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Global stock markets start the first trading year of 2019 on the back-foot, suggesting the sell-off that characterised 2018 is still with us.
Safe-haven currencies such as the Yen rose as the cautious mood prevailed, while the China-focussed Australian Dollar was easily the worst performing major.
China's Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) for December fell to 49.7, from 50.2 in November, and follows a poor official PMI survey on factory output which fell from 50.0 to 49.4.
A move below 50 takes the sector into contraction.
"The economy is weak and that stimulus needs to arrive quickly," says Iris Pang, Economist with ING Bank. "We believe that the data reflect that not only has the trade war damaged growth in the export sector. It has also hurt export-related supply chain companies and in turn, domestic demand."
ING expect the Chinese government to speed up the delivery of infrastructure investment to support the economy, which will mainly be through projects governed by local governments, e.g. new metro lines.
Furthermore, Pang says local governments will also likely ease housing measures.
Manufacturing data is due at 09:30 GMT, with the Markit Manufacturing PMI for December expected to read at 52.6, down on the previous month's 53.1.
The economy is widely expected to have slowed down in the final quarter, in sympathy with the slowdown in economic activity being witnessed globally. Recall, the German economy contracted in the third quarter while PMIs are signally contraction in China's manufacturing sector.
And then there is Brexit which is likely prompting businesses to hold back on making any significant investments until some certainty on the outlook is provided.
We expect this to be particularly more pertinent as the Brexit negotiations reach the climactic Brexit vote in parliament this January.
Businesses, and the British Pound, are likely to maintain a holding pattern until we get more of a sense as to whether Theresa May's Brexit deal will pass or not.
The UK House of Commons returns from Christmas recess on Monday, 7 January and the House may vote on Theresa May’s Brexit proposal in the week starting 14 January.
We do however expect the European Union to offer a final concession to the UK over the contentious Northern Ireland backstop, without such a concession the EU know as well as anyone else that the deal will not pass.
Therefore, any move in Sterling could actually come before the vote as any EU concession becomes known.
Broader market sentiment is in charge of the Australian Dollar, the currency is the worst performer on the day owing to the dour data coming out of China.
Markets expect slowing Chinese economic activity to result in weaker demand for Australian exports which will likely in turn lead to softer demand for the Aussie currency.
The Australian Dollar is also the worst performing major currency of the past week, month and year with the ongoing US-China trade war proving to be the main source of angst for the unit.
Our technical studies suggest the Pound can continue to advance against the Aussie Dollar near-term.
From a purely technical perspective we note GBP/AUD has completed a bullish reversal pattern which indicates the likelihood of more upside. The pattern is called an ‘inverse head-and-shoulders’ (H&S) and is composed of three consecutive lows, the middle trough of which (the ‘head’ or ‘H’) is the lowest.
The inverse H&S is a bullish reversal pattern with the ‘trigger-point’ for a rally occurring after a break above the ‘neckline’. GBP/AUD has already successfully pierced the neckline at 1.7815 increasing the probability of more gains.
The release of new home sales and advance goods trade for November have been postponed due to the ongoing government shutdown.
Indeed, the shutdown is a factor to watch for global markets at present, and news reports suggest President Trump will be overseeing negotiations between congressional leaders to resolve the issue that centres on funding for a wall on the US-Mexico border.
2019 kicks off with a short and relatively quiet week for the G4 FX segment, where the main focus will be on the US jobs report due on Friday.
"Given the relatively dovish pricing of Fed hikes in 2019, the balance of risk is probably skewed towards a stronger USD on the jobs report," says Valtteri Ahti, Chief Strategist with Danske Bank.
With the Federal Reserve in mind, watch the appearance of Fed Chair Powell on Friday when he will have the chance to comment on the economic outlook when he participates in a joint discussion with former chairs Janet Yellen and Ben Bernanke.
The market has gone from expecting several interest rate hikes at the Fed in 2019 to now expecting none. Futures market pricing now only ascribes a 14% chance of a rate rise before January 2020.
Has the market become to bearish on the Fed, and in extension the Dollar? Any strong data or comments by Powell that this might be the case could therefore offer the Greenback some respite.
The Euro is one of the better performers at the start of the new week, with the single-currency advancing a quarter of a percent against the U.S. Dollar and 0.20% against the Pound.
"EUR/USD continues to see a strong rebound from the November low at 1.1267 and is currently well placed to challenge and break above the 2018-2019 downtrend at 1.1451," says technical analyst Karen Jones with Commerzbank.
"Upside risks are growing and a close above here (preferably a weekly close) would trigger a recovery to the 1.1623 October high and the 1.1654 200 day ma. Dips lower should find initial support at the 55 day ma at 1.1380 ahead of the 1.1267 end of November low," adds the analyst.
Markit PMI for December will be watched at 14:30 GMT for renewed signs of weakness after the index rebounded from four consecutive declines in November.
This is a second-tier data event for the Canadian Dollar and we don't see any long-lasting impact on the currency in response to the numbers.
The main release for the Canadian Dollar in the coming week is employment data, out at 13.30 GMT on Friday, January 4.
Payrolls are forecast to rise by 5k in December from 94k in November. A greater-than-expected rise would support CAD and vice-versa for an unexpected fall. The change in full-time employment is more important - last month it accounted for 90k of the 94k total rise.
The unemployment rate, released at the same time, is forecast to show a rise to 5.7% from 5.6% previously.
Another important fundamental factor for the Canadian Dollar will be developments in oil markets, especially Canadian Select, the variety exported by Canada.
Oil is the country’s largest export so its price can impact demand for the currency.
The Canadian Crude Index is currently trading at $27.63 a barrel, which is considerably lower than the December highs in the mid-30s, and this may be why the Canadian Dollar has suffered of late.
Like the Australian Dollar, the NZ Dollar is however taking cues from Chinese data, hence the soft start to the new year in sympathy with the poor Chinese PMIs.
We imagine China and risk sentiment to be the main driver going forward. We will be served a reminder as to the importance of China to the New Zealand economy when the latest GDT dairy auction is released later today.
Dairy is New Zealand's greatest export to China and a key driver of currency earnings for the country. The GDT provides details of price changes seen at the fortnightly global dairy auction.
The release should come at around 14:30 GMT.
Dairy products are New Zealand's key export so a rise in prices tends to be supportive of the Kiwi currency. This is especially true for whole milk powder.
Milk prices have fallen steadily this year but at the auction two weeks ago they rose 1.7%. Kiwi farmers and the economy have been hurt by lower prices, and if the data out on Tuesday confirms further price weakness it could impact negatively on the Kiwi.