Markets are getting cautious ahead of the US CPI
The return offered after his seemingly inexplicable advance yesterday. Price was firmer against most of the major currencies today, except for a hold of 114.00 JPY on yesterday’s advance. Most emerging market currencies were also weaker, with a handful of smaller Asian currencies proving somewhat resilient.
Most of the major stock exchanges are advancing in the Asia Pacific region except and. Europe was stable after pulling back late yesterday as US futures showed a softer open.
After rising for the past three sessions (~ 18bp), the yield on the US Treasury consolidated by hovering a little below 1.5%. European yields fell 3 to 5 bps. was little change. The calm tone of this week contrasted with the sudden movements of and.
was consolidating after the three-day advance that pushed January’s WTI up about 8.5%. and natural gas was also weaker after the rally of the past few days. , which climbed more than 10% in the first two sessions this week, edged down yesterday and lost 3% today. s three day rally was in danger.
The number of countries participating in a diplomatic boycott of the Beijing Winter Olympics is increasing. In addition to the United States, Lithuania, Australia, New Zealand, Canada and the United Kingdom have joined. While this may annoy Chinese officials, it is symbolic.
Given China’s quarantine protocols, many diplomats weren’t going to attend in the first place. In addition, the impact on human rights in China is likely to be negligible. Moral righteousness is a signal for national constituencies. However, the treatment of the Peng Shuai and the imprisonment of journalists needlessly upset the already precarious situation.
Consumer inflation in China rose less than expected while producer prices rose more. Due to a jump in vegetable prices (30.6%), November rose 2.3% from a year ago. The median forecast (Bloomberg survey) was for an increase of 2.5%. It was the fastest pace since August 2020. The decline in pork prices (-32.7% year-on-year) was slowing. Excluding pork, the CPI would have increased by 3%.
Prices for services have remained low. Excluding food and energy, the core CPI increased 1.2% from a year ago (1.3% previously). slowed from 13.5% in October to 12.9% in November. Economists expected a rate of 12.1%. Those responsible for the recall decided to increase supplies, including coal, helping to ease strong upward pressures.
Officials have shifted to a more pro-growth stance, meaning that inflation will not stand in the way of further easing of monetary policy (via reserve requirements, even if not interest rates). ) next year. Meanwhile, Evergrande (HK 🙂 and the Kaisa Group (HK 🙂 officially defaulted on debt service payments on dollar bonds. Yet unlike the end of the housing bubble in the United States and Europe, China has forced banks to continue lending.
This keeps the proverbial treadmill running. The November loan figures, released today, illustrated this. New yuan loans, which follow bank loans, rose more than 50% to CNY 1.27 trillion, from CNY 826 billion in October. Global funding, which adds parallel banking activity to bank loans, increased from CNY 1.5 trillion to CNY 2.61 billion. Note that just before publishing this report, the PBOC announced a two percentage point increase in foreign currency deposits. This will likely weigh on the yuan at first.
Weekly flows in the Japanese portfolio have been unusually large last week. Data from the Ministry of Finance showed Japanese investors were big sellers for the second week in a row. Sales of JPY 1.18 trillion followed the divestment of JPY 1.34 trillion the previous week. It was the best-selling in two weeks since February.
From a high level, most of last week’s sales did not require a net purchase of the yen as Japanese investors mainly turned to foreign stocks, grabbing JPY 1.2 trillion. This is the highest figure since the start of the time series in 2005. Meanwhile, foreign investors bought JPY 2.2 trillion in Japanese bonds, which appears to be the second highest on record (after 2 JPY 57 trillion purchased in early July). For the third week in a row, small sellers of Japanese stocks were.
The dollar approached 114.00 JPY yesterday and fell back to 113.35 JPY today. The JPY114 area has been “defended” by a $ 2.2 billion option at JPY 114.10 which expires today and a $ 1.15 billion option at JPY 114.25 which expires tomorrow. A breakout of JPY113.25-JPY113.35 could signal a test on JPY113.00, but the market will likely be cautious ahead of tomorrow’s US CPI report.
The rally in sa weakened earlier today to slightly above $ 0.7185, the 20-day moving average, which it has not traded above since November 4. The first retracement (38.2%) of this week’s rebound was close to $ 0.7115, but initial support was seen in the $ 0.7140 area.
The greenback edged down against (~ CNY6.3430) before leveling off and turning slightly higher. He was caught between two big options expiring today. One set cost around $ 2.5 billion at CNY 6.34, and another set cost around $ 950 million at CNY 6.35. The PBOC’s benchmark rate for the dollar today (6.3498 CNY) was the biggest deviation from the median projection (Bloomberg, 6.3467 CNY) since mid-October.
Germany’s October trade figures may have been too old to have a significant impact on the market, but growth in imports and exports has been a constructive development. The 4.1% rise in, the highest since July 2020, was well above expectations, as was the 5% jump (the most since August 2020). For Germany, this resulted in a lower amount than expected (12.8 billion euros). The average monthly surplus this year through October was 15.5 billion euros, which was a little higher than the average for the same period last year (14.4 billion euros), but excluding average in 2019 (until October) of 19 billion euros.
In the wake of the “party-gate”, British Prime Minister Johnson announced Plan B in the face of the new wave of infections calling on people to work from home again. It created a lot of fury. The companies asked for more government support and the unions wanted the leave program to be reinstated. Any lingering ideas of a rate hike next week by the Bank of England have vanished. The next-due contract had the lowest yield (11bp) in three months.
Short hedging appeared to take the euro to $ 1.1355 yesterday, and it stabilized above its 20-day moving average for the first time since November 3. However, this was not the harbinger of a breakout, and the euro’s gains were reduced today. Initial support was seen around $ 1.13 and then in the $ 1.1275 area.
posted new lows for the year yesterday slightly below $ 1.3165, the retracement (38.2%) of the rally from the March 2020 low. Today it was in a range of less than a quarter of a cent topped off near $ 1.3215. He was consolidating weakly. There were $ 1.32 options expiring today (~ Â£ 370million) and tomorrow (Â£ 600million) which have likely been neutralized.
The United States publishes weekly reports on household net worth, and, and in the third quarter. These would not be market drivers, especially today. Instead, investors would likely focus on equities while waiting for tomorrow’s CPI.
US inflation continues to accelerate and is expected to move closer to 7%, setting the stage for a hawkish FOMC meeting next week. An acceleration of the reduction and more public servants will likely see the need for more increases. Recall that in September, the last time officials updated their forecasts, half did not see the need to hike rates next year.
The market has done much of the heavy lifting for the Federal Reserve. The implied yield on the December 2022 federal funds futures contract has increased by around 50bp since the September FOMC meeting.
The Bank of Canada yesterday, as widely expected. However, the market was disappointed that it did not update its forecast to reflect the strong data. The swap market was forecasting five hikes over the next 12 months, and the central bank has said nothing to encourage such an aggressive stance. It left them somewhat vulnerable, we thought.
Brazil did not disappoint. The central bank rose 150bp for the second month in a row and signaled another rise of the same magnitude in February when it meets again. He raised the Selic rate by 750bp this year. It was driven upward and the economy contracted in the second quarter and into. The Selic rate is 9.25%. It is expected tomorrow and it should have increased to 10.9% (Bloomberg survey) from 10.67% in October.
Peru is set to increase its rate by 50bp to 2.5%. It would be the third 50bp in a row. Its November month, released earlier this month, was just over 5.6%. Mexico is releasing its November figures today. It is expected to rise from around 6.25% to 7.25% and set the stage for another 25bp hike next week in the overnight rate to 5.25%.
The US dollar was trading strongly against the Canadian dollar, and heavier stocks may have helped. While initial resistance was seen near CAD1.2700, we believe there was a margin towards CAD1.2730-CAD1.2750.
The price fell to near 20.8860 MXN yesterday, its lowest level since November 23, and the five-day moving average fell below the 20-day moving average for the first time since the start of last month. . The move appeared to have worn off, but the dollar had to resurface above the MXN21.05 area to build confidence that a lower was in place.