Market Update – January 12 – Not as hawkish as priced in
Fed Powell, Mester and George, along with a 3-year auction added to the action in the markets. This saw yields pick up, and equities retreat. Commodities also caught a boost and oil touched pre-Omicron highs in Asia.
Powell confirmed the shift to normalization and stressed the Fed will fight inflation aggressively, but also indicated liquidity would not be pulled back anytime soon.
“FOMC would use its tool to ensure price pressures would not become entrenched, and would act aggressively if necessary.”.Fed Chair Powell said inflation could last into mid-2022 , while the Committee has not made any decisions on the timing of raising rates and allowing the balance sheet to shrink. He promised more clarity on that is coming soon.
- USD (USDIndex 95.50) – 6-weeks low on less hawkish Powell than expected, while data indicate more room for policy easing in China. –China CPI inflation slowed to 1.5% y/y in December from 2.3% y/y.
- Treasury yields are richer, with the US Yields 10-yr closing at 1.745%, and though the 2-year was only fractionally lower at 0.895%, it has managed to hold below the 0.90% level since March 2, 2020.
- Equities – a drop in rates, saw yields up and helped underpin Wall Street where the USA100 outperformed with a 1.4% gain for the day, its best since December 21. The USA500 rallied 0.92%, and the USA30 was up 0.5%. JPN225 rose about 2%. Equities moved higher in Japan and Australia, with tech leading the rise once again.
- BoJ’s Kuroda: “Japan’s inflation is set to accelerate gradually, and the Japanese economy is picking up as a trend.“
- Boeing and Salesforce.com led the USA30, while Illumina topped the USA500, up 14% after giving better 2022 revenue guidance. The energy sector rallied 3%, while utilities were down 1%.
- USOil – up at 81.06 & UKOIL at 83.98.
- Gold -spiked to $1823.
- BTC steady close to at $40,000 support.
- FX markets – EURUSD at 1.1360, USDJPY steady at 115.30, Cable at 2-month high at 1.3645. – UK overcoming a wave of COVID-19 cases led by Omicron & priced in a nearly 80% chance of BoE rate hike in February.
European Open: The GER30 future is up 0.3%, the UK100 future 0.6%, as markets remain in full risk on mood ahead of key US inflation data. Fed Chairman Powell yesterday seemed to provide some reassurance by sticking to the script. That will likely bring the German 10-year rate closer to lifting out of negative territory, as the ECB is still trying to reassure consumers that it is still committed to keeping inflation at bay, while at the same time trying to keep spreads in. A difficult balancing act that will get harder in the coming months.
Today – The December CPI headlines today. Results in line with forecasts would leave annual rates at a 7.0% y/y pace for the headline, a fresh 39-year high and besting that set in November at 6.8% y/y, and 5.4% y/y for the core versus 4.9% y/y, and a new 30-year high.
Biggest FX Mover @ (09:30 GMT) USDCAD (-0.10%) Pullback to 1.4268 extending to November’s low area. Fast MAs keep sliding lower, MACD signal line & histogram turned below 0 line. RSI 38 and sloping lower, Stochastics entered OS area.
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