Beige Book says the economy grew at a modest pace - US10-yr heads lower despite hot CPI data

• GLOBAL CAPITAL MARKETS OVERVIEW:

U.S. stocks rose on Wednesday, with the Dow up nearly 200 points, the S&P 500 up 0.5%, and the Nasdaq up almost 1%, after U.S. inflation data came in as expected, easing concerns that the Federal Reserve needs to be stronger than earlier announced. Fears of faster monetary policy tightening. Additionally, U.S. Treasury yields edged lower, providing some relief to the tech sector. On the corporate front, Microsoft stock (1.6%) was the best performer in the Dow, while Johnson & Johnson fell 1.1%. Also, Biogen shares fell 8% after the health insurer said it would only partially cover Alzheimer's drug Aduhelm. Traders are now turning their attention to the earnings season due Friday from Wells Fargo, Citigroup, and JPMorgan. European shares extended their gains for a second session on Wednesday. Frankfurt's DAX 30 recovered above 16,000 as investors welcomed upbeat earnings and less hawkish comments from Federal Reserve Chairman Jerome Powell. German global technology company TeamViewer rose more than 15% after reporting a sharp increase in total billings in the fourth quarter, driven by solid corporate transactions and continued billing growth in the SME segment. In addition, Sainsbury's and JD Sports raised their full-year profit forecasts, while Just Eat Takeaway maintained its financial forecast for 2022. French cloud computing company OVHcloud reported first-quarter revenue growth, while Dutch company Philips said it expects core profit to fall by around 40% in the fourth quarter. Elsewhere, the Fed chief said the central bank would start raising interest rates and lowering its massive balance sheet in a bid to tame inflation. Still, he assured lawmakers the moves would not hurt the U.S. economy. The CAC 40 rose 0.8 percent to close at 7,237 on Wednesday, supported by energy and materials stocks and strong corporate earnings, as investors digested U.S. inflation data to forecast the Federal Reserve's monetary policy stance. U.S. CPI rose 7% year-on-year in December, in line with expectations, easing concerns that the Federal Reserve could tighten policy sooner than expected. On the corporate front, energy stocks rose 3% following a rise in oil prices, led by TechnipFMC (4.3%) and TotalEnergies (2.9%). Meanwhile, ArcelorMittal (6.2%) and Eramit (6.4%) rose on higher steel and iron ore prices. Meanwhile, electrical equipment distributor Rexel rose 10.3% after better-than-expected sales and increased its 2022 financial target. The FTSE MIB index extended yesterday's rebound by 0.7% to close at 27,714 on Wednesday, supported by energy and commodity-backed stocks, as investors weighed on U.S. consumer price data. As expected, U.S. inflation has not exceeded 7 percent this year, easing concerns that the Federal Reserve will accelerate its monetary policy program. Eni tracked oil prices up 2 percent on the corporate front, while Tenaris tracked iron ore and steel prices up 0.9 percent. On the other hand, UniCredit fell 3.2% on news that the bank was among the candidates interested in buying Russia's Otkritie Bank more than four years after it was bailed out. Investors are cautious and skeptical of a possible acquisition due to the complicated political situation in Russia and the size of the deal. On Wednesday, the FTSE 100 rose 0.7% to close at 7,544, its highest level since February 2020, increasing for a second straight session, boosted by a string of positive earnings updates and gains in metals and oil prices Supported by related stocks. British supermarket group Sainsbury's, fashion retailer JD Sports fashion, and recruitment firm PageGroup raised their full-year profit forecasts. At the same time, Premier Hotel owner Whitbread reported a 3.1% rise in third-quarter sales and said its UK hotel accommodation had remained strong in recent weeks. Food delivery companies only eat takeout. However, com fell despite reporting a 14% increase in orders in the fourth quarter and maintaining its financial forecast for 2022. Elsewhere, less hawkish rhetoric from Federal Reserve Chairman Jerome Powell also boosted sentiment. At the same time, a CPI report showed annual U.S. inflation was in line with expectations, easing concerns that the Fed would need to implement a more aggressive tightening program .Major Asia-Pacific shares closed in the green on Wednesday, tracking higher on Wall Street as investors digested testimony from Federal Reserve Chairman Jerome Powell ahead of U.S. inflation data. Although the chairman said the economy needed to tighten monetary policy, he did not announce any new measures to accelerate the change. Meanwhile, consumer and producer inflation in China eased in December, raising hopes that the People's Bank of China would cut interest rates to bolster the economic recovery. The Hang Seng led gains in the region (2.8% to 24,402), while the tech index surged nearly 5%. The Nikkei 225 rose 1.9% to close at 28,766 points, the Shanghai Composite rose 0.8% to close at 3,597 points, the ASX 200 rose 0.7% to close at 7,439 points, and the Korea Composite Index rose 1.5% to close at 2,972 points. The S&P/ASX 200 index rose 0.66% to close at 7439 on Wednesday, as commodities rose sharply, boosted by resource-related stocks. At the same time, technology shares extended the previous session's gains after a strong overnight close by their Wall Street peers. Afterpay shares rose 4.75% after the company announced that the $29 billion takeovers of payments company Block Inc had won approval from the Spanish bank, making the deal completely unconditional. This boosted other tech companies, including Brainchip (10.19%), Xero (1.25%), and Wisetech Global (1.65%). Gold miners and energy stocks also rose after their underlying commodity prices rose, with Newcrest Mining (2.32%), Northern Star Resources (1.98%), Evolution Mining (2.85%), Woodside Petroleum (4.1%), Santos Ltd ( 3.56%) and Beach Energy (5.34%) rose. Heavyweight iron ore miners, lithium explorers, and financial stocks were mostly higher.

 

• REVIEWING ECONOMIC DATA:

Looking at the last economic data:

- RU: Russia's consumer price index rose 8.39% year-on-year in December 2021, down from 8.40% the previous month, the highest level since January 2016. Inflation has risen sharply in 2021 and is now at more than double the central bank's 4% target, against the backdrop of a rapid economic recovery from the initial stages of the coronavirus, reporting labor shortages in many industries and ongoing supply problems. Upward pressure came from food (10.62% vs. 10.81% in November), non-food (8.58% vs. 8.32%) and services (4.98% vs. 5.15%). Policymakers have warned of the threat of an inflationary spiral as consumers buy ahead due to fears of future price increases, saying food prices will rise further in 2022 as Russia's agricultural season is weaker than expected

- US: Inflation in the U.S. accelerated to 7% in the final month of 2021, the highest level since June and in line with market expectations, from 6.8% in November. The energy was the biggest gainer, but the gain was smaller than in November (29.3% vs. 33.3%), with gasoline prices up 49.6% vs. 58.1%. But inflation accelerated for housing (4.1% vs. 3.8%); food (6.3% vs. 6.1%), i.e. household food (6.5% vs. 6.4%); new cars (11.8% vs. 11.1%),; used cars and trucks (37.3% and 31.4%, respectively); clothing (5.8% vs. 5%), and medical services (2.5% vs. 2.1%). Inflation in 2021 is due to pandemic-induced supply constraints, rising energy costs, labor shortages, increased demand, and low base effects in 2020. Inflationary pressures are likely to persist into mid-2022, with Federal Reserve Chairman Jerome Powell recently pledging to take necessary steps to stem the spike in inflation, including rising interest rates.

- US: U.S. mortgage applications rose 1.4% in the first week of January, the purchase index rose 2.2%, while mortgage refinancing applications edged down 0.1%, data from the Mortgage Bankers Association showed. The rise in housing finance comes as the average 30-year fixed mortgage rate surged to 3.52%, the highest level since March 2020. Still, filings were down 17% compared to the previous year, and the refinancing index was down 50%. “Last week, mortgage rates rose sharply across all loan types as the Federal Reserve signaled to tighten policy, pushing Treasury yields higher. Nevertheless, the housing market started in 2022 strongly. There was an increase in traditional and government purchase applications, with FHA purchase applications up nearly 9 percent, and MBA economist Joel Kan said, “Va. applications are up more than 5 percent. ".

- EU: Industrial production in the eurozone rose 2.3% from the November 2021 month, rebounding from three straight months of contraction and easily beating market expectations for a 0.5% rise. Production of non-durable consumer goods increased the most in November (-4.5% in October, up 3.2%), followed by capital goods (up 1.5%, up 1.3%), energy (up 1.2%, up 0.5%) and intermediate goods (up 1.5%) 0.9%, up 0.2%). Meanwhile, the output of consumer durables such as televisions and washing machines fell 0.2% after rising 1.9% the previous month. Industrial activity contracted 1.5% in November, below consensus forecasts for a 0.6% increase on an annual basis.

- EU: German wholesale price inflation slowed for the first time in 10 months, from 16.6% in November to 16.1% in December 2021. Prices of raw materials and intermediate products were the main drivers of growth, but the most significant impact came from the cost of mineral oil products. However, prices rose slightly in December (50.6% vs. 62.4%). Considering 2021, wholesale prices rose by 9.8%, the most since 1974, mainly due to mineral oil products (32%) and metals and metal ores (44.3). This is also affected by the base effect, as the price level of many raw materials in 2020 is lower in the corona crisis.

- CN: Bank of China added 19.95 trillion yuan in new yuan loans in 2021, up 1.6 percent from 19.63 trillion yuan in 2020, as the central bank stepped up efforts to support slowing economic growth despite worries about debt and property bubble risks. Household loans (mainly mortgages) rose to 7.92 trillion yuan, and corporate loans rose to 12.02 trillion yuan. However, in December alone, new bank loans fell to 1.11 trillion yuan from 1.27 trillion yuan the previous month, below market expectations of 1.25 trillion yuan.

- JP: Japan's service sector confidence index rose to 56.4 points in December 2021 from 0.1 points a month earlier, the highest level since December 2005 and a record high, the survey by economic observers showed. It also marked the third month in a row that morale has improved, and the economy is recovering despite concerns over the omicron coronavirus variant. The Household Trends Index rose on the increase in retail-related items, while the Business Trends Index fell on weakness in manufacturing. Employment-related trends also improved. Meanwhile, the Economic Outlook Index for December fell 4.0 points to 49.4 amid concerns about rising prices.

 

• LOOKING AHEAD:

Today, investors will receive:

- USD: PPI m/m, Core PPI m/m, Unemployment Claims, FOMC Member Brainard Speaks, Natural Gas Storage, and 30-y Bond Auction.

- EUR: ECB Economic Bulletin, and Italian Industrial Production m/m.

- GBP: RICS House Price Balance, MPC Member Mann Speaks, BOE Credit Conditions Survey, and NIESR GDP Estimate.

- JPY: M2 Money Stock y/y, and Prelim Machine Tool Orders y/y.

 

• KEY EQUITY & BOND MARKET DRIVERS:

- The benchmark 10-year JGB yield fell back to around 0.11% after hitting an 11-month high of 0.149% on Jan. 11, with the Federal Reserve (Fed) following less hawkish comments from Fed Chairman Jerome Powell. As a result, expectations of faster tightening by the Fed have waned. Meanwhile, the CPI report showed that annual U.S. inflation was in line with expectations, easing concerns that the Federal Reserve would need to implement a more aggressive tightening program. Meanwhile, monetary policy continued to diverge between Japan and other countries. 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.

- French 10-year oat yields fell to 0.27% from a 10-week high of 0.31% on Jan. 11, as worries about the Federal Reserve's accelerated monetary tightening eased after U.S. inflation missed expectations in December. Meanwhile, ECB chief economist Philip Lane said he did not see prices rising above 2 percent in the medium term, despite money market bets that the ECB could raise its benchmark interest rate by 15 basis points by the end of 2022. Target. Domestically, the Bank of France estimated that the economy expanded by 0.6% in the fourth quarter of 2021, maintaining a recovery plan despite a surge in the OmiCon variant in December.

- German 10-year bond yields fell to -0.1% after hitting a 32-month high of -0.014% on Tuesday, with Federal Reserve Chairman Jerome Powell being less hawkish than expected on the path of future policy tightening. Meanwhile, the latest U.S. CPI report showed, as widely expected, consumer prices rose by the most since 1982. Elsewhere, money markets are now betting on the European Central Bank to raise rates by around 15 basis points at the end of the year, with policymakers' guidance suggesting no rate hikes this year. However, ECB chief economist Philip Lane said earlier this week that he did not see prices exceeding the 2 percent target in the medium term. At the same time, new Bundesbank President Joachim Nagel ) expressed concern about soaring inflation, questioning the central bank’s assertion that current price pressures are temporary.

- UK 10-year government bond yields retreated to 1.1% after hitting a more than 2-month high of 1.2% on Monday, as the Federal Reserve accelerated after Fed Chairman Jerome Powell's less hawkish comments Expectations of austerity waned. Meanwhile, data showed that U.S. inflation hit 7% in December, the highest level since 1982, as expected. As a result, the Bank of England in December became the world's first major central bank to raise borrowing costs since the onset of the Covid-19 disease, which is seen as four times the rate of high inflation this year. Elsewhere, concerns about the economic impact of the omicron coronavirus variant eased after British Prime Minister Boris Johnson said new measures were not needed now to curb the rapid spread of the virus.

 

• STOCK MARKET SECTORS:

- High: Information Technology, Consumer Discretionary.

- Low: Health Care, Consumer Staples.

 

• TOP CURRENCY & COMMODITIES MARKET DRIVERS:

- OIL: U.S. crude inventories fell by 4.553 million barrels in the week ended Jan. 7, extending the current drawdown to seven weeks, compared with market forecasts for a decline of 1.904 million barrels, EIA Oil Conditions report data showed. Meanwhile, gasoline inventories rose by 7.961 million barrels, beating expectations of 2.408 million barrels.WTI crude oil futures extended gains on Wednesday to near $82 a barrel, their highest level in more than two months, on a weaker dollar, strong demand, and falling U.S. inventories. The American Petroleum Institute reported that U.S. crude inventories fell by about 1 million barrels last week, which would be the seventh straight weekly decline if official government data due later today confirms this. Meanwhile, the US Energy Information Administration raised its forecast for oil demand in 2022 by 840,000 BPD, compared with a previous forecast of 700,000 BPD.

- CAD: The Canadian dollar traded near 1.25, its highest level since Nov. 10, while the U.S. dollar weakened and oil prices rose. The dollar index fell after a CPI report showed annual U.S. inflation was in line with expectations, easing concerns that the Federal Reserve would need to implement a more aggressive tightening program. Also, on Jan. 11, Fed Chairman Jerome Powell shattered market expectations for a more hawkish approach. He acknowledged that the U.S. economy was primed for higher interest rates and quantitative tightening to curb inflation but said policymakers were still discussing ways to shrink the Fed's balance sheet. However, it could take as many as four meetings to make such a move. Decide. Meanwhile, the price of oil, Canada's main export, rebounded sharply above $82 a barrel.

- USD: The dollar index extended losses on Wednesday to trade around 95.3, its lowest level since mid-November, after a CPI report showed annual U.S. inflation was in line with expectations, easing concerns that the Federal Reserve would need to implement a more aggressive tightening program. On Tuesday, Federal Reserve Chairman Jerome Powell shattered market expectations for a more hawkish approach. He acknowledged that the U.S. economy was primed for higher interest rates and quantitative tightening to curb inflation but said policymakers were still discussing ways to shrink the Fed's balance sheet. However, it could take as many as four meetings to make such a move. Decide.

- EUR: The euro rose more than 0.3 percent on Wednesday to top $1.14, its most substantial level in eight weeks after a U.S. inflation report showed a historic rise, but the data was in line with expectations, easing concerns that the Fed needed to be quicker than earlier announced. Austerity concerns. Still, the European Central Bank (ecb) is seen as slower than other major central banks in tightening monetary policy. In December, the bank announced a reduction in the pace of asset purchases while signaling that interest rates would remain historically low for some time.

- GBP: Sterling continued to rise to $1.37, its highest level since early November, supported by expectations 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. Meanwhile, investors sold the dollar after Federal Reserve Chairman Jerome Powell made less hawkish comments. 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. In addition, the UK's new measures not to introduce Covid-19 also supported sentiment.

- CNY: The offshore yuan appreciated more than 6.375 yuan per dollar on Wednesday amid broad dollar weakness, but gains were capped as weak inflation raised the prospect of further monetary easing in China. The dollar fell broadly against major currencies after Federal Reserve Chairman Jerome Powell was less hawkish than expected during his congressional testimony. Meanwhile, Chinese consumer and producer prices fell in December from the previous month, below market expectations, raising the prospect of a rate cut. Chinese policymakers are focused on stabilizing a slowing economy, and they are widely expected to maintain their accommodative leanings. The recent outbreak of the coronavirus in the country and the resulting lockdown have also strengthened the case for further easing.

- JPY: The yen consolidated its recent gains on Wednesday to trade around $115.4 as risk sentiment improved as Fed Chairman Jerome Powell gave less-than-expected hawkish testimony before Congress. Risk assets rallied broadly, while safe-haven assets fell as Powell sighed in relief that Powell did not announce an acceleration in policy changes already issued by the U.S. central bank. Meanwhile, the yen remains near five-year lows as monetary policy in Japan and elsewhere continues 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.

- NZD: The New Zealand dollar traded above $0.678 on Wednesday, holding on to the previous session's gains as the greenback fell after Federal Reserve Chairman Jerome Powell was less hawkish than expected during his congressional testimony. However, the New Zealand dollar remains near a one-year low as the U.S. central bank's relatively more aggressive monetary tightening remains unchanged as the Federal Reserve fights inflation. Meanwhile, the Reserve Bank of New Zealand raised interest rates twice last year to 0.75%, widely expected at its Feb. 23 policy meeting amid persistent inflation and record-low unemployment. rate hike to 1.0%. 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 moves remained dovish.

 

• CHART OF THE DAY:

The Australian dollar held firm above $0.72 on Wednesday, holding on to gains from the previous session, as the greenback fell as Federal Reserve Chairman Jerome Powell was less hawkish than expected during his congressional testimony. On Tuesday, the Aussie was also supported by strong retail sales data, which easily topped expectations as consumers went on a spending spree in November. 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. In addition, the RBA has lagged other major central banks in withdrawing its pandemic-era stimulus but will decide at its February 1 meeting whether to end bond purchases at the start of the year.• AUDUSD - D1, Resistance (target zone) around ~ 0.73387, 0.74166, Support around ~ 0.70180

 

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