Stocks extend last week's losses amid de-risking efforts - Gold slightly higher to open the week

• GLOBAL CAPITAL MARKETS OVERVIEW:

European shares edged higher on Monday, trying to recover from last week's modest losses, with investors remaining cautious ahead of Wednesday's release of a raft of economic data, including U.S. inflation. The CPI is expected to climb to its highest level in nearly 40 years at 7% year-on-year, which could prompt the Fed to announce its first rate hike in March since the pre-pandemic era. On Friday, eurozone inflation hit a record high of 5% in December. Elsewhere, an increase in the Covid-19 disease has added to traders' concerns. The FTSE MIB index erased early gains, down 0.3%, dragged down by the tech and healthcare sectors, hovering around 27,520 on Monday as investors awaited Wednesday's U.S. consumer price data for further monetary policy direction from the Federal Reserve while weighing on European labor markets data. Healthcare shares fell 1.4%, led by Amplifon (-3.6%), while technology shares fell 1%, led by STMicroelectronics (-2.9%). On the data front, U.S. CPI is expected to rise to a 40-year high of 7% from December, reinforcing forecasts for a rate hike in March. Meanwhile, Italy's unemployment rate fell below market expectations at 9.2% in November, while the eurozone unemployment rate edged down to 7.2%, a new pandemic low. U.K. stocks started the week cautiously, with the FTSE 100 falling back below 7,460 on Monday, as global investors await another U.S. inflation data release later in the week that could provide further guidance on the Fed’s monetary policy path. U.S. policymakers are now expecting four rate hikes this year, as the CPI hit its highest level in nearly 40 years in December, rising 7% from a year earlier. On Monday, the Shanghai Composite rose 0.39% to close at 3,594 points. In comparison, the Shenzhen Composite rose 0.44% to close at 14,407 points, as mainland Chinese stocks offset early losses and rallied amid expectations of reforms in the tech-heavy Shanghai Star Market. The China Securities Regulatory Commission said late Friday that it would pilot market-making in Shanghai's Nasdaq-style star market to deepen reforms and boost liquidity. The agency's head had previously pledged various measures to stabilize the market, and a poor start to 2022 prompted him to ease investors' nerves. Almost all sectors of the market rebounded after sharp losses last week, including Kweichow Moutai (1.24%), China Mobile (2.05%), Tianqi Lithium (3.59%), Ankang (1.82%) and Muyuan Foods (5.35%) ) and other sectors rose significantly. The Hang Seng Index rose for a third straight session, rising 1.1% to 23,747 on Monday, as tech stocks rebounded as investors turned to battered tech stocks. The technology index rose 2.2%, while the China Enterprises index rose 1.6%. Meanwhile, Hong Kong's treasurer pledged to consider "appropriate" support to help businesses navigate the recession. Meanwhile, the Shanghai Composite closed in the green (+0.4% at 3594), and the Nikkei 225 closed on its coming-of-age day. The S&P/ASX 200 index fell 0.08% to close at 7447 on Monday, with Australian tech stocks still under pressure from the prospect of higher interest rates. At the same time, investors continued to keep a close eye on the coronavirus outbreak. High-growth tech stocks sold off globally at the start of the year as the Federal Reserve sent tough signals that it may tighten monetary policy more aggressively than expected. The biggest losers in local tech stocks include Xero Ltd (-2.75%), Afterpay (-2.31%), Wisetech Global (-2.72%), NextDC Ltd (-1.63%) and Seek Ltd (-0.68%). Healthcare, consumer, and financial stocks also fell, while energy and mining stocks mostly rose. Meanwhile, the country's authorities have reinstated some restrictions in response to a record surge in Covid-19 cases, with official modeling suggesting the omicron outbreak in NSW could peak at the end of January. New Zealand's NZX 50 index fell 0.6 percent to close at 12,893 on Monday, its third straight session of losses, as Rising bond yields pressured new Zealand shares. New Zealand's benchmark 10-year bond yield jumped to 2.54% on Monday, tracking a steady rise in U.S. Treasury yields as traders braced for more aggressive monetary tightening from the Federal Reserve. Almost all market sectors fell, with Travel Holdings (-4.55%), EBO (-3.98%), Sky Network (-3.53%), New Zealand Mercury (-3.14%) and Serko (-2.99%) notable decliners. Meanwhile, stocks able to withstand the sell-off included Sanford (2.67%), restaurant brand New Zealand (1.79%), and A2 Milk (1.56%).

 

• REVIEWING ECONOMIC DATA:

Looking at the last economic data:

- SW: Total orders received by the Swedish industry rose 3% in November from a year earlier, moderating a 7.8% increase in the previous month. Orders from customers in Sweden increased by 7.2% (11.7% in October), and orders from overseas customers increased by 0.5% (4.6% in October). Seasonally adjusted monthly orders fell 0.9% after rising 5.9% in October.

- EU: The seasonally adjusted unemployment rate in the eurozone fell to 7.2% in November 2021, the lowest level since March 2020, in line with market expectations. Unemployment fell by 222,000 to 11.829 million as labor demand strengthened amid the ongoing economic recovery. Meanwhile, the youth unemployment rate, which measures job seekers under 25, fell to 15.5% in November from 15.8% the previous month. Among the euro zone's largest economies, Spain (14.1%), Italy (9.2%), and France (7.5%) have the highest unemployment rates, while the Netherlands (2.7%) and Germany (3.2%) have the lowest.

- EU: The seasonally adjusted unemployment rate in the eurozone fell to 7.2% in November 2021, the lowest level since March 2020, in line with market expectations. Unemployment fell by 222,000 to 11.829 million as labor demand strengthened amid the ongoing economic recovery. Meanwhile, the youth unemployment rate, which measures job seekers under 25, fell to 15.5% in November from 15.8% the previous month. Among the euro zone's largest economies, Spain (14.1%), Italy (9.2%), and France (7.5%) have the highest unemployment rates, while the Netherlands (2.7%) and Germany (3.2%) have the lowest.

- EU: Italy's unemployment rate fell to 9.4% in 2021 in November from 9.4% the previous month, missing market expectations of 9.3%. Employment rose 64,000 to 23.1 million, while unemployment fell 43,000 to 2.4 million. Meanwhile, the labor force participation rate hit a new pandemic high of 65%, and the inactive population fell by 46,000 to 11.1 million. In addition, the youth unemployment rate, which measures jobseekers aged 15 to 24, fell to 28% from 28.2% in October.

- UK: U.K. stocks started the week cautiously, with the FTSE 100 falling back below 7,460 on Monday, as global investors await another U.S. inflation data release later in the week that could provide further guidance on the Fed’s monetary policy path. U.S. policymakers are now expecting four rate hikes this year, as the CPI hit its highest level in nearly 40 years in December, rising 7% from a year earlier.

- AU: Approvals for private dwellings in Australia in November 2021 rose 1.4 percent from the previous month to 10,892 units, a slowdown from the 3.5 percent increase a month earlier, preliminary data showed. Over the past year, the data series has been at all-time highs, driven mainly by government stimulus and record-low interest rates. Daniel Rossi, head of building statistics at the ABS, said: "While private dwelling approvals are no longer at record highs, November's results are still 25.8 percent above pre-pandemic levels in November 2019, indicating detached dwellings. As a result, the market continues to strengthen.". Queensland (7.4 percent), South Australia (6.4 percent), and NSW (5.4 percent) saw increases in approvals, while Western Australia (12.1 percent) and Victoria (0.8 percent) both saw blessings drop.

- AU: Flash data shows the seasonally adjusted total number of dwellings approved in Australia rose by 3.6% in November 2021 to 16,448 units in November 2021, a recovery from the second major slump of 11.6% a month earlier. Since August, this marked the first rise in building permits, as approvals for private sector dwellings (excluding houses) rose by 9.7% after falling 37.9% in October. Meanwhile, private sector housing continued to hold steady after hitting record highs over the past year (1.4% vs. 3.5%) thanks to government stimulus and low-interest record rates. Across Australia, residential approvals rose in Tasmania (40.8%), Queensland (20%), South Australia (14.5%), and Victoria (8.9%). By contrast, building permits fell in New South Wales (down 18.4 percent) and Western Australia (down 1.1 percent).

 

• LOOKING AHEAD:

Today, investors will receive:

- USD: NFIB Small Business Index, FOMC Member Mester Speaks, FOMC Member George Speaks, Fed Chair Powell Testifies, and IBD/TIPP Economic Optimism.

- AUD: Retail Sales m/m, and Trade Balance.

- GBP: BRC Retail Sales Monitor y/y.

- JPY: Leading Indicators.

- EUR: Italian Retail Sales m/m.

 

• KEY EQUITY & BOND MARKET DRIVERS:

- The yield on Japan's benchmark 10-year JGB bond surged to 0.12% in early January, its highest level since 2021, in line with U.S. Treasury yields, and traders bet on the Fed's expected growth rate to be higher than expected. Yields have surged more than 215% since Dec. 20 as fears of an Omicron variant undermining the economic recovery recede amid an improving domestic economic outlook, rising global inflation, and central banks beginning to unwind their pandemic-era stimulus, increasing the upward momentum. On Monday, Japanese stock and bond markets were closed for the coming-of-age day.

- The yield on the benchmark 10-year Treasury bond continued to rise to 1.79% in the second week of January, the highest level since January 2020, as investors bet that the Fed will have to tighten monetary policy faster than initially expected, Minutes of a tough FOMC meeting were released last week. Meanwhile, the latest U.S. CPI data on Wednesday and comments from several Fed officials should provide further clues on the timing of the central bank's rate hike. In addition, the Treasury Department will conduct several auctions this week, including $52 billion in 3-year bonds, $36 billion in 10-year bonds, and $22 billion in 30-year bonds.

- U.S. stock futures fell on Monday after all three major indexes fell for a week as investors worried about the prospect of higher interest rates. Dow and S&P 500 futures each fell 0.2%, while Nasdaq 100 futures fell 0.15%. The Nasdaq Composite led to losses after falling 4.53% last week, as investors shifted from high-growth to value and pro-cyclical stocks. The S&P 500 then lost 1.87% on the week, and the Dow lost 0.29%. Technology, healthcare, and communications services were the biggest losers, while energy and financials rose. Stocks came under pressure last week after the 10-year Treasury yield topped 1.8% after the release of the Fed's December meeting minutes, a sign that the central bank may be more aggressively tightening monetary policy than expected. In addition to raising interest rates, the central bank also plans to reduce its balance sheet. Meanwhile, investors awaited key inflation and a series of fourth-quarter earnings reports in the week ahead.

 

• STOCK MARKET SECTORS:

- High: Health Care.

- Low: Information Technology, Consumer Discretionary, Communication Services.

 

• TOP CURRENCY & COMMODITIES MARKET DRIVERS:

- GBP: Sterling continued to rise in January, trading around $1.36, its highest level since November, supported by expectations that the Bank of England will raise interest rates as early as next month to curb inflation and ease concerns over the adverse economic impact of the Omicron variant. The GBP/EUR exchange rate also hit its highest level since February 2020. In December, British policymakers surprised investors by raising bank rates from a record low, and markets have priced in as many as four hikes this year. The UK's new measures not to introduce Covid-19 also supported sentiment.

- CNY: The offshore yuan edged up to 6.375 per dollar on Monday, as business demand ahead of the Lunar New Year offset expectations of more aggressive monetary tightening by the Federal Reserve. The People's Bank of China also set the midpoint rate at a near three-week high of 6.3653 per dollar, 89 points firmer than the previous set of 6.3742. The move follows last week’s devaluation of the yuan, as tough signals from the Federal Reserve pushed up U.S. Treasury yields, squeezed the 10-year yield spread between China and the U.S., and raised the risk of capital outflows. Meanwhile, China's central bank is widely expected to ease monetary policy further to ease the slowdown. Investors have also begun to pay attention to China's zero-tolerance approach to the new coronavirus, following the first mutated omicron case report in Tianjin.

- JPY: The yen was steady at around 115.8 against the dollar on Monday, recovering after falling to 116.35 last week, as Japan's finance minister stressed the need for currency stability and said he was closely monitoring market movements and their impact on the economy. Analysts have warned that a weaker yen, which has pushed up import prices and household living costs when Japan's economy is recovering from the pandemic, could have a negative impact. The yen, however, remained near five-year lows as monetary policy in Japan and elsewhere continued to diverge. The Bank of Japan is widely expected to maintain its ultra-easy policy as inflation remains well below the central bank's 2 percent target, even as other central banks say they are ready to normalize monetary conditions.

- AUD: The Australian dollar hovered below $0.72 on Monday as traders braced for more aggressive monetary tightening from the Federal Reserve under pressure from a steady rise in U.S. Treasury yields. U.S. policymakers considered faster rate hikes and discussed quantitative tightening this year to curb persistently high inflation, minutes from the Fed's latest meeting showed. The hawkish stance pushed up U.S. bond yields, hurting stocks and risk-sensitive currencies. At the same time, the Reserve Bank of Australia has repeatedly insisted that domestic interest rates are not likely to rise until 2023 or until inflation continues to push above its 2-3% target range. The country's latest omicron wave also complicates the economic outlook and interest rates. In addition, the RBA has lagged other major central banks in withdrawing pandemic-era stimulus but will decide at its February 1 meeting whether to end bond purchases at the start of the year.

- NZD: The New Zealand dollar hovered below $0.679 on Monday, struggling to gain momentum as traders braced for more aggressive monetary tightening by the Federal Reserve against the backdrop of a steady rise in U.S. Treasury yields. U.S. policymakers considered faster rate hikes and discussed quantitative tightening this year to curb persistently high inflation, minutes from the Fed's latest meeting showed. The hawkish stance pushed up U.S. bond yields, hurting stocks and risk-sensitive currencies. Meanwhile, the Reserve Bank of New Zealand has raised rates twice this year to 0.75% and is widely expected to increase rates to 1.0% at its Feb. 23 policy meeting amid persistent inflation and record-low unemployment. New Zealand's economy contracted more modestly than expected in the third quarter, cementing expectations for further monetary policy tightening by the central bank, but currency movements remained dovish.

- USD: The dollar index steadied near 96 on Monday as traders awaited December U.S. inflation data later in the week to guide the monetary policy outlook. Markets are also expecting further hawkish comments on their nominations from Federal Reserve Chairman Jerome Powell and Gov. Lael Brainard when he testifies before the Senate this week. Meanwhile, in the previous session, the index fell 0.5% as the December jobs report missed expectations. However, the case for monetary tightening remained unchanged following the hawkish minutes from the Fed's December meeting. In addition to raising interest rates, the Fed could also reduce its balance sheet, the minutes of the forum suggest.

 

• CHART OF THE DAY:

The CAC 40 edged lower on Monday, hovering around 7,210, as losses in the tech sector offset gains in the energy sector. At the same time, investors awaited a slew of critical data for the week, including Wednesday's U.S. consumer inflation. The U.S. CPI is expected to rise to a 40-year high of 7%. On the corporate front, Atos fell 17.5 percent. The IT services company reported sales 2.4 percent below the 10.8 billion euro financial target set last summer, even as the group bet on steady returns.• French CAC 40 index- D1, Resistance around ~ 7423, Support around ~ 6960.

Start trading in four simple steps

1. Register

Open your live trading account

2. Verify

Upload your documents to verify your account

3. Fund

Deposit funds directly into your account

4. Trade

Start trading and choose from 130+ instruments

Demo account

The Blue Suisse Trading Account with virtual funds in a risk-free environment

Demo account

Live account

The Blue Suisse Trading Account in our transparent live model environment

Open an Account
Risk Warning; CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 60.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
x
Spotify Logo Apple Podcasts Logo Anchor Podcasts Logo