price of computer games rising and airfares falling more slowly than this time last year. These upward pressures were partly offset by falling costs of computer equipment." BoE Governor Mark Carney is required write a letter on inflation should CPI exceeds 1% above the 2% target. But such letter would be released later in February, together with the Quarterly Inflation Report.

Also from UK, RPI slowed to 3.9% yoy. PPI input accelerated to 7.3% yoy, PPI output rose to 3.0% yoy, PPI output core also jumped to 2.2% yoy. House price index rose 4.5% yoy in October, slowed from 5.4% yoy.

German ZEW weakened but economic outlook stays positive

German ZEW economic sentiment dropped to 17.4 in December, down from 18.7, below expectation of 17.9. Current situation gauge, nonetheless, improved to 89.3, up from 88.8 and beat expectation of 88.7. Eurozone ZEW economic sentiment also dropped to 29.0, down from 30.9 and below expectation of 30.2. ZEW President Achim Wambach said in the press release that "overall, the outlook for the German economy in the coming six months remains positive. The current state of uncertainty surrounding the government formation in Germany has not had any significant impact on the assessment of the economic outlook. Financial market experts, however, expect to see negative effects resulting from this with regard to the Brexit negotiations as well as EU reforms."

Australia business conditions dropped sharply

Australia NAB business conditions dropped sharply by -9 to 12 in November, down from 21. Business confidence dropped -2 to 6, down from 8. NAB chief economist Alan Oster noted that "we expected to see last month’s spike in business conditions unwound fairly quickly as it both came as a bit of a surprise, and was also out of sorts with what we were seeing in some of the other leading indicators from the survey, such as forward orders." Also, "we are paying close attention to what now appears to be a downward trend in business confidence as that could naturally have some implications for decisions around hiring and investment."

For Australia, sluggish wage growth is a key concern for keeping inflation low. But Oster noted that "we saw some tentative signs of higher wages in the survey, although that does appear to be weighing on the confidence of some firms as well." However, "prices are rising the most in mining, while retail and personal services prices are the softest – a reflection of the cautious spending behavior by consumers."

Also from Australia house price index dropped -0.2% qoq in Q3, below expectation of 1.5% qoq.

From Japan, Domestic CGPI rose 0.4% mom, 3.5% yoy in November. Tertiary industry index rose 0.3% mom in October.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 113.30; (P) 113.49; (R1) 113.74; More…

USD/JPY is staying in consolidation in tight range below 113.68 temporary top. Intraday bias remains neutral at this point. As long as 111.98 support holds, further rally is expected in the pair. On the upside, above 113.68 will extend the rise from 110.83 to 114.73 resistance first. Decisive break there will resume whole rise from 107.31. More importantly, that will confirm completion of medium term correction from 118.65 at 107.31. In that case, retest of 118.65 should be seen next. However, break of 111.98 support will extend the correction from 114.73 with another fall, possibly to 61.8% retracement of 107.31 to 114.73 at 110.14 before completion.

In the bigger picture, we’re holding on to the view that correction from 118.65 is completed a 107.31. And medium term rise from 98.97 (2016 low) is resuming. Sustained break of 114.73 should affirm our view and send USD/JPY through 118.65. However, break of 107.31 will dampen this will and extend the medium term fall back to 98.97 low.

Economic Indicators Update