The Japanese yen is in positive territory today, putting the brakes on a four-day skid. In the European session, USD/JPY is trading at 155.54 down 0.45% on the day.

Japan GDP climbs 0.9%

Japan’s economy expanded by 0.9% in the third quarter, below the revised 2.2% gain in Q2 but above the market estimate of 0.7%. Quarterly, GDP rose 0.2%, lower than the 0.5% gain in Q2 and matching expectations.

The GDP numbers were not sparkling but point to a second straight quarter of growth. August economic activity was dampened due to a “megaquake” alert and a fierce typhoon which caused widespread destruction and disruption.

Private consumption, which comprises more than half of the country’s GDP showed strong growth of 3.6% y/y, despite the weather issues. This is an encouraging sign for the Bank of Japan, which wants to see inflation rise to demand and consumption. The BoJ has been vague about the timing of a rate hike but the markets are looking at December or January as likely dates. The yen has been wobbly and is down 2.3% in November. If the yen’s downswing continues, the BoJ could decide to hike rates at the Dec. 19 meeting.

The US wraps up the week with retail sales for October and the markets are expecting a slight gain. Retails sales eased to 1.7% y/y in September, which was an 8-month low. The forecast for October is 1.9%. Monthly, retail sales are expected to inch up to 0.4% from 0.3%. Consumer spending has been generally strong and consumer confidence should improve now that the uncertainty over the US election is over.

USD/JPY Technical

USD/JPY has pushed below support at 1.5601 and is testing 1.5560. The next support line is 1.5493;

1.5668 and 1.5709 are the next resistance lines.

Source: ACTIONFOREX

Energy - European gas surges, US gas falls

Most of the action in energy was in the natural gas markets yesterday. In Europe, TTF settled almost 6% higher on the day and traded to its highest level since November last year. This was on the back of concerns that some Russian pipeline flows to Europe could be disrupted. The Austrian energy company OMV has said that it intends to stop paying Gazprom for imports in order to recoup EUR230m in damages it was awarded in an arbitration, which raises the prospects that Gazprom will cut flows if it doesn’t receive payment. Payments are usually due by the 20th of every month, so the market is likely to be on edge at least until then. OMV has said that potentially 5TWh per month of supply is at risk, which is roughly 500mcm (or less than 20mcm/day).  Forecasts for colder weather next week have only provided further support to prices.

The European gas market surged higher yesterday. In the US, Henry Hub came under pressure, settling more than 67.6% lower on the day. This was after the EIA weekly natural gas storage report showed that gas storage increased by 42 Bcf, compared to expectations for a 39 Bcf increase. It was also well above the five-year average increase of 29 Bcf.

Oil prices managed to eke out a relatively small gain yesterday despite a bearish outlook in the IEA’s latest oil market report. A large US gasoline draw would have likely provided some support to the market. However, Brent is still on course to settle lower on the week.

The EIA weekly US inventory report showed that US commercial crude oil inventories increased by 2.09m barrels over the last week, quite different to the 777k barrel draw the API reported the previous day. However, the market was more focused on the 4.41m barrel decline in gasoline inventories, leaving stocks at just below 207m barrels – the lowest level for this time of year since 2014. The large draw was driven by a 555k b/d increase over the week in gasoline implied demand. No surprise that the large draw saw the RBOB gasoline crack spike higher. Distillate stocks also declined over the week, falling by 1.39m barrels.

The IEA painted a bearish outlook in its latest monthly oil market report. The agency expects that the global oil market will see a sizeable surplus of more than 1m b/d even if OPEC+ decides not to unwind its 2.2m b/d of additional voluntary cuts as currently planned. The IEA expects non-OPEC+ producers to increase supply by around 1.5m b/d in 2025, offsetting the almost 1m b/d of demand growth expected. Our balance currently shows that the market will see a small surplus over 2025 if OPEC+ cuts are extended. However, much will also depend on compliance, given a handful of members have continuously produced above their target levels.

The latest data from Insights Global shows that refined product inventories in the ARA region increased by 429kt over the last week to 6.35mt. The increase was predominantly driven by gasoil, where stocks increased by 376kt to 2.42mt. Middle distillate stocks in Europe are at comfortable levels as we head deeper into the winter months. In Singapore, Enterprise Singapore data shows that total oil product stocks increased by 605k barrels over the week to 42.11m barrels. Light and middle distillate stocks increased by 207k barrels and 72k barrels respectively, while residue stocks increased by 326k barrels.  

Federal Reserve’s (Fed) Jerome Powell, who leads a team that started cutting the interest rates with a 50bp point in September by fear that the US jobs market would deteriorate quickly and added another layer of 25bp cut last week, said that ‘the economy is not sending any signals that [they] need to be in hurry to lower the rates’. Maybe, the plans have changed after Trump’s election on rising inflation risks due to pro-growth policies and tariffs.

And beyond Trump, the inflation data released this week wasn’t that encouraging, either. The US headline inflation rebounded from 2.4% to 2.6% parallel to market expectations, while yesterday’s surprised to the upside, with both headline and PPI data printing figures above the market expectations. On top, the initial jobless claims came in lower than expected. All in all, the Fed is coming to the realization that cutting rates hurriedly was not a brilliant idea, and the first thing to do now is to do nothing in December. The probability of a December cut went from 60 to 80%, and is back to around 60% in the aftermath of this week’s data and comments. The US 2-year yield consolidates near 4.35%, the 10-year yield flirted with the 4.50% level, with treasury sceptics eyeing an easy advance to the 5% mark, and the US dollar extended gains to the highest levels in more than a year, supported by the hawkish shift in Fed expectations. The price action makes sense, but the fact that the US dollar has now stepped into the overbought territory will likely slow the short-term demand for the US dollar and could lead to a minor correction. But the price pullbacks should continue to be interesting dip-buying opportunities for the dollar bulls looking for a further extension of gains against majors.

The EURUSD tipped a toe below the chilly 1.05 level yesterday, on the back of a stronger dollar and a 2% decline in Eurozone’s industrial production, but rebounded to 1.0540, as the market hasn’t yet digested the idea that the EURUSD – which was testing the 1.10 offers 6 weeks ago – is now diving below the 1.05 mark. But once the information is digested, the move could materialize. There is a louder call for a 50bp cut in December from the European Central Bank (ECB), and some start talking about a 75bp cut – which I think is clearly not happening. But the Stoxx 600 saw support yesterday, partly thanks to more aggressive ECB rate cut expectations that support valuations and partly thanks to a nearly 3% jump in ASML after the company projected a sales growth between 50 and 100% – yes that’s the prediction range: 50 to 100% growth in sales.

Oil remains offered

Crude oil’s positive attempt yesterday remained short-lived, again, and the barrel of US crude is drilling below the $68pb at the time of writing, despite encouraging retail sales data from China. The USDCAD extends gains above the 1.40 mark and the USDJPY consolidates and extends gains above the 156 mark, with bears eyeing a further rise toward the 160 mark, where authorities would say stop to the bleeding with a direct intervention.Meli-melo of other news

Disney jumped more than 6% yesterday on better than expected Q3 results, especially for its streaming business, but the rest of the market didn’t look as great. The S&P500, Nasdaq, Dow Jones and Russell 2000, they all fell yesterday on Powell saying – all of a sudden – that there is no need to hurry with the rate cuts. Tesla fell nearly 6% on news that Trump would eliminate the $7500 consumer tax credit for EV. But wait, because Tesla is already profitable, it is better positioned than the rest of the EVs to thrive.

The week will end with the UK GDP, a few more inflation numbers from the Eurozone and US retail sales and industrial production data. The incoming data could give an immediate reason to buy more dollars, or let the dollar soften to buy a dip. But in all cases, the outlook for the US dollar remains comfortably positive as the week comes to an end.

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