Daily Market Outlook, February 1, 2022

Overnight Headlines

Asian equity markets are mostly up this morning apart from those still closed for the lunar new year. The Australian central bank as expected left interest rates unchanged but ended its asset purchase programme citing higher inflation and improving growth conditions. It pushed back against expectations of an early rate hike by noting conditions needed to stay growth supportive. Nevertheless, markets still expect a rate hike later this year. In the UK, the Nationwide price index showed that house prices continued to rise in January.

Today’s data calendar is dominated by manufacturing PMI releases for January. The UK and Eurozone measures are second readings that are not expected to be revised significantly from the initial reports, although first details will be supplied for some individual countries. The ‘flash’ UK reading saw the headline index dip to an 11-month low in January, partly due to a slide in orders. However, more positively output growth accelerated helped by some signs of easing supply chain pressures. In the Eurozone, both the overall and output indices recorded 5-month highs as some supply constraints eased.

Also in the UK, money supply and bank lending measures for December may provide indications of the extent to which the rise in Omicron cases impacted on spending. Nevertheless, given the ongoing strong demand for housing expect mortgage approvals to have risen from their lowest level in almost 18 months in November. Meanwhile, consumer credit is expected to have risen again albeit at a slower pace than last month. Overall, there is unlikely to be anything that would discourage Bank of England policymakers from raising interest rates on Thursday.

In the US, the ISM manufacturing report will be a first reading for January. US economic activity does appear to have stalled in some sectors around the turn of the year as Covid cases accelerated. Manufacturing should have been less impacted than some service sectors that have direct contact with consumers. However, the already released Markit PMI measure, which fell to a 15-month low in January, suggests that it has come under some pressure. Consequently, it seems likely that the ISM measure will also have fallen in January, although its level is still likely to be consistent with a relatively strong pace of growth. The detail will also be watched for signs of whether supply bottlenecks are also showing some signs of easing in the US.

UK government bond yields continued to move higher yesterday as the outcome of this week’s BoE policy update is nervously awaited. Other government bonds markets also remain under pressure reflecting concerns about inflation and monetary policy outlooks.

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

EUR/USD: 1.1150 (1.74BLN), 1.1170-75 (777M), 1.1215 (1.25BLN) 1.1225-30 (3.0BLN), 1.1270-75 (685M), 1.1300 (1.65BLN) 1.1350-55 (1.2BLN), 1.1380 (584M), 1.1500 (1.1BLN)
USD/JPY: 112.75 (708M), 113.20-30 (1.0BLN), 113.40-50 (515M) 114.00 (280M), 114.65 (700M), 114.90-00 (730M) 115.25 (625M), 116.50-55 (1.1BLN), 116.65 (340M), 117.00 (940M)
AUD/USD: 0.6900 (236M), 0.7060 (240M), 0.7085-00 (465M) 0.7150-60 (300M)
USD/CAD: 1.2280 (628M), 1.2400 (550M), 1.2500 (330M) 1.2700-05 (570M)

EURUSD Bias: Bearish below 1.15 Bullish above

GBPUSD Bias: Bearish below 1.36 Bullish above.

USDJPY Bias: Bullish above 114.50 Bearish below

AUDUSD Bias: Bearish below 0.7250 Bullish above

AUD/USD opened 1.0% higher at 0.7067 after USD broadly weakened
It idled around 0.7070 before the RBA decision was announced
As expected, RBA kept rates on hold and ended their bond buying programme
The statement revised up the inflation forecast, but RBA said they will remain patient
Market was expecting a more hawkish shift in language from the RBA
AUD/USD fell 0.50% to a low so far at 0.7033 in response to RBA
Support is at Jan 28 0.6967 trend low and break would be bearish
Market will be very interested in speech tomorrow by RBA Governor Lowe