Weekly economic and financial commentary

Wells Fargo Research Team Wells Fargo

Summary

United States: Naughty & Nice: Mixed Data to End 2022

This week's data showed that the U.S. economy is ending the year on a mixed note. The housing market generally showed further signs of deterioration in November, and data on durable goods orders were generally weaker than expected, when backward revisions to previously released data are taken into account. That said, data on consumer confidence shows that consumers are less downbeat at present than they were a few months ago.
Next week: S&P Case-Shiller Home Price Index (12/27), ISM Manufacturing (1/4), Nonfarm Payrolls (1/6)

International: Bank of Japan Tweaks Its Accommodative Monetary Policy Stance

In a surprise move, the Bank of Japan (BoJ) tweaked its yield curve control policy at its December monetary policy meeting, widening the tolerance band for its 10-year Japanese government bond (JGB) yield to +/- 50 bps, around a 0% target. The BoJ emphasized that the change in policy was not a form of monetary tightening, but was designed to enhance the sustainability of its current monetary policy. While the policy tweak has added uncertainty to the BoJ outlook, we continue to lean toward BoJ policymakers making no further policy adjustments through the end of 2023.
Next week: Japan Retail Sales/Industrial Output (12/27, 12/28), Swiss KOF Leading Indicator (12/30), China PMIs (12/31)

Credit Market Insights: Not All Rate Hikes Are Created Equally

How quickly rate hikes are transmitted through the economy depends not only on how high policy rates are lifted, but also structural elements of an economy. Generally, a higher level of household debt, higher interest servicing costs, as well as a larger proportion of variable rate mortgages to fixed rate mortgages tends to indicate more sensitivity to rate hikes.

Topic of the Week: Population Growth Picks Up Slightly in 2022

One negative knock-on effect of the pandemic was a considerable slowdown in population growth. Fortunately, the trend appears to be reversing somewhat. According to the Census Bureau, U.S. population growth picked up 0.4% between July 2021 and July 2022, still slow by historical standards, but an improvement from the record-low 0.2% rate from the year-earlier period.

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Wells Fargo Research Team

Wells Fargo

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.