From Marc to Market:
Overview: The minutes from last month's FOMC meeting seemed to imply a more aggressive Federal Reserve that rippled through the capital markets, spurring a sell-off in stocks and bonds and helping to lift the US dollar. The dramatic slide in US equities has carried over to today's activity. In the Asia Pacific region, Japan and Australia led the move, each benchmark lost more than 2%, while China's CSI 300 and South Korea's Kospi dropped more than 1%. Hong Kong and Singapore escaped the carnage with modest gains. Europe’s Stoxx 600 gapped lower to snap a three-day advance and leave a bearish two-day island top in its wake. It is off more around 1.0% near midday. The sell-off is led by information technology and consumer discretionary. US futures are narrowly mixed. Asia-Pacific bonds played catch-up after the jump in US yields. The 10-year benchmark yield rose 8 bp in Australia, 6 in New Zealand, and nearly 13 in South Korea, where the central bank may hike rates next week. European yields are 3-5 bp higher with the core-periphery widening out a bit. The 10-year US Treasury yield is around 1.73%. The greenback is firm, with the Antipodeans hit the hardest (~0.5%-0.7%). The yen is bucking the trend despite the higher Treasury yields. This appears to reflect some position unwinding, like long Australian dollar/short yen. Emerging market currencies are mostly lower. Here, the South African rand and central European currencies are bucking the move. The Hungarian forint is firmer though the central bank held the one-week deposit rate at 4% after raising it consistently over the past seven weeks. Gold is breaking down in the face of higher yields. It was turned back from approaching $1830 yesterday and it is hovering around $1800 afer having fallen to around $1794. The next target is around $1783. A freeze in Canada and the northern US, coupled with a draw down in stocks has kept oil firm. February WTI is around $79, though US natural gas is off slightly paring yesterday’s 4.4% gain. European natgas is little changed after initially extending yesterday's nearly 9% rally. Iron ore has extended its gains, while copper is lower for the third session.
Asia Pacific
China's services and composite Caixin PMI, like the manufacturing PMI were better than expected. The market had expected the service PMI to slip from 52.1 in November, but instead it increased to 53.1. The composite stands at 53, up from 51.2. China's Lunar New Year week-long holiday celebration begins on January 31. A move to ease financial conditions, perhaps a cut in reserve requirements, may be delivered before the holiday.
Japan's final PMI reading was also revised higher, which in effect pared the decline. The services PMI was at 53.0 in November, and initially was seen falling to 51.1, but in the revision, it stands at 52.1. Similarly, the composite fell to 51.8 from 53.3 in the flash reading but was revised to 52.5 in the final report. The BOJ meets on January 18. It may downgrade its near-term growth forecast, while upgrading inflation.
Australia's final PMI reading was unchanged from the flash report. This means that the service PMI slipped to 55.1 from 55.7. The composite eased to 54.9 from 55.7. The Reserve Bank of Australia does not meet until the end of the month. It has pushed against market expectations of an early rate hike, but its 2 and 10-year yields have nearly kept pace with the surge in the US. The swaps market has a 25 bp hike fully discounted by early H2........Kazakhstan devolved into chaos yesterday and invited Russia to help quell the violent anti-government demonstrations. Kazakhstan produces an estimated 40% of the world's uranium. Amid concerns over supply, the price of uranium jumped around 8%. That said, the real geopolitical focus is on next week's talks over Ukraine. Despite the two discussions between Biden and Putin last month, the risk that Russia invades Ukraine is still understood to be quite elevated.....
....MUCH MORE
