• GLOBAL CAPITAL MARKETS OVERVIEW:
U.S. stocks fell on Thursday, with technology shares weighing on the three major indexes. The S&P lost 0.7%, the tech-heavy Nasdaq lost 1.6%, while the Dow was little changed after gaining about 200 points. Traders continued to digest new inflation data, which reinforced the need for the Fed not to need to raise interest rates any faster than it announced earlier. Meanwhile, initial jobless claims rose in the first week of the year, when omicron spreads began to disrupt economic activity but remained at levels consistent with a healthy job market. On the corporate front, Boeing shares rose more than 3 percent after Bloomberg reported that Boeing 737 MAX jets would resume commercial flights in China as soon as this month. Elsewhere, Delta Air Lines rose 3.5% after the company's earnings beat estimates. Meanwhile, large companies such as Tesla and Microsoft fell after falling 4.1% and 2.6%, respectively. European shares were essentially flat on Thursday, pausing a two-day rally, with gains in autos and technology being offset by losses in defensive sectors such as healthcare and personal and household goods. UK Country Properties shares fell 21% after the company announced its chief executive would step down with immediate effect and disclosed that transaction volumes in the first quarter of the new financial year were lower than the board expected. Elsewhere, Marks & Spencer fell nearly 8% as the retailer forecast an adjusted pre-tax profit of around £500m for the entire year, the same as it had forecast in November. The construction sector also fell, weighed down by a 4.1% drop in Geberit, which said uncertainty had grown and prevented it from offering an outlook for 2022.On the other hand, the automaker rose 1.8% to be the day's best performer, boosted by a record quarterly profit from TMSC, the world's largest contract chipmaker. The FTSE 100 rose 0.2% on Thursday to close at 7,565, in line with its European peers, and rose to its highest since January 2020 for a third straight session as investors digested the highest U.S. gain in nearly four decades. After the inflation rate, continue to assess the outlook for monetary stimulus and inflation risks. Meanwhile, retailers Tesco and Marks & Spencer issued trading updates. The former said it expected operating profit to be higher than previously forecast due to better-than-expected sales so far. In addition, job creation in the country slowed from near-record levels last month, with job vacancies hitting an eight-month low, according to a survey by the Recruitment and Employment Federation and KPMG. , the hospitality and construction industries have the most difficulty recruiting new employees. Canada's main stock index, the S&P/TSX, traded near the horizontal on Thursday, near a seven-week high reached in the previous session, as weakness in gold prices weighed on shares in the mining sector, offsetting concerns about the Federal Reserve's increase. Concerns about the interest rate outlook. At the same time, the administration has dropped the mandate to require all countries' truck drivers to be vaccinated to transit through the U.S. side. In addition, Canada's trade minister said the government intends to work with Mexico to draft a complaint against the United States' stricter interpretation of rules of origin for the U.S. auto industry. On the corporate front, analysts at Imperial Bank of Commerce raised their target for the utility's holding of Fortis to C$61 a share from C$58. On Thursday, the Shanghai Composite dropped 1.17% to close at 3,555, while Shenzhen shares fell 1.96% to close at 14,118, as mainland stocks gave up the previous session's gains as worries over China's new crown epidemic intensified. The country locked down the third city this week, raising the number of people restricted at home to about 20 million. China's strict zero-coronavirus approach has made investors wary of its economy, with Goldman Sachs downgrading its 2022 growth forecast to 4.3% from 4.8% previously. Significant sectors of the market fell, including consumer goods, new energy, healthcare, and high-end manufacturing companies, including Kweichow Moutai (down 4.6%), Tianqi Lithium (down 6.4%), Wuliangye Yibin (down 4.1%), Jiangsu Hengrui (down 4.1%) 4.3%), Tianjin Datong (down 5.7%) and Goertai (down 6%) fell significantly. The S&P/NZX 50 rose 23 points, or 0.18%, to close at 12,827 on Thursday, its first gain in six sessions on optimism that strong U.S. inflation data won't be enough to change the Fed's already hawkish outlook for interest rates. Data on Wednesday showed U.S. consumer prices rose 7% in December from a year earlier, the most significant annual increase in nearly 40 years but line with market forecasts. The Reserve Bank of New Zealand has tripled its interest rate to 0.75% in 2021, which is widely expected in its February 23 announcement amid persistently rising inflation and record low unemployment. The meeting raised its key interest rate by 25 basis points. Risk appetite was also supported by a report that New Zealand's November new building permits rose 0.6% m/m, a rebound from a downwardly revised 2.1% a month earlier. Blackwell Global Holdings Limited rose 33.3%, and Radius Residential Care Ltd rose 6.82%.
• REVIEWING ECONOMIC DATA:
Looking at the last economic data:
- US: Producer prices for U.S. final demand rose 0.2% in December 2021, well below November's 1% rise and below consensus forecasts of 0.4%. The services cost rose 0.5%, mainly due to profits from the retail sale of fuel and lubricants (13%), air passenger services, food retail, machinery and vehicle wholesale, machinery and equipment parts and supplies, and traveler accommodation services. On the other hand, commodity prices fell 0.4%, the first decline since April 2020, as gasoline costs fell 6.1%. Prices also fell for meat, natural gas fuels, fresh and dry vegetables, diesel, and critical basic organic chemicals. As a result, annual producer inflation fell to 9.7% from a record 9.8% in November.
- US: New U.S. jobless claims rose 23,000 from the previous period to 230,000 in the week ended Jan. 8, compared with market expectations of 200,000 as coronavirus cases surged by the Omicron variant, Disrupting activities from airlines to schools. Still, jobless claims remained below pre-pandemic levels, a sign that labor market conditions continue to tighten as the U.S. economy expands steadily, labor demand remains strong. Claims hit a 52-year low of 188,000 in the first week of December. On a non-seasonally adjusted basis, initial applicants increased by 104,000 to 419,000, including California (12,800), New York (10,800), Texas (94,000), Kentucky (85,000), and Missouri (73,000) saw significant increases in first-time applicants.
- EU: Industrial production in Italy advanced by 1.9% points from November 2021, the highest since August 2020, rebounded from a 0.5% decline the previous month, beating market expectations of 0.5% growth. Industrial output of capital goods (2% vs. -1.1% in October), consumer goods (1.7% vs. -0.6%) and intermediate goods (0.8% vs. -0.8%) rebounded, while production of energy products accelerated (4.6% vs. 2.5%). On an annualized basis, production rose 6.3%, ahead of a downwardly revised 1.9% increase and well above the 3.7% increase forecast by the market.
- 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
• LOOKING AHEAD:
Today, investors will receive:
- USD: Core Retail Sales m/m, Retail Sales m/m, Import Prices m/m, Industrial Production m/m, Capacity Utilization Rate, Prelim UoM Consumer Sentiment, Business Inventories m/m, Prelim UoM Inflation Expectations, and FOMC Member Williams Speaks.
- EUR: French Final CPI m/m, French Gov Budget Balance, Trade Balance, and ECB President Lagarde Speaks.
- GBP: Construction Output m/m, GDP m/m, Goods Trade Balance, Index of Services 3m/3m, Industrial Production m/m, Manufacturing Production m/m, and CB Leading Index m/m.
- JPY: PPI y/y.
- CNY: Trade Balance, USD-Denominated Trade Balance, and Foreign Direct Investment ytd/y.
• KEY EQUITY & BOND MARKET DRIVERS:
- U.S. futures rose on Thursday as producer inflation eased in December and gasoline costs fell sharply from November, further evidence that the Federal Reserve does not need to raise interest rates any faster than it announced earlier. Meanwhile, initial jobless claims rose in the first week of the year, when omicron spreads began to disrupt economic activity but remained at levels consistent with a healthy job market. As a result, the Dow Jones futures contract rose about 100 points, while the S&P 500 and Nasdaq gained about 0.2%. On the corporate front, shares of Delta Air Lines rose 2.2% in premarket trading after earnings beat estimates. Boeing shares also rose (2.6%) after Bloomberg reported that the 737 MAX jets would resume commercial flights in China as soon as this month.
- The yield on the benchmark 10-year Treasury note was around 1.75% on Thursday, still below the two-year high of 1.8% at the beginning of the week, as a stricter approach to the Fed was needed after the Fed chair's remarks at his Senate confirmation hearing. Worries began to subside. Powell said there is still a long way to get back to normal, and the balance sheet should pass later this year. Meanwhile, U.S. inflation was in line with expectations and held its highest level since 1982. On Wednesday, the U.S. Treasury Department auctioned $36 billion of 10-year bonds, and demand for the bonds was above average at 2.51 times the bonds for sale.
- German 10-year bond yields rebounded to -0.04%, near a 32-month high of -0.014% hit on Tuesday, after U.S. consumer prices rose by the most since 1982, in line with expectations. Still, Federal Reserve Chairman Jerome Jerome Powell was less hawkish than expected on the path ahead for policy tightening when he testified earlier this week. 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. The latest data showed that inflation in the eurozone hit a record high of 5% in December. Earlier this week, ECB chief economist Philip Lane said 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.
- FTSE 100 futures were little changed near a two-year high on Thursday, in line with their European counterparts, as investors continued to assess the outlook for monetary stimulus and inflation risks after pricing in the highest U.S. inflation rate in nearly 40 years. Meanwhile, retailers Tesco and Marks & Spencer issued trading updates. The former said it expected operating profit to be higher than previously forecast due to better-than-expected sales so far. In addition, job creation in the country slowed from near-record levels last month, with job vacancies hitting an eight-month low, and the hospitality industry, according to a survey by the Recruitment and Employment Federation and KPMG. And the construction industry has the most difficulty in recruiting new employees.
- 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 BOJ is widely expected to maintain its ultra-easy policy as inflation remains well below the central bank's 2% target, even as other central banks say they are ready to normalize monetary conditions.
• STOCK MARKET SECTORS:
- High: Industrials, Utilities, Consumer Staples.
- Low: Information Technology, Consumer Discretionary, Health Care, Communication Services.
• TOP CURRENCY & COMMODITIES MARKET DRIVERS:
- USD: The U.S. dollar index hovered near 2-month lows on Thursday, trading around 95, as red-hot inflation data did little to weigh on an already hawkish rate outlook. The consumer price index rose 7 percent in December from a year earlier, the fastest pace since June 1982. However, the red-hot inflation report failed to support the dollar further as it was in line with expectations and was largely priced in by the market. In addition, Federal Reserve Chairman Jerome Powell shattered expectations for a more hawkish approach in congressional testimony earlier this week. 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.
- RUB: Russia's ruble slipped past the 75-dollar mark but was still far from a near nine-month low hit in the first week of the year after NATO said it was willing to negotiate arms control and missile deployments with Russia avoid Europe risk of war. However, Russia said the situation was "hazardous," and the way forward was unclear. In addition to geopolitical risks, the Ministry of Finance has increased the amount of foreign exchange the country will buy for the treasury in the coming month.
- CNY: The offshore yuan traded near a two-week high of around 6.36 against the dollar on Thursday, and the dollar fell further, holding on to recent gains after U.S. inflation data was in line with expectations. The latest U.S. data has largely been priced in, prompting traders to unwind hawkish bets on the outlook for U.S. interest rates. Meanwhile, gains in the yuan have been capped by growing concerns over a slowdown in China's economy. Fears of a coronavirus-induced recession and weaker-than-expected inflation data have raised the prospect of further easing, putting downward pressure on the currency. However, according to Reuters, China's central bank is set to unveil more easing measures to support slowing growth. Still, it may prefer to inject more cash into the economy rather than cut rates too aggressively.
- JPY: The yen rose to 114.4 against the dollar on Thursday, extending gains from the previous session, as the dollar retreated after U.S. inflation data matched expectations. The yen rallied further from a five-year low of 116.35 hit on Jan. 4 as recently released U.S. data was largely priced in, prompting traders to unwind hawkish bets on the outlook for U.S. interest rates. Meanwhile, monetary policy differences between Japan and other major economies still weighed on the yen. The BOJ is widely expected to maintain its ultra-easy policy as inflation remains well below the central bank's 2% target, even as other central banks say they are ready to normalize monetary conditions.
- AUD: The Australian dollar hit an eight-week high of around $0.729 on Thursday, extending gains from the previous session, as the dollar retreated after U.S. inflation data matched expectations. The Aussie also benefited from higher commodity prices as a weaker U.S. dollar, coupled with supply disruptions, pushed up metals and energy prices. In addition, the Australian dollar rose further as solid retail sales easily beat 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. The RBA has also 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 hit a seven-week high above $0.684 on Thursday, extending gains from the previous session as the greenback retreated after U.S. inflation data matched expectations. This week, the New Zealand dollar also rose after Federal Reserve Chairman Jerome Powell was less hawkish than expected during his congressional testimony. However, the U.S. central bank's case for a relatively more aggressive tightening of monetary policy remains unchanged, as it vows to curb 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.
• CHART OF THE DAY:
USDCAD hit an eight-week high of 1.2495 amid a weaker dollar and higher oil prices. 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. It could take as many as four meetings to make such a move. Decide. Meanwhile, oil, Canada's main export, held above $82 a barrel.• USDCAD - D1, Resistance (consolidation) around ~ 1.26066, Support (consolidation) around ~ 1.24209.