From Marc to Market:
Overview: The surge in US yields helped lift the dollar but did not block the equity rally. The 10-year Treasury yield surged 12 bp yesterday and the 10-year break-even widened amid ideas that the Omicron variant will boost price pressures. Japanese and Australian markets re-opened and led the regional equity advance with nearly 2% gains. Taiwan and Singapore also posted strong advances. The PBOC withdrew liquidity from the banking system, and this seemed to weigh on Chinese and HK activity. The US 10-year yield steadied near 1.63%, while Australian bonds played catch-up, with yields rising nearly seven basis points to 1.74%. European bonds yields are mostly little changed to slightly softer, while UK Gilts, which did not trade yesterday, are up about 8 bp today to around 1.06%. Europe's Stoxx 600 is trading about 0.8% higher to extend yesrterday’s gains. US futures indices are a little higher. The dollar is consolidating yesterday's gains at lower levels against the most of the major currencies. The yen is the notable exception. We continue to underscore the sensitivity of the exchange rate with the 10-year Treasury yield. The greenback approached JPY115.90, its highest level since in five years. Ahead of what is expected to the 50 bp hike from Poland's central bank, most of the regional currencies are higher. However, the freely accessible and liquid emerging market currencies are lower, led by Turkish lira and South African rand. The JP Morgan Emerging Market Currency Index is off about 0.25%. Iron ore prices are rising for the fourth consecutive session, while copper is trading a little heavier. February WTI is firm above $76.50 and within the consolidative range. OPEC+ is expected to confirm plans to boost output by 400k barrels a day next month. Gold has steadied above $1800 after falling 1.5% yesterday in the face of the surging yields. Natgas is a little firmer in the US, rising for a third session, while the European benchmark re-opened and surged nearly 30% to snap the seven-day drop.
Asia Pacific
The PMI data from China, Japan, and Australia were better than expected. China's Caixin manufacturing PMI rose to 50.9 after slipping to 49.9 in November. Recall that the "official" manufacturing PMI was also stronger than expected rising to 50.3 from 50.1. Japan's final manufacturing PMI rose to 54.3 from 54.2 flash reading. This still leaves it slightly lower than November's 54.5. The Q4 average was about 54 after 52.4 Q3 average. Australia's story was similar. The manufacturing PMI was revised to 57.7 from 57.4 preliminary estimate after November's 59.2 print, which was the highest since May. It averaged 58.4 in Q4 and 55.2 in Q3.
Indonesia declared its intention to limit coal exports to ensure sufficient domestic supplies. Since Beijing cut its coal imports from Australia in 2020, to protest its foreign policy, China has relied more on supply from Indonesia. Bloomberg figures suggest it may account for almost three-quarters of China's thermal coal imports.Japan's 10-year JGB yield rose to its highest level since November just below 0.09%. The sharp jump in US yields were partly responsible. There is also supply looming. Tomorrow, Japan will sell JPY2.6 trillion 10-year bonds and JPY900 bln 30-year obligations on Friday....
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