Another solid US payrolls report anchored hopes of more rate hikes this year, sending Treasury yields higher. Released last Friday, US non-farm payrolls rose +156K in December, compared with consensus of a +178K addition. However, the November reading was revised higher to +204K. The three-month moving average of +165K remained in tandem with the recent improving trend. Unemployment rate increased +0.1 percentage point to +4.7% while average earnings rose +0.4%, better than consensus of +0.3%. the market currently expects two Fed funds rate hikes this year, compared with three as suggested in FOMC's dot plot. The timing of the next rate hike would most likely occur at the May or June meetings.
Dallas Fed president Robert Kaplan, a voter this year indicated that the median projection of three rate hikes "gives you a sense of my views", though again emphasizing the pace of increasing interest rates should be "gradual and patient". Kaplan's comments were echoed by Philadelphia Fed president Patrick Harker who noted that he was "penciled in for three increases next year, however, that's subject to a lot of uncertainty". By contrast, dovish Chicago Fed president Charles Evans, also a voter this year, reiterated that "two moves is not an unreasonable expectation". This was in spite of his upbeat view on the economic developments as Evans remained "optimistic that fundamentals will remain strong and that the labor market will continue to support consumer-led growth in output".
For the week ahead, important data releases for the US are clusters on Friday, when December PPI, December retail sales, November business inventories and the preliminary University of Michigan consumer sentiment reading for January would be due. Headline PPI probably accelerated to +1.6% y/y, from +1.3% in November, as mainly driven by the surge in energy prices. Core PPI might have slowed to +1.5%, from +1.6% in November. Headline retail sales might have gained +0.7% m/m, accelerating from +0.1% in November. Excluding autos, retail sales probably expanded +0.5% m/m, following a +0.2% gain in November. The University of Michigan's consumer sentiment index probably added +0.3 point to 98.5 in January.
In the Eurozone, besides the release of December ECB minutes scheduled on Thursday, the region-wide industrial production report would be due on that day. In the UK, BOE Governor Mark Carney would testify before the Treasury Select Committee on Wednesday. In Asia, Chins would release a series of macroeconomic data throughout the week. Due Tuesday, headline CPI inflation probably moderated to +2.2% y/y in December, from +2.3% a month ago. PPI inflation might have soared to +4.7% y/y from +3.3% previously. Friday comes December's trade report. It is expected to report a trade surplus of US$45.9B, up from US$44.2B in the prior month. China's money and credit aggregates for December might due later in the week or over the weekend.
Commitments of Traders:
Speculators were mixed over the energy complex in the week ended January 3. Net LENGTH for crude oil futures dropped -4 858 contracts from a week ago to 440 074. Meanwhile, net LENGTH of heating oil gained +6 433 contracts to 54 659 and net LENGTH for gasoline soared +10 739 contracts to 76 151. Net SHORT for natural gas increased +408 contracts to 641 for the week.
Speculators were also mixed over the precious metal complex last week. Net LENGTH for gold futures continued to shrink, losing -1 793 contract to 96 550, while that for silver futures added +2 380 contracts to 61 291. For PGMs, net LENGTH for platinum decreased +660 contracts to 24 754 while that for palladium added +78 contracts to 14 186.