Trading with point and figure

FTSE

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- Digesting China policy tightening, Asia PMIs ahead of Europe/US Services
PMIs and all important US labour report; EU summit and Russia rate
decision also in focus

- China: policy tightening understandable in terms of more stable economy,
but clearly primarily aimed at containing bubbles and putting a floor
on CNY FX rate

- US Payrolls: whisper estimate well above consensus due to ADP, but
annual revisions raise risk of official/ADP divergence

- US Unemployment Rate: seen steady, but seasonal factors impart risk of
rise

- US Average Hourly Earnings: further solid m/m gain expected, but y/y
rate seen dipping on base effects

- Charts: CNY and CNH 1 week rates, China 10 yr bond future

..........................................................................

********************
** EVENTS PREVIEW **
********************

While the US labour market report dominates the day's scheduled proceedings, there is not shortage of other statistical inputs for markets to digest, though China's return to the fray with another surprise 'stealth' policy tightening will probably the other major talking point. Even if the overriding impression from the first five weeks of the trading year is that six years of central bank policy largesse (aka financial repression) and Sisyphean burden of new regulations have beaten the life out of anything that might have been described as 'market reaction function', outside of exponential but ultimately very short-lived reactions (cf. Brexit, Trump, etc). There are the gamut of Services PMI from around the world, as well as Turkish and Italian CPI and US Factory Orders, while Russia's central bank meets on rates. Bank Rossi is seen holding rates at 10.0%, though a 'surprise' cut is possible given that inflation continues to fall. The latest Russia FX reserve plan ($1.0 Bln per week to be purchased starting February 7) is expected to keep RUB gains in check, and obviate the need for an immediate rate cut, even if Nabiullina signals that a Q1 rate cut remains on the table (if there is no change at this meeting). Political risks in Europe continue to garner plenty of attention, and with the Eurozone's and the EU's survival being questioned, today's EU leaders summit to discuss its overall future direction post-Brexit, and the highly divisive issue of refugees will surely spawn many a headline, as well as a deluge of fake news and vitriolic opinions.

** China - PBOC policy tightening **
- As the comments from PBOC official Zhang in an essay published by China Finance, a PBOC-affiliated magazine, today's 10 bps repo rate hikes are primarily part about preventing 'excessive money supply from causing high leverage and asset bubble risks' and 'too much volatility in interest and exchange rates to maintain financial stability'. That is all well and good, and very understandable in the context of containing a very real property sector bubble, as well as leaning against any further CNY weakness above all against the USD. But today's move eminently follows a massive injection of liquidity over the past year, and just ahead of the Lunar New Year holidays, and it remains to be seen whether the PBOC is up to the challenge of prevent this first significant policy tightening in just over 2 years from creating ructions in local financial markets. A subdued reaction in local bond and money markets today is probably not a reliable indication of how markets will react next week, and as the attached charts highlight the colossal spread between onshore and offshore Yuan money rates remains all too palpable, while the 10 yr Bond future has fallen back to its December lows.

** World - Jan Services PMIs **
- The run of Manufacturing PMIs earlier in the week served to reinforce the impression that the developed world economies are in rather better overall health than they have been for quite some time, and by and large today's Service sector readings are also projected to show some improvement. The remaining Asian Manufacturing and Services PMIs published overnight were again either sluggish or outright weak, and the region clearly continues to lag the improvements seen in the US and Europe in recent months. While there will be interest in the Spanish and Italian PMIs in the Eurozone, the focus in terms of the latter remains very much on politics. For the UK, in the wake of the BoE MPC meeting which conveyed a strong impression that they really do not want to tighten policy, the Services PMI is seen easing marginally to 55.8, after a steady risk from August's 52.9 to December's 56.2, with the Prices Paid and Received indices likely to garner particular attention. The US on-Manufacturing ISM is seen edging up to 57.0 from December's 56.6, with the Business Activity sub-index seen at 61.2 from 60.9, continuing the run of solid surveys and official activity data.

** U.S.A. - January Labour Report **
- After the unexpectedly strong ADP Private Employment report, the consensus for the official Payrolls report today has been nudged higher to 175K (originally 165K), for headline and Private; the 'whisper' estimate is rather closer to 200K. Eminently the usual warnings about extrapolating from ADP to the official data apply, given the well documented and sometimes very large gaps, and given that today's report will also include annual benchmark revisions, the outlier risk is particularly elevated. However for many market participants who experientially lean to assuming the Fed's bark is bigger than its bite, a strong payrolls reading will need to be accompanied by solid household survey employment readings, and continued strength in Average Hourly Earnings. With Trump talking about shifting the focus to the broader Unemployment Rate measure which includes those 'not actively seeking employment', there will be particular focus on the headline and the underemployment measure. The former is seen unchanged at 4.7%, though a seasonally typical rise in Employment is generally accompanied by an even larger rise in the size of the labour force, per se skewing risks to a higher than expected reading. Average Workweek data have been sluggish in recent months, and the January report is expected to see an unchanged 34.3. Barring surprises in other elements, the Average Hourly Earnings print will probably attract most attention, with a solid 0.3% m/m gain seen, though thanks to a 0.4% m/m in January 2016 falling out of the comparison, this would see the y/y rate dip to 2.8% from 2.9%, which would still leave 'real' earnings rising at a reasonable pace. As has been the case since Trump was inaugurated, the question is then how markets assimilate a clearly strong run of incoming official and survey data against the clear disappointment that Trump has for the most part focused on rapid implementation of the negative elements of his policy approvals, rather than the positive ones that raised hopes of a step up in the short-term growth outlook.

from Marc Ostwald
 
Morning folks,

Ftse rez 7160..see how we go....possible 7180 before falling back 7130...depends on cable again see cable rez 1.256 sp 1.25ish...possibly range bound for a bit.

Oil at 54 rez, as said yesterday could become support in which case 5450 otherwise back to 5350.

Nothing overly exciting....so far...lets see
 
Morning all, Dow down to 19850 overnight and now back up to 19920, I bet we were all surprised by those levels! Lol
 
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