Ugly Friday

<div><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhQzENIhDK5gpknYl7jZiX3SCspzH5836bt8DBxcDwCsrYHEhRhCpvLZ9kHnrabPg7w_FMk7Tz5WCH01b140OKSlU4s0Jz6bN6TfYGzoqui5Fp5wLH4THozgV-8MpNp-8H5Ah9qA9NXveqxFaGxDLPj86BB2OYbyZmPN_ZJvSc6j3hPPA5ohARJUB0vRA=s1285"><img alt="" border="0" data-original-height="1285" data-original-width="1283" height="400" src="https://blogger.googleusercontent.com/img/a/AVvXsEhQzENIhDK5gpknYl7jZiX3SCspzH5836bt8DBxcDwCsrYHEhRhCpvLZ9kHnrabPg7w_FMk7Tz5WCH01b140OKSlU4s0Jz6bN6TfYGzoqui5Fp5wLH4THozgV-8MpNp-8H5Ah9qA9NXveqxFaGxDLPj86BB2OYbyZmPN_ZJvSc6j3hPPA5ohARJUB0vRA=s400" /></a></div><p><b><span>Overview:&nbsp;</span></b><span>The reversal in US equities yesterday set the tone for today.&nbsp; Among the large bourses, only Hong Kong escaped the pain today. It was the sixth session of the past seven that the MSCI Asia Pacific Index fell.&nbsp; Today's 1.3% retreat in the Stoxx 600 brings it lower for the week, and third consecutive weekly loss.&nbsp; US indices closed on their lows yesterday so the lower opening that the futures point to would at least initially leave gaps on the charts.&nbsp; Falling equities are helping push yields lower.&nbsp; The US 10-year, which tested 1.90% two days ago, is near 1.79%.&nbsp; European yields are 2-3 bp lower.&nbsp; Australia and New Zealand benchmarks played catch-up and were off 6-7 bp today.&nbsp; The US is broadly mixed.&nbsp; The dollar-bloc currencies and sterling (after a dismal retail sales report) are weaker, while the Swedish krona, Swiss franc, euro, and yen, are firmer.&nbsp; Near midday in Europe, the Dollar Index (~95.60) is up about 0.5% on the week.&nbsp; Emerging market currencies are holding their own as a group.&nbsp; The JP Morgan Emerging Market Currency Index is rising for the third consecutive session and the third consecutive week, which matches the longest streak since November-December 2020.&nbsp; Gold stalled near $1848 yesterday and is heavier a little above $1834.&nbsp; March WTI peaked slightly above $87 yesterday and tested a four-day low today below $83 before resurfacing above $84.&nbsp; US natural gas is almost 3% higher after falling more than 11% over the past two sessions.&nbsp; Europe's benchmark has been alternating between gaining and losing sessions since the middle of last week.&nbsp; Its 1.4% decline today follows a nearly 7.2% advance yesterday.&nbsp; It is off around 7% this week.&nbsp; &nbsp;Iron ore is up more than 2%.&nbsp; It is the fourth consecutive session of such gains.&nbsp; Copper is paring yesterday's 2.5% gain.&nbsp;&nbsp;<o:p></o:p></span></p><p><b><span>Asia Pacific</span></b><span><o:p></o:p></span></p><p><b><span>For the first time since 2014, the BOJ did not say that inflation risks were skewed to the downside.&nbsp;&nbsp;</span></b><span>Instead, it said the risks were generally balanced at the conclusion of its policy meeting earlier this week.&nbsp; However, today's December CPI reading was disappointing.&nbsp; The headline rate edged up to 0.8% from 0.6%.&nbsp; The median in the Bloomberg survey looked for a 0.9% increase.&nbsp; The core rate, which excludes fresh food, was unchanged at 0.5%, defying expectations for a small rise.&nbsp; Most disheartening was the measure that excludes energy as well as fresh food.&nbsp; It deteriorated to -0.7% from -0.6%, matching the worst since last June.&nbsp; &nbsp;Ironically, as the US, Europe, and many emerging market countries wrestle with price pressures, if it weren't for energy and fresh food prices, Japan would be experiencing deflation.&nbsp;&nbsp;<o:p></o:p></span></p><p><b><span>Chinese policymakers are concerned about the influence of its large tech companies.&nbsp;</span></b><span>&nbsp;It sees the problem of corruption.&nbsp; It is not just in the private sector, but recognizes it among state-owned enterprises, including the financial sector.&nbsp; In the US, the Senate Judiciary Committee approved anti-trust legislation that prohibits companies providing a platform from giving an advantage to their goods and services.&nbsp; A similar bill passed a House committee last year but has yet made it to a floor vote.&nbsp; There are reportedly dozens of amendments pending.&nbsp;<o:p></o:p></span></p><p><b><span>Intra-market correlations with the dollar-yen exchange rate have broken down.&nbsp;</span></b><span>&nbsp;The greenback is falling for the fourth consecutive session against the Japanese yen and the 11th session in the past 13.&nbsp; It has held slightly above last week's low near JPY113.50, where a $730 mln option is set to expire today.&nbsp; A $655 mln option at JPY113.85 also expires today.&nbsp; A close above JPY114.20, last week's settlement may help stabilize the tone.&nbsp;&nbsp;<b>The Australian dollar recorded the week's high yesterday slightly above $0.7275.</b>&nbsp; It is approaching the week's low set on Tuesday near $0.7170.&nbsp; There are A$1.1 bln options struck around $0.7195 that expire today, which the Aussie is hovering around as this is written.&nbsp; Meanwhile, the Aussie has broken higher against the New Zealand dollar after several weeks of consolidation.&nbsp; Today's high, above NZD1.07 is the highest since last July.&nbsp;&nbsp;<b>Despite the lower rates in China, the yuan has ground higher.&nbsp;</b>&nbsp;It set a nearly four-year high earlier this week and tested it today (for the dollar, that is below CNY6.34).&nbsp; The PBOC set the dollar's reference rate at CNY6.3492, slightly above the market's projection (Bloomberg survey) of CNY6.3490.&nbsp;&nbsp;<o:p></o:p></span></p><p><b><span>Europe</span></b><span><o:p></o:p></span></p><p><b><span>The UK reported dismal retail sales.&nbsp;&nbsp;</span></b><span>Yes, the virus took a toll, but not unexpectedly.&nbsp; The median forecast in Bloomberg's survey was for a 0.6% decline.&nbsp; Instead, the most comprehensive measure fell by 3.7%.&nbsp; And adding insult to injury, the November series was revised to show a 1.0% gain not 1.4%.&nbsp; Last month's decline was the worst since last January's 8.3% plunge.&nbsp; Although sterling is trading off, the swaps market is undeterred and still has an almost 90% chance of a BOE rate hike at the February 3 meeting.&nbsp; It has about 107 bp of tightening priced in for this year.&nbsp;&nbsp;<o:p></o:p></span></p><p><b><span>Baltic countries were granted permission from Washington to send American weapons to Ukraine.</span></b><span>&nbsp; The UK indicated earlier in the week that it too was sending defensive weapons to Ukraine.&nbsp; Macron's speech to the EU Parliament about the EU reaching its own "security and stability pact" with Russia was quickly rebuffed by the Russians who prefer dealing with the US.&nbsp; But Macron's speech no doubt did not sit well with US officials either.&nbsp; There does seem to be a fissure in the alliance that could be exploited by Russia for what has been dubbed a hybrid or asymmetrical warfare, like the recent cyber-attack on Ukraine.&nbsp; Europe itself is divided too between the eastern and central part that knows what living under the Soviet boot was like, and more pacifist leanings in the west.&nbsp; Meanwhile, it is thought that as long as talks continue, Russia will stay its hand.&nbsp;&nbsp;<o:p></o:p></span></p><p><b><span>The euro posted an outside down day yesterday by trading on both sides of Wednesday's range and settling below Wednesday's low.</span></b><span>&nbsp; Follow-through selling from this bearish one-day pattern was limited and the single currency held $1.1300 after making a marginal new low for the week.&nbsp; Still, this week's decline (after a key reversal last Friday) has been enough for the five-day moving average to slip below the 20-day for the first time this year.&nbsp; Initial resistance is seen around $1.1350.&nbsp;&nbsp;<b>Sterling is falling for the fifth session in the past six.</b>&nbsp; &nbsp;Today's loss has pushed cable through its 20-day moving average (~$1.3570) for the first time since before Xmas.&nbsp; It is finding support near $1.3560 and below there, support is seen near $1.3530.&nbsp; A break could spur a move back toward $1.3460 early next week.&nbsp; &nbsp;<o:p></o:p></span></p><p><b><span>America</span></b><span><o:p></o:p></span></p><p><b><span>The light US economic calendar (only December's Leading Economic Indicator) will keep the focus on the equity market and next week's FOMC meeting.&nbsp;&nbsp;</span></b><span>The Federal Reserve's preliminary report on digital currencies suggests a long-drawn-out affair ahead of us.&nbsp; The most important factor for this is the understandable desire to get a strong backing from the White House and Congress.&nbsp; A consensus is difficult to envision any time soon.&nbsp; The Federal Reserve provided some broad pro and con points, and is open to public commentary <b>(<a href="https://www.federalreserve.gov/apps/forms/cbdc" target="_blank">here</a></b>).&nbsp;&nbsp;<o:p></o:p></span></p><p><b><span>Amid the debate over US inflation, Treasury Secretary Yellen staked out the dovish view, suggesting that as the virus comes under control, price pressures will ease.</span></b><span>&nbsp; She reiterated that she expects inflation to finish the year closer to 2%.&nbsp; President Biden's approval rating has been hit by inflation concerns.&nbsp; He recently claimed this was the Fed's responsibility.&nbsp; Yellen walked it back a bit and noted that it was a shared responsibility between the administration and the central bank.&nbsp;&nbsp;<o:p></o:p></span></p><p><b><span>Canada reports November retail sales today and a robust increase is expected (~1.2% after 1.3% in October).&nbsp;</span></b><span>&nbsp;The shockingly poor US and UK retail sales were for December.&nbsp; While next week's FOMC meeting is expected to signal a March hike, the Bank of Canada meeting is live.&nbsp; Around a 2-in-3 chance of a hike by the BOC is discounted in the swaps market.&nbsp; Overall, six hikes are priced in for this year.&nbsp; Mexico and Brazil have light calendars today.&nbsp; Note that this week, the Mexican peso is off about 0.85%, making it one of the weakest in the EM space, while the Brazilian real has rallied about 1.6% coming into today, helped by Lula's overture toward Alckmin, a previous rival, which was understood as a signal that that the former president and the most likely next president moved toward a more moderate course.&nbsp;&nbsp;<o:p></o:p></span></p><p> </p><p><b><span>The US dollar has chopped mostly between CAD1.2450 and CAD1.2550 this week.</span></b><span>&nbsp; In the past two sessions, the greenback tested the lower end of the range but rejected it and closed firmly near CAD1.2500.&nbsp; There is nearly $2 bln of options that expire today struck between CAD1.2545 and CAD1.2555, which may serve to reinforce the upper end of the range.&nbsp; It probably takes a move above CAD1.2570 to be significant.&nbsp;&nbsp;<b>The greenback's downside momentum against the Mexican peso dried up earlier this week near the 200-day moving average (slightly below MXN20.28).</b>&nbsp; The settlements in the past three days were near session highs.&nbsp; The dollar reached MXN20.5660 yesterday, the highest since January 6. Without follow-through buying, the greenback has slipped back below MXN20.50.&nbsp; Nearby support is seen around MXN20.45, which may be sufficient ahead of the weekend.&nbsp; &nbsp;<o:p></o:p></span></p><p><br /></p><p><br /></p><p><span>Disclaimer</span></p><div>
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