From Marc to Market:
Overview: After some intraday penetration, the euro finally settled above $1.09 yesterday. However, follow-through buying has been limited and technical and option-related resistance is seen in the $1.0940-50 area. The dollar is more broadly mixed today, with the dollar-bloc and Norwegian krone leading the advancers. The euro, yen, and sterling are nursing small losses near midday in Europe. The recovery of US equity indices yesterday after gap lower openings failed to help most of the Asia Pacific markets. However, the re-opening in Hong Kong saw sizeable gains and South Korea's Kospi continued it advance after re-opening yesterday, despite news that the economy contracted by 0.4% in Q4 22. Europe's Stoxx 600 has recouped the losses of the past two sessions, and US futures are trading with a firmer bias.
Bond markets are under pressure and benchmark 10-year yields are up mostly 3-5 basis points in Europe and US. There is a host of US economic data today and the first estimate of Q4 GDP is the highlight. Also, strong demand has been seen as this year's Treasury auctions and $35 bln of seven-year notes will be sold today. Gold made a new marginal high near $1950 before reversing lower and is now near $1935. There is much attention in the energy space as US natgas prices are below $3 for the first time since May 2021. Europe's benchmark is off for fourth consecutive session and is near its lowest level since September 2021. March WTI is consolidating mostly between $80-$81.
Asia Pacific
China markets do not re-open until Monday, but some preliminary reports on travel, movie-going, and other activities will feed into to the optimistic narrative. The early findings suggested improvement year-over-year. On the other hand, some observers are concerned about a surge of Covid post-holiday and in rural parts of the country with less medical infrastructure. Still, the optimism about post-Covid Chinese economy seems to be a strong conviction idea rippling through some industrial metals like copper and iron ore, and helps explain the strength of the Australian dollar, Brazilian real, and Chilean peso. Before the Lunar New Year, the Chinese yuan was nearly flat for the year (~0.15%).The IMF's Deputy Managing Director Gopinath seemed critical of the Bank of Japan's December surprise, urging it to communicate more clearly about its policy intentions. She warned of the upside risks still to Japanese inflation and advocated a more flexible approach to managing its Yield Curve Control. She suggests three possible options to allow more flexibility around the long-term JGB yields, 1) widen the 10-year yield band, 2) shorten the yield curve target (which the IMF had previously suggested), and 3) shift back to a quantity target of JGB purchases. That said, the IMF expects core Japanese inflation (excludes fresh food) to peak here in Q1 and gradually fall back to below 2% by the end of next year. It projects growth this year in the world's third-largest economy at 1.8% and then slowing to 0.9% next year....
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