From Marc to Market:
Overview: Sentiment is unhinged.
It has swung from fears that the Fed is behind the inflation curve and unemployment is below the long-term equilibrium rate to the central bank is going to kill the economy by raising rates and allowing the balance sheet to shrink too quickly. Today's US data retail sales and industrial output may play on such fears. Both are expected to have slowed sequentially (retail sales may fall outright even when the dismal auto sales and gasoline are excluded).
NASDAQ snapped a three-day advance, and its 2.5% slide retraced the gains of the past two sessions. The US 10-year yield weathered the CPI and Fed rhetoric, and after probing 1.80% to start the week, slipped to almost 1.69% yesterday. Asia Pacific and European equities are lower today. Japan, South Korea, and Australian markets lost more than 1%, and the regional index pared this week's gains. Europe's Stoxx 600 is nearly flat on the week coming into today and is off about 0.6% near midday in Europe. US futures are little changed. Bond yields are firmer, with the US benchmark yield near 1.75%, leaving it a couple basis points lower on the week. European yields are 2-3 bp higher today, but off mostly 3-5 bp on the week. Of note, Japan's five-year yield is approaching zero to reach its highest level since 2016. Led by the Norwegian krone and Canadian dollar, most major foreign currencies are stronger, with the minor losses of the Antipodeans being the exception. For the week, the euro's 0.9% gain is the least among the majors. Most emerging market currencies are firmer, with India bucking the move. The JP Morgan Emerging Market Currency Index is edging higher but looks set to post its first back-to-back weekly gain since last August-September. Gold is little changed around $1823, which puts its nearly 1.5% higher for the week. Oil has pushed to marginal new highs (~$83.20) Iron ore is off around 1% for the second session to give back this week's gains plus 0.5%. Copper is trading off for the second day, but is up around 2.6% for the week, its best showing since mid-October. After jumping more than 22% in the first three sessions this week, US natgas prices fell 12.1% yesterday and are off another 2.5% today. Net-net, it is up about 6.4% this week on top of last week's 5% advance. Europe's benchmark continues to be volatile but was flat for the week coming into today, where it is rising by around 7.3%.
Asia Pacific
China's trade surplus soared last month. Exports were stronger than expected and imports weaker. The surplus reached almost $94.5 bln. Economists (median in Bloomberg's survey) expected a little less than $74 bln. They had expected the surplus to fall in yuan terms, but it did not. In dollar terms, exports rose 20.9% year-over-year (to $340.5 bln), slower than November, but stronger than expected. Imports rose by 19.5% (~$246 bln) after November's 31.7% rise. Economists had projected 27.8% gains. Last year, China recorded a $676 bln surplus. Exports of steel and aluminum remained strong. Consumption goods shipments showed strong increases (e.g., toys 23.6%, shoes 29.3%). In real terms, the import of oil rose 19.9% last year and copper imports increased by 15%. Imports of iron ore declined year-over-year in December.
Exports to the US rose 21.2% year-over-year in last month, while imports rose 3.3% to produce a $39.2 bln surplus. Exports to the EU rose 25.6%, while imports fell by nearly 3%. The bilateral trade surplus stood at $25.1 bln. China's shipments to ASEAN rose 12%, but its imports for 22.5%. China's trade was more balanced with Australia. Exports for almost 20% while imports rose by 19.5%. Note the Regional Comprehensive Economic Partnership, the ASEAN, China, Japan, South Korea, Australia, and New Zealand trade pact was officially launched January 1. It will eventually eliminate tariffs on 90% of the goods trade.As widely anticipated, South Korea's central bank delivered its third rate hike since last July. The 25 bp increase brings the 7-day repo rate to 1.25%. The swaps market has 75 bp of tightening discounted for the rest of the year. Consumer inflation rose 3.7% year-over-year in December (2.7%) core rate. The economy expanded by 0.3% quarter-over-quarter in Q3 and is expected to have accelerated to around 1% in Q4 (due January 24). Separately, and with little market impact, North Korea appears to have conducted its third missile test of the year....
....MUCH MORE
