From Marc to Market:
Overview: The Fed's hawkish pivot came a few weeks before yesterday's FOMC meeting, which confirmed more or less what the market had already largely anticipated. Buy the (dollar) on rumors (of tapering and more aggressive stance on rates) and sell the fact unfolded, and unleashed the risk-appetites which rippled through the capital markets. US stocks rallied yesterday, and the futures point to a gap higher opening today. Large Asia Pacific bourses, led by a 2% rally in the Nikkie advance. Australia, despite strong jobs growth, as did New Zealand, while India struggled. Still, the MSCI Asia Pacific Index snapped a four-day slide. Europe's Stoxx 600 gapped higher. The bond market remains subdued. The US 10-year yield is hovering around 1.44%, while European yields are slightly firmer ahead of the ECB meeting. The dollar is on the defensive. The risk-on is reflected by the dollar bloc's relative strength and the Norwegian krone. The latter is drawing some support from the 25 bp hike by the Norges Bank. The yen is the laggard, and the dollar has held above JPY114.00. The euro has approached the week's high (~$1.1325). Most emerging market currencies are firmer, though Deputy Ministers in Treasury and Finance dismissals have seen the Turkish lira shed another 2% ahead of the central bank announcement. Gold recovered after approaching $1755 yesterday but appears to be stalling near $1787 today. January WTI is firm but in a narrow range, mostly between $71.40 and $71.95. US natural gas is rising for a second session though it remains below $4. Europe's natural gas benchmark is retracing yesterday's loss. It is up nearly 22% this week alone. Iron ore is higher by around 4.2%, enough to recoup the past two day's losses plus some. Tomorrow it will close out its fifth week of gains. Copper prices slid 1.75% yesterday, culminating a five-day drop. Today it is up nearly 2%.
Asia Pacific
Three developments in Japan to note. First, the November trade balance deteriorated as the seasonal pattern dictates. The deficit widened more than expected (to JPY955 bln from 68.5 bln). Exports, up 20.5% year-over-year, were softer than economists projected, while imports soared 43.8%, surpassing the forecast for a 40% gain. Despite the yen being the weakest major currency this year, Japan is running a deficit three times larger than last year and about half as large as 2019. Second, as the Tankan survey suggested, while the economy enjoys some momentum, there are doubts whether any fundamental corner has been turned. The preliminary December PMI showed a moderation in activity. The manufacturing PMI slipped to 54.2 from 54.5, and the services PMI eased to 51.1 from 53.0. This pushed the composite to 51.8 from 53.3. Third, foreign investors bought Japanese bonds in size (~JPY1.16 trillion) for the second consecutive week. And in the two-week period purchased the most in five months. This seems like year-end activity and may be part of unwinding structures that may have been behind the rise in repo rates earlier this week.
Australia reported a dramatic improvement in the labor market last month. Recall that Australia had lost about 360k jobs in the previous four months as the social restrictions and lockdowns were disruptive, and that was before the emergence of omicron. It reported that 366k jobs were filled in November, well above the 200k median expectation in Bloomberg's survey. This included what appears to be a monthly record of full-time placements of 128k. The unemployment rate fell to 4.6% from 5.2%, and the participation rate jumped to 66.1% from 64.6% (the highest since June). Less inspiring was the flash PMI, which showed moderating activity. The composite slipped to 55.1 from 55.7.A large option ($2.9 bln) struck at JPY114.25-JPY114.30 appears to be slowing the dollar's ascent. It expires today....
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