Friday, January 21, 2022

Capital Markets: "Ugly Friday"

From Marc to Market:

Overview: The reversal in US equities yesterday set the tone for today. Among the large bourses, only Hong Kong escaped the pain today. It was the sixth session of the past seven that the MSCI Asia Pacific Index fell. Today's 1.3% retreat in the Stoxx 600 brings it lower for the week, and third consecutive weekly loss. US indices closed on their lows yesterday so the lower opening that the futures point to would at least initially leave gaps on the charts. Falling equities are helping push yields lower. The US 10-year, which tested 1.90% two days ago, is near 1.79%. European yields are 2-3 bp lower. Australia and New Zealand benchmarks played catch-up and were off 6-7 bp today. The US is broadly mixed. The dollar-bloc currencies and sterling (after a dismal retail sales report) are weaker, while the Swedish krona, Swiss franc, euro, and yen, are firmer. Near midday in Europe, the Dollar Index (~95.60) is up about 0.5% on the week. Emerging market currencies are holding their own as a group. 

The JP Morgan Emerging Market Currency Index is rising for the third consecutive session and the third consecutive week, which matches the longest streak since November-December 2020. Gold stalled near $1848 yesterday and is heavier a little above $1834. March WTI peaked slightly above $87 yesterday and tested a four-day low today below $83 before resurfacing above $84. US natural gas is almost 3% higher after falling more than 11% over the past two sessions. Europe's benchmark has been alternating between gaining and losing sessions since the middle of last week. Its 1.4% decline today follows a nearly 7.2% advance yesterday. It is off around 7% this week. Iron ore is up more than 2%. It is the fourth consecutive session of such gains. Copper is paring yesterday's 2.5% gain.

Asia Pacific
For the first time since 2014, the BOJ did not say that inflation risks were skewed to the downside.
Instead, it said the risks were generally balanced at the conclusion of its policy meeting earlier this week. However, today's December CPI reading was disappointing. The headline rate edged up to 0.8% from 0.6%. The median in the Bloomberg survey looked for a 0.9% increase. The core rate, which excludes fresh food, was unchanged at 0.5%, defying expectations for a small rise. Most disheartening was the measure that excludes energy as well as fresh food. It deteriorated to -0.7% from -0.6%, matching the worst since last June. Ironically, as the US, Europe, and many emerging market countries wrestle with price pressures, if it weren't for energy and fresh food prices, Japan would be experiencing deflation. 

 Chinese policymakers are concerned about the influence of its large tech companies. It sees the problem of corruption. It is not just in the private sector, but recognizes it among state-owned enterprises, including the financial sector. In the US, the Senate Judiciary Committee approved anti-trust legislation that prohibits companies providing a platform from giving an advantage to their goods and services. A similar bill passed a House committee last year but has yet made it to a floor vote. There are reportedly dozens of amendments pending....