From Marc to Market:
Overview: The higher-than-expected US CPI coupled with strong comments from the Federal Reserve's leading hawk saw a surge in interest rates, knocking stocks and lifting the dollar. Japanese markets were closed today for a national holiday, but nearly all the other equity markets in the MSCI Asia Pacific Index fell to pare this week's gains. Europe's Stoxx 600's 0.8% loss is shaving this week's gain to about 1.35%. US futures are modestly lower. Australian and New Zealand benchmark yields rose 10 bp and 8 bp respectively to play catch-up. The ECB's Lagarde and Lane argued against "hasty" action, helping to take some pressure off European bonds. However, the widening of the core-periphery spreads warns that it may be temporary. The US 10-year yield is a little softer, hovering around 2%. The two-year soared by 21 bp and is firm today slightly below 1.60%. The US dollar is trading higher against most currencies. The Australian dollar is the weakest of the majors, off about 0.5%, as the central bank governor continues to push against market expectations for the beginning of the tightening cycle. On the week, however, the Aussie, along with the New Zealand and Canadian dollars are holding on to modest gains. The South African rand and Mexican peso are resisting the pressure that is weighing on emerging market currencies. This week five of the eight strongest emerging market currencies are in Latam. JP Morgan's Emerging Market Currency Index is posting a gain of around 0.8% this week, its fifth gain in the past eight weeks. As widely expected, the central bank of Russia delivered a 100 bp hike (bringing the key rate to 9.5%).
Gold is recovering from a test on $1820 and is up about 1% on the week. Crude oil is firm for a third session, but not enough to prevent March WTI from posting its first weekly loss in nearly two months. US natural gas prices are flat a little below $4 and is holding on to its biggest weekly losses since mid-December. European natgas is consolidating the week's 10.6% decline after falling nearly 12% the previous week. Iron ore fell 2% today and is up about 5% on the week. Copper is off around 2.5% to leave the red metal up 1.3% for the week after a 4.1% rise last week.
Asia Pacific
Governor Lowe of the Reserve Bank of Australia continues to resist market pressure that sees an early start to the tightening cycle. He argued that it is too early to conclude that inflation is sustainably in the 2%-3% target. Without formally accepting the average inflation target like the Federal Reserve did, Lowe argued that after a sustained undershoot, he is willing to tolerate the near-term overshoot. The risk, he says, of hiking too early would deal a blow to the labor market. On February 17, Australia reports January employment figures and economists look for a flattish report.Next week, Japan reports Q4 GDP and the January CPI figures. The world's third-largest economy likely bounced back strongly after the Q3 Covid-induced contraction. However, new quasi-emergency measures that went into effect last month risks another contraction in Q1. The GDP deflator is expected to have fallen by about 1.3%, the third consecutive quarter of a more than 1% deflation. Similarly, the CPI report should show less price pressures, and more deflation when fresh food and energy prices are excluded. China reports January CPI and PPI. Both are expected to have softened....
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