From Marc to Market:
Overview: The interest rate adjustment continues as the US 10-year Treasury yield firmed to test 1.90%, and the 2% target comes into view. The German 10-year yield poked above zero for the first time since May 2019 and is straddling the area now. A bigger than expected rise in UK inflation lifted the 10-year Gilt yield to 1.3%, its highest level since March 2019 before pulling back. Asia Pacific equities were a sea of red, led by a nearly 3% drop in Tokyo. It is the fifth consecutive losing session for the MSCI Asia Pacific Index. The Stoxx 600 is trying to stabilize after shedding almost 1% yesterday. It is up around 0.2% today, with consumer discretionary, and real estate performing best today. Financials and utilities are extending recent losses. US futures are posting small gains. Yesterday's dollar gains are being pared or reversed today against the major currencies. Emerging market currencies are more mixed, with the Turkish lira and a handful of East Asian currencies trading heavily. The JP Morgan Emerging Market Currency Index is recouping half of yesterday's 0.45% decline. Gold held the 200-day moving average yesterday (~1803.5) and is firm near $1818 now. The March WTI contract reached new highs around $86.40 before consolidating. US natgas is off about 0.6% after rising 0.5% yesterday, while Europe's benchmark is almost 7.5% lower. It rose 3.5% on Tuesday. Iron ore rose 2.3% yesterday and is up another 3.3% today. Meanwhile, copper is snapping a three-day drop with a 1.6% gain.
Asia Pacific
The Deputy Governor of the PBOC has given among the strongest assurances so far that the central bank will take more measures ("open the monetary policy toolbox wider") to avoid a collapse of credit. Among other things, many see it as a signal that the loan prime rate will be cut tomorrow. Recall that it is close to a market driven rate (18 banks quotes on their best lending rate) for both a one-year and five-year tenor. The one-year rate fell five basis points last month to 3.80%, but the five-year was left unchanged at 4.65%. There is talk that it can fall around five basis points tomorrow. The PBOC official also acknowledged space for another cut in the reserve requirement, though the space has narrowed. Reserve requirements at 8.4%, he noted, were not high compared with other developing countries, or China's experience.Japan's Prime Minister Kishida announced that 13 prefectures, including Tokyo and its surrounding area, will be under new virus curbs starting Friday and running through February 13. The quasi-emergency measures are mild by international standards, including having bars and restaurants close early, and in some cases, stop serving alcohol. Three regions also imposed these restrictions, so in all, as of the end of the week, 16 of 47 prefectures will be impacted, accounting for more than half of the country's GDP. The restrictions could also soon be imposed on Osaka as record infections are being reported.
The dollar was turned back in Asia yesterday after pushing above JPY115.00. Today it stalled near JPY114.80 and found new bids closer to JPY114.20. While rising US yields ought to help the greenback, the equity volatility is neutralizing this driver....
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