From Marc to Market:
Overview: The euro has come back offered after its seemingly inexplicable advance yesterday. The dollar is firmer against most major currencies today, with the yen an exception after JPY114.00 held on yesterday's advance. Most emerging market currencies are also softer, with a handful of smaller Asian currencies proving a bit resilient. Most large bourses advance in the Asia Pacific region, except Japan and Australia. Europe's Stoxx 600 is steady after retreating late yesterday while US futures are pointing to a softer opening. After rising for the past three sessions (~18 bp), the yield of the 10-year US Treasury is consolidating by hovering a little below 1.5%. European yields are 3-5 bp softer. Gold is little change. This week's quiet tone contrasts with the sharp moves in Bitcoin and Ethereum. Oil is consolidating after the three-day advance that lifted January WTI by around 8.5%. US and European natural gas is also softer after the rally over the last few days. Iron ore, which rallied over 10% in the first two sessions this week, edged lower yesterday and is off 3% today. Copper's three-day rally is in jeopardy.
Asia Pacific
The number of countries participating in a diplomatic boycott of the Beijing Winter Olympics is growing. In addition to the US, Lithuania, Australia, New Zealand, Canada, and the UK have joined. While it may annoy Chinese officials, it is symbolic. Given Chinese quarantine protocols, many diplomats were not going to attend in the first place. Also, the impact on China's human rights will likely be negligible. The moral righteousness is signaling to domestic constituencies. Yet, treatment of the Peng Shuai and the jailing of reporters needless antagonized the already precarious situation.
China's consumer inflation rose less than expected while producer prices rose more. Owing to a jump in vegetable prices (30.6%), November CPI rose 2.3% from a year ago. The median forecast (Bloomberg survey) was for a 2.5% increase. It is the fastest pace since August 2020. The decline in pork prices (-32.7% year-over-year) is slowing. Excluding pork, the CPI would have risen by 3%. Service prices remain soft. Excluding food and energy, the core CPI is up 1.2% over the past year (1.3% previously). Producer price inflation slowed from 13.5% in October to 12.9% in November. Economists had forecast a 12.1% pace. Recall officials moved to boost supplies, including coal, helping to ease the strong upside pressures. Officials have moved to a more pro-growth stance, which means that inflation will not stand in the way of further easing monetary policy (via reserve requirements even if not interest rates) next year.Meanwhile, Evergrande and the Kaisa Group have formally missed debt-servicing payments on dollar obligations. Still, unlike the end of the property bubble in the US and Europe, China is forcing banks to continue to lend. This keeps the proverbial treadmill going. The lending figures for November, released today, illustrate it. New yuan loans, which track bank lending, rose by 50%+ to CNY1.27 trillion from CNY826 bln in October. Aggregate financing, which adds shadow banking activity to bank lending, rose to CNY2.61 trillion from CNY1.59 trillion. Note that just before publishing this report, the PBOC announced a two percentage point hike in the reserve requirement for foreign currency deposits. This will likely weigh on the yuan, initially....
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