• GLOBAL CAPITAL MARKETS OVERVIEW:

U.S. stocks tumbled further on Monday as traders remained cautious ahead of earnings reports this week from big tech companies such as IBM, Microsoft, Tesla, and Apple and began to finalize pricing as the Federal Reserve raises interest rates three to four times this year begins Quantitative tightening. So far, 74% of companies in the S&P 500 have reported results that have beaten Wall Street expectations, but some key players, including Goldman Sachs and Netflix, were disappointed last week. The Dow Jones Industrial Average fell more than 900 points to its lowest level since June, the S&P 500 fell more than 3%, and the Nasdaq retreated more than 4% around midday. European shares closed at multi-month lows on Monday, their worst session since Nov. 26, with Frankfurt's DAX and pan-European indexes, both down 3.6% as investors braced for the first-rate hike since the Federal Reserve Wednesday signal. Meanwhile, fears of heightened tensions on the Russian-Ukrainian border fueled global risk aversion, while the latest PMI data showed private sector growth in the eurozone and Britain slowed sharply to an 11-month low. Travel leisure and technology stocks both fell 5.2%. In contrast, Unilever shares rose 7.3% after reports that activist investor Nelson Peltz's hedge fund Trian Partners increased its stake in Unilever. On the revenue side, Dutch health tech company SealthHealthTeaStina reported a 4.6% drop in sales and net profit at the end of the 2021 quarter due to supply chain woes and COVID-19-related challenges. On Monday, the FTSE 100 fell 2.5% to close at 7,307, in line with international peers, as PMI data showed business activity growth slowed to an 11-month low this month, but cost pressures remained high for the third session in a row. The drop to its lowest level since Dec. 20 puts the Bank of England on track to raise rates next week. Meanwhile, investors are awaiting the outcome of the Federal Reserve's policy meeting scheduled for Wednesday, when officials will signal that policy tightening will accelerate this year to curb rising inflation and pave the way for a rate hike in March. Elsewhere, British Prime Minister Boris Johnson faces a crucial week for leadership as he braces for the Downing Street party's findings. In contrast, European Commission Vice-President Marros Seychelles Maros Sefcovic and British Foreign Secretary Liz Truss held Brexit talks. On Monday, the Shanghai Composite rose 0.04 percent to close at 3,524, while Shenzhen shares rose 0.37 percent to close at 14,082, as selling pressure on mainland stocks eased after Beijing took a series of policy easing measures to boost growth. The People's Bank of China injected 150 billion yuan into the banking system on Monday, reducing the cost of financing a 14-day reverse repo. The decision follows a series of critical short- and medium-term interest rate cuts last week, underscoring official concerns about China's economic outlook. The moves send a strong signal of policy direction, reflecting how quicker the central bank is to respond to an economic slowdown, with analysts expecting more easing in coming months. High-growth new energy and precision manufacturing companies led gains, with Ganfeng Lithium (10%), Tianqi Lithium (7.38%), Contemporary Amber (2%), Lusheng Precision (4.45%) and Hangzhou Silan (5.64%) a significant increase. The Nikkei 225 rose 0.24% to close at 27,588, while the broader Topix index edged up 0.14% to close at 1,930 on Monday, with gains in financials, retail and select heavyweights offsetting losses in technology stocks. Japanese stocks reversed early losses as tech companies faced heavy selling pressure after a weak close on Wall Street as investors braced for Fed tightening. Market leaders in Japan include Mitsubishi UFJ (1.65%), Sumitomo Mitsui (1.29%), Fast Retailing (1.17%), Nippon Chemical Holdings (4.82%), Tokyo Electron (1.62%), and Nippon Yusen (3.46%); SoftBank (down 2.41%), Recruit Holdings (down 1.05%) and Shift Corporation (down 5.35%) were some of the laggards. Meanwhile, the latest PMI data showed a sharp contraction in service sector activity in Japan, reflecting the impact of the newest wave of coronavirus infections. The S&P/ASX 200 index fell 0.51% to close at 7140 on Monday, with technology and mining companies leading losses as investors continued to sell stocks amid concerns about inflation and Fed tightening. The Fed meeting ends on Wednesday, is looking forward to new signals about the pace and magnitude of U.S. interest rate hikes this year. Australian tech stocks trailed their Wall Street counterparts, with Brainchip Holdings (down 5.7%), Xero (down 0.9%), and Aristocratic Leisure (down 1.08%). Heavyweight miners also fell, with Regis Resources down 14.3% after the company cut its full-year outlook. Meanwhile, the South32 index fell 3.67% as labor restrictions at its flagship Illwara project in the second half of the year may warn of possible coronavirus-related impacts. Other losers in the sector included Fortescue Metals (-2.01%), Mineral Resources (-3.5%) and Pilbara Minerals (-2.53%). Gold, energy, and financial stocks fell along with the broader market.

 

• REVIEWING ECONOMIC DATA:

Looking at the last economic data:

- US: Preliminary estimates show the IHS Markit U.S. Services PMI fell to 50.9 in January 2022 from 57.6 the previous month, well below the consensus 55.0. The services sector expanded at its slowest pace since July 2020 amid labor shortages, team member absenteeism, and the wave of Omicron, the latest figures show. Growth in new business slowed to a four-month low, while employment rose at a moderate pace and the backlog of jobs rose at its weakest pace since May. On the price side, input cost growth was the weakest in nearly a year, albeit significant overall, while expense inflation accelerated to a series of highs. Finally, business confidence slipped to a three-month low amid concerns over the impact of inflation and the pandemic on demand in the coming months.

- US: Preliminary estimates showed the IHS Markit U.S. manufacturing PMI fell to 55 in January 2022 from 56.7 in December, well below forecasts of 56.7 and indicating the slowest increase in factory activity in 15 months. Production levels were little changed, and new orders growth slowed to the lowest since July 2020. In addition to labor and material shortages, the company noted that customers are eager to reduce spending amid sharply rising costs. As a result, cost inflation slowed again, the slowest since May 2021, while fee inflation was the lowest since April 2021. Labor shortages, high team member turnover, and reports of voluntary layoffs not being replaced contributed to the first decline in employment since July 2020. However, confidence has been at its highest level since November 2020, driven by a steady supply of COVID-19 and a reduction in the impact of CVID-19.

- US: Preliminary estimates show the IHS Markit U.S. Composite PMI fell to 50.8 in January 2022 from 57.0 the previous month, marking the slowest expansion in business activity since July 2020. Both manufacturing and services companies reported near-stagnation in output, with reports of weak demand conditions, rising supply chain disruptions, and labor shortages related to the Omicron wave. Nevertheless, new orders continued to grow strongly, albeit at the slowest pace since December 2020. However, export order growth slowed due to new restrictions in key export markets and shortages of raw materials. In addition, the rise in employment has been modest, and the backlog of work has grown steadily again. On the price front, input cost inflation fell to its lowest level since March last year, while sales price inflation was the third fastest on record. Finally, concerns about further price increases and customer responses to inflationary pressures have weakened business confidence.

- TW: Retail sales in Taiwan's retail industry increased by 3.72% year-on-year in December, an increase of 6.85% in the previous month. This is the fourth consecutive month of retail sales growth. The most relevant contributions came from sales in department stores (6.07% vs. 7.09% in November); textiles and apparel (5.42% vs. 15.04%); and non-shop or stall retail sales (3.43% vs. 15.37%, respectively) %). To a lesser extent, upward pressure also came from food, beverage, and tobacco sales (8.15% vs. 8.97%) and e-commerce and mail order companies (6.87% vs. 18.95%). Retail sales fell 2.35% on the month after rising 1.14% in November.

- CA: According to preliminary estimates, Canada's manufacturing sales in December may have risen from 0.8% in the previous month of 2021, mainly due to higher sales in the plastic and rubber products, metal products, and automotive industries.

- CN: China's 10-year government bond yield extended its downward trend to below 2.69% for May 2020 after the People's Bank of China (PBOC) cut its benchmark interest rate for the second time in a row and pledged to use more monetary tools to support a slowing economy. The lowest level in a month. Meanwhile, the central bank has injected 150 billion yuan into the banking system to maintain liquidity ahead of the Lunar New Year. The one-year and five-year loan prime rates were cut on January 20, after the People's Bank of China slashed short- and medium-term lending rates on January 17. This year, investors see room for more easing, including lowering banks' reserve requirements or further reducing essential borrowing costs.

- UK: Preliminary estimates showed that the IHS Markit/CIPS UK Services PMI fell to 53.3 in January 2022 from 53.6 the previous month, unexpectedly forecasting a rise to 54.8. The latest data showed that the services sector expanded at its slowest pace in 11 months as customer-facing categories such as hotels and travel weakened. Still, new orders growth rebounded from a 10-month low in December, helped by looser pandemic restrictions and fewer concerns about Omicron. On the price front, both input costs and output expenses rose at the second-fastest pace since the survey began in July 1996, driven by rising raw material costs, team member wages, and energy bills.

- EU: Preliminary estimates show the IHS Markit Eurozone Services PMI fell to 51.2 in January 2022 from 53.1 the previous month, below the consensus of 52.2. The latest figures on new COVID-19 restrictions show that services output has grown slowly since April last year. Travel and entertainment activities have contracted at a rate not seen since February last year, as are transport and media jobs. At the same time, many other business service providers and financial services companies continued to report solid growth. As a result, the flow of new business into the industry slowed to near-stagnation, while job growth fell to its lowest level since May last year. On the price front, average selling price inflation hit a new high.

- EU: Preliminary estimates showed the IHS Markit Eurozone Manufacturing PMI rose to 59 in January 2022 from 58 in December, the most substantial increase in factory activity in five months, helped by easing supply chain delays. These figures compare with a market forecast of 57.5%. Supply constraints have been reduced, assisting many companies in ramping up production, although staff problems have limited output at some factories. Average supplier delivery delays have seen a minor extension since January last year, with fewer supply shortages and shipment delays reported. All major manufacturing sectors posted gains, including the auto industry, which saw output rise for the second month in a row. In addition, employment growth was at its highest level since last July, imported inflation was the lowest since April 2021, while price increases continued to rise. Finally, the outlook for manufacturers has brightened, with the easing of supply chain delays helping to push future output expectations to their highest level since last June.

- JP: Flash data showed the au Jibun Bank Japan Services PMI fell to 46.6 in January 2022 from 52.5 the previous month. The latest figures show the services sector contracted for the first time in four months and the fastest pace since August 2021, amid growing fears over the OmiCon strain as new infections reintroduce restrictions in parts of the country. Then it soared to a record high. New orders fell at the fastest pace in five months, while new export orders fell after rising late last year. In addition, the unemployment rate accelerated for the second month in a row to the fastest level since May 2020, while the backlog of construction dwindled after rising in December. Furthermore, both inputs cost inflation and sales price inflation moderated on the price front. Finally, confidence fell to its lowest level in a year.

- JP: A quick reading showed the au Jibun Bank-Japan Composite PMI fell to 48.8 in January 2022 from a final 51.8 a month ago. This is the first time the private sector has contracted since September 2021, starting with a surge in COVID-19. Since last August, the service sector has seen the sharpest decline in activity, with restrictions reimposed in several prefectures, including the capital Tokyo, while output growth by manufacturers accelerated slightly. However, both production and new orders fell after rising in December, while employment fell for the first time in a year, and the backlog of jobs dwindled after rising the previous month. Meanwhile, export sales accelerated amid signs of improving global demand. Meanwhile, price pressures appear to have peaked as businesses note input price inflation has slowed for the first time in five months, while output costs have eased. Finally, market sentiment fell to its lowest level in a year.

- AU: The Flash COVID-19 assessment shows Australia's IHS MARIT IT Composite PMI fell sharply to 45.3 in January from 54.9 in December, the first in four months in private sector activity due to the latest surge in COVID-19 infections in April shrink. Services declined (45 to 55.1), and manufacturing growth slowed sharply (55.3 to 57.7). In January, private-sector output and demand fell, causing job growth to stall. At the same time, amid the chaos, the backlog of work continued to build up while input prices rose. Business optimism is also on the back of Covid-19 and has fallen sharply from its lowest point since April 2020, amid reports of a spike in CVID-19 infections and supply chain issues.

 

• LOOKING AHEAD:

Today, investors will receive:

- USD: HPI m/m, S&P/CS Composite-20 HPI y/y, CB Consumer Confidence, and Richmond Manufacturing Index.

- EUR: German IFO Business Climate and Belgian NBB Business Climate.

- GBP: Public Sector Net Borrowing, and CBI Industrial Order Expectations.

- JPY: BOJ Core CPI y/y.

- NZD: Trade Balance.

- AUD: CPI q/q, Trimmed Mean CPI q/q, NAB Business Confidence, and Bank Holiday.

 

• KEY EQUITY & BOND MARKET DRIVERS:

- Australia's 10-year government bond yield fell below 1.88%, its lowest level since Jan. 14, as global risk aversion returned and most major stock indexes continued their sharp losses. Still, growing expectations that the Reserve Bank of Australia will start raising interest rates in the first half of the year and end quantitative easing as soon as February has restrained the slide in yields. Australia's unemployment rate fell to an 11-year low of 4.2 percent in December, and traders are now eyeing the fourth-quarter inflation report to confirm their bets on rate hikes. However, Governor Lowe said there would be no rate hikes until 2023. Nevertheless, the RBA's case for more hawkishness was strengthened.

- The yield on benchmark Japanese 10-year government bonds hovered below 0.14%, not far from an 11-month high of 0.15% ahead of the Federal Reserve’s monetary policy meeting on Jan. 14. Meanwhile, 18 Japanese regional leaders urged Prime Minister Yoshihiko Kishida to expand the lifting of emergency measures that would allow the prefectures to shorten business hours restrict mobility, among other criteria. On Saturday, a record 54,411 infections were registered across the country, leading thousands of people to self-isolate at home and causing labor shortages at many companies.

- Yields on French 10-year oats fell to 0.3% from a 21-month high of 0.41% on Jan. 19, as investors rushed into safe-haven bonds amid heightened geopolitical risks. Imminent military activity on the Russian-Ukrainian border has led to the withdrawal of U.S. and British embassy staff from Kiev after talks between Russia and NATO members failed to ease tensions. Meanwhile, investors monitor the possibility of sanctions on Russia and its impact on EU trade, especially energy. Elsewhere, the Bank of France estimated that the economy grew by 0.6% in the fourth quarter of 2021, remaining on track with its recovery plan despite a surge in OmiCon variants in December. World Bank President François de Galhau noted that the French economy would grow by 3.6% in 2022, while French Finance Minister Bruno Le Maire said the spread of the Omicron variant would not interrupt growth.

- Italian 10-year BTP yields retreated to 1.33% after hitting an 18-month high of 1.45% on Jan. 18, as widespread risk aversion led investors to seek safety in European debt instruments. Rising tensions between Russia and the West have fueled fears of Europe's economic recovery as sanctions imposed on Russia could jeopardize Europe's already fragile energy supplies. Elsewhere, European Central Bank Governing Council member Robert Holzmann said considerable uncertainty about how long inflation could stay above the central bank's 2 percent target. The Italian government has kicked off a presidential election on the political front as multiple lawmakers see current Prime Minister Mario Draghi as a possible option. However, parliamentary elections are unlikely to occur if Draghi steps down. Still, a potential setback in forming a new government could delay the full implementation of the 191.5 billion euro EU recovery fund.

- Germany's benchmark bond yield fell to -0.09% at the end of January, touching positive territory for the first time since Jan. 19, 2019, as investor appetite for safe-haven bonds resumed as stock market volatility intensified. In addition, tensions on the Russia-Ukrainian border have returned to the forefront as Joe Biden considers strengthening the U.S. military presence in Eastern Europe. EU officials reiterate warnings of tough sanctions on Russia's concerns. Looking ahead, though, bond demand will decline as major central banks get tougher. The Federal Reserve will raise interest rates on the fund in March for the first time since 2018. In addition, there is growing confidence that the ECB will raise the deposit rate for the first time in 11 years later this year and cut it to zero by the end of 2023.

- U.S. futures fell early Monday, with the Dow down more than 200 points and the S&P 500 and Nasdaq both down more than 1% after last week's sharp sell-off. Last week saw disappointing results from Netflix and Goldman Sachs, and traders remained cautious ahead of earnings this week from big tech companies such as IBM, Microsoft, Tesla, and Apple. In addition, the Fed is expected to confirm a rate hike in March and a balance sheet shrinkage later this year, although the magnitude of the walk remains uncertain. Meanwhile, geopolitical tensions between the U.S. and Russia over Ukraine weighed on investor sentiment as Russia could take military action at any time.

- The yield on the benchmark U.S. 10-year Treasury note continued to fall to 1.73% in the last week of January, its lowest level in nearly two weeks, as stocks remained volatile and investors awaited the Federal Open Market Committee meeting. The Fed plans to raise the federal funds rate in March and lower its balance sheet later this year, although the size of the hike remains uncertain. Meanwhile, tensions between the U.S. and Russia have risen after the U.S. urged U.S. citizens in Ukraine to leave immediately.

 

• STOCK MARKET SECTORS:

- High: Consumer Discretionary, Energy, Industrials.

- Low: Utilities, Health Care, Consumer Staples.

 

• TOP CURRENCY & COMMODITIES MARKET DRIVERS:

- CAD: The Canadian dollar traded above $1.26, its weakest since Jan. 10, as negative risk sentiment pushed the greenback higher. Traders focused on monetary policy decisions from the U.S. central bank and the Bank of Canada, expected to outline tightening amid rising inflation. The Fed plans to raise the federal funds rate in March and lower its balance sheet later this year, although the size of the hike remains uncertain. Also, tensions between Russia and NATO over Ukraine show little sign of easing, prompting investors to seek safe-havens. Meanwhile, the new coronavirus strain in Canada proved milder than initially estimated. At the same time, activity and inflation data continued to show signs of accelerating, prompting investors to bet on a possible rate hike during the Bank of China's next policy meeting.

- USD: The U.S. dollar index rose to a two-week high above 96 on Monday, moving further away from a two-month low of 94.8 earlier this month. The U.S. dollar index turned to safety ahead of the Federal Reserve's monetary policy decision as tensions intensified between the U.S. and Russia. Russian military action in Ukraine could happen at any time, and the U.S. urged U.S. citizens in Ukraine to leave immediately. Meanwhile, the Federal Reserve ends its two-day meeting on Wednesday. While the central bank is not expected to adjust interest rates, expectations are growing that the central bank will come up with a tightening plan to curb persistently high inflation.

- RUB: On Monday, the ruble-based MOEX-Russian index fell more than 7 percent to 3,200, its lowest level since December 2020, amid heightened geopolitical tensions. The prospect of continued tough sanctions on Russia from the West sparked a massive stock sell-off on the Moscow exchange amid the threat of imminent military action on the Russian-Ukrainian border. Gazprom led losses of 8.7% among blue chips as sanctions could cast doubt on Germany's approval of the Nord Stream 2 pipeline. Meanwhile, the new Russian Volatility Index, which measures market expectations for 30-day volatility, surged 24% to 68.1, its highest level since March 2020.

- GBP: sterling fell to $1.35 in the fourth week of January, moving further away from a more than two-month high of $1.37485 hit on Jan. 11, as investors digested PMI data showing UK private sector growth slowed to an 11-month low, and demand for the U.S. dollar is supported by expectations that the Federal Reserve will this week announce a March rate hike to curb inflation. Meanwhile, as UK Prime Minister Boris Johnson braces for the findings of the Downing Street party during the 2020 lockdown, his leadership faces a severe test this week amid rising political uncertainty damage to the pound. Elsewhere, investors see a high chance of another rate hike by the Bank of England next week after data last week showed that UK consumer inflation rose more than expected in December to 5.4%, the fastest pace since March 1992. At its highest level, the core index excluding volatility items rose a record 4.2%.

- CNY: On Monday, the offshore yuan rose to a 3-1/2-year high against the dollar at around 6.33, amid strong corporate demand as the central bank took firmer measures ahead of the Lunar New Year holiday. The People's Bank of China set the midpoint at 6.3411 yuan per dollar before the market opened to the firmest fixed rate since May 2018. Meanwhile, the yuan has continued to appreciate even after a series of policy easing measures by Beijing, with the People's Bank of China slashing several critical short- and medium-term interest rates to boost economic growth. China's policy moves stand in stark contrast to other significant economies expected to normalize monetary conditions this year. Analysts expect the People's Bank of China to roll out easing measures in the first half of this year and further cut interest rates and lower the reserve requirement ratio in the first quarter.

- JPY: The yen firmed above $114 on Monday, holding on to last week's gains, supported by inflation concerns and falling risk appetite. Investors sold riskier assets, while the safe-haven yen rose on renewed worries about rising inflation, policy uncertainty, and heightened geopolitical tensions. In its quarterly outlook report, the Bank of Japan noted that inflationary pressures are building, with core consumer prices expected to hit 1.1% in the fiscal year ending March 2023, and warned that if raw material costs continue to soar, inflation could accelerate at a rate that could faster than expected. A Reuters article also reported that policymakers in Japan debate when to signal an eventual rate hike, possibly even before inflation hits the central bank’s 2 percent target. Meanwhile, last week, the Bank of Japan decided to maintain its ultra-easy monetary policy, as widely expected.

- AUD: The Australian dollar fell below $0.719 on Monday as risk aversion expanded while traders braced for more aggressive tightening by the Federal Reserve. The U.S. central bank ends its two-day meeting on Wednesday. While no rate change is expected, a growing number of Fed officials said they were ready to accelerate the pace of policy normalization. Investors are also awaiting Australia's fourth-quarter inflation data, which could set the stage for the central bank to end bond purchases in February and bolster market expectations for a rate hike as soon as May or June. Australia's CPI is expected to rise 3.2% in the December quarter, while core inflation is expected to rise to its fastest level since 2014 at 2.4%. 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.

 

• CHART OF THE DAY:

The CAC 40 index fell 4 percent to close at 6,788 on Monday, its lowest level since December, as rising tensions over the military conflict between Russia and Ukraine dampened sentiment ahead of Wednesday's Federal Reserve statement. Fed policymakers are expected to confirm a federal funds rate hike in March. Technology stocks led losses by 5.6%, led by Soitec (-7.4%) and Capgemini (-5.9%) on the corporate front. Industrial stocks fell 5%, led by Worldline (-7.3%) and Saint-Gobain (-8.4%) on concerns about disruptions to commodity supply chains. Meanwhile, Orpea shares fell 16.1% before being suspended after releasing a book detailing how nursing homes treat seniors. Meanwhile, EDF shares fell 1.6 percent after Bernstein cut the power company's target price to 8.5 euros from 14.5 euros. The utility has been down 23% since the beginning of the year.•  France CAC 40 index - D1, Resistance around ~ 7423, Support (target zone) around  ~ 6960 & 6692

US indexes bounce from an oversold condition, but EU shares closed at multi-month lows

• GLOBAL CAPITAL MARKETS OVERVIEW:

U.S. stocks tumbled further on Monday as traders remained cautious ahead of earnings reports this week from big tech companies such as IBM, Microsoft, Tesla, and Apple and began to finalize pricing as the Federal Reserve raises interest rates three to four times this year begins Quantitative tightening. So far, 74% of companies in the S&P 500 have reported results that have beaten Wall Street expectations, but some key players, including Goldman Sachs and Netflix, were disappointed last week. The Dow Jones Industrial Average fell more than 900 points to its lowest level since June, the S&P 500 fell more than 3%, and the Nasdaq retreated more than 4% around midday. European shares closed at multi-month lows on Monday, their worst session since Nov. 26, with Frankfurt's DAX and pan-European indexes, both down 3.6% as investors braced for the first-rate hike since the Federal Reserve Wednesday signal. Meanwhile, fears of heightened tensions on the Russian-Ukrainian border fueled global risk aversion, while the latest PMI data showed private sector growth in the eurozone and Britain slowed sharply to an 11-month low. Travel leisure and technology stocks both fell 5.2%. In contrast, Unilever shares rose 7.3% after reports that activist investor Nelson Peltz's hedge fund Trian Partners increased its stake in Unilever. On the revenue side, Dutch health tech company SealthHealthTeaStina reported a 4.6% drop in sales and net profit at the end of the 2021 quarter due to supply chain woes and COVID-19-related challenges. On Monday, the FTSE 100 fell 2.5% to close at 7,307, in line with international peers, as PMI data showed business activity growth slowed to an 11-month low this month, but cost pressures remained high for the third session in a row. The drop to its lowest level since Dec. 20 puts the Bank of England on track to raise rates next week. Meanwhile, investors are awaiting the outcome of the Federal Reserve's policy meeting scheduled for Wednesday, when officials will signal that policy tightening will accelerate this year to curb rising inflation and pave the way for a rate hike in March. Elsewhere, British Prime Minister Boris Johnson faces a crucial week for leadership as he braces for the Downing Street party's findings. In contrast, European Commission Vice-President Marros Seychelles Maros Sefcovic and British Foreign Secretary Liz Truss held Brexit talks. On Monday, the Shanghai Composite rose 0.04 percent to close at 3,524, while Shenzhen shares rose 0.37 percent to close at 14,082, as selling pressure on mainland stocks eased after Beijing took a series of policy easing measures to boost growth. The People's Bank of China injected 150 billion yuan into the banking system on Monday, reducing the cost of financing a 14-day reverse repo. The decision follows a series of critical short- and medium-term interest rate cuts last week, underscoring official concerns about China's economic outlook. The moves send a strong signal of policy direction, reflecting how quicker the central bank is to respond to an economic slowdown, with analysts expecting more easing in coming months. High-growth new energy and precision manufacturing companies led gains, with Ganfeng Lithium (10%), Tianqi Lithium (7.38%), Contemporary Amber (2%), Lusheng Precision (4.45%) and Hangzhou Silan (5.64%) a significant increase. The Nikkei 225 rose 0.24% to close at 27,588, while the broader Topix index edged up 0.14% to close at 1,930 on Monday, with gains in financials, retail and select heavyweights offsetting losses in technology stocks. Japanese stocks reversed early losses as tech companies faced heavy selling pressure after a weak close on Wall Street as investors braced for Fed tightening. Market leaders in Japan include Mitsubishi UFJ (1.65%), Sumitomo Mitsui (1.29%), Fast Retailing (1.17%), Nippon Chemical Holdings (4.82%), Tokyo Electron (1.62%), and Nippon Yusen (3.46%); SoftBank (down 2.41%), Recruit Holdings (down 1.05%) and Shift Corporation (down 5.35%) were some of the laggards. Meanwhile, the latest PMI data showed a sharp contraction in service sector activity in Japan, reflecting the impact of the newest wave of coronavirus infections. The S&P/ASX 200 index fell 0.51% to close at 7140 on Monday, with technology and mining companies leading losses as investors continued to sell stocks amid concerns about inflation and Fed tightening. The Fed meeting ends on Wednesday, is looking forward to new signals about the pace and magnitude of U.S. interest rate hikes this year. Australian tech stocks trailed their Wall Street counterparts, with Brainchip Holdings (down 5.7%), Xero (down 0.9%), and Aristocratic Leisure (down 1.08%). Heavyweight miners also fell, with Regis Resources down 14.3% after the company cut its full-year outlook. Meanwhile, the South32 index fell 3.67% as labor restrictions at its flagship Illwara project in the second half of the year may warn of possible coronavirus-related impacts. Other losers in the sector included Fortescue Metals (-2.01%), Mineral Resources (-3.5%) and Pilbara Minerals (-2.53%). Gold, energy, and financial stocks fell along with the broader market.

 

• REVIEWING ECONOMIC DATA:

Looking at the last economic data:

- US: Preliminary estimates show the IHS Markit U.S. Services PMI fell to 50.9 in January 2022 from 57.6 the previous month, well below the consensus 55.0. The services sector expanded at its slowest pace since July 2020 amid labor shortages, team member absenteeism, and the wave of Omicron, the latest figures show. Growth in new business slowed to a four-month low, while employment rose at a moderate pace and the backlog of jobs rose at its weakest pace since May. On the price side, input cost growth was the weakest in nearly a year, albeit significant overall, while expense inflation accelerated to a series of highs. Finally, business confidence slipped to a three-month low amid concerns over the impact of inflation and the pandemic on demand in the coming months.

- US: Preliminary estimates showed the IHS Markit U.S. manufacturing PMI fell to 55 in January 2022 from 56.7 in December, well below forecasts of 56.7 and indicating the slowest increase in factory activity in 15 months. Production levels were little changed, and new orders growth slowed to the lowest since July 2020. In addition to labor and material shortages, the company noted that customers are eager to reduce spending amid sharply rising costs. As a result, cost inflation slowed again, the slowest since May 2021, while fee inflation was the lowest since April 2021. Labor shortages, high team member turnover, and reports of voluntary layoffs not being replaced contributed to the first decline in employment since July 2020. However, confidence has been at its highest level since November 2020, driven by a steady supply of COVID-19 and a reduction in the impact of CVID-19.

- US: Preliminary estimates show the IHS Markit U.S. Composite PMI fell to 50.8 in January 2022 from 57.0 the previous month, marking the slowest expansion in business activity since July 2020. Both manufacturing and services companies reported near-stagnation in output, with reports of weak demand conditions, rising supply chain disruptions, and labor shortages related to the Omicron wave. Nevertheless, new orders continued to grow strongly, albeit at the slowest pace since December 2020. However, export order growth slowed due to new restrictions in key export markets and shortages of raw materials. In addition, the rise in employment has been modest, and the backlog of work has grown steadily again. On the price front, input cost inflation fell to its lowest level since March last year, while sales price inflation was the third fastest on record. Finally, concerns about further price increases and customer responses to inflationary pressures have weakened business confidence.

- TW: Retail sales in Taiwan's retail industry increased by 3.72% year-on-year in December, an increase of 6.85% in the previous month. This is the fourth consecutive month of retail sales growth. The most relevant contributions came from sales in department stores (6.07% vs. 7.09% in November); textiles and apparel (5.42% vs. 15.04%); and non-shop or stall retail sales (3.43% vs. 15.37%, respectively) %). To a lesser extent, upward pressure also came from food, beverage, and tobacco sales (8.15% vs. 8.97%) and e-commerce and mail order companies (6.87% vs. 18.95%). Retail sales fell 2.35% on the month after rising 1.14% in November.

- CA: According to preliminary estimates, Canada's manufacturing sales in December may have risen from 0.8% in the previous month of 2021, mainly due to higher sales in the plastic and rubber products, metal products, and automotive industries.

- CN: China's 10-year government bond yield extended its downward trend to below 2.69% for May 2020 after the People's Bank of China (PBOC) cut its benchmark interest rate for the second time in a row and pledged to use more monetary tools to support a slowing economy. The lowest level in a month. Meanwhile, the central bank has injected 150 billion yuan into the banking system to maintain liquidity ahead of the Lunar New Year. The one-year and five-year loan prime rates were cut on January 20, after the People's Bank of China slashed short- and medium-term lending rates on January 17. This year, investors see room for more easing, including lowering banks' reserve requirements or further reducing essential borrowing costs.

- UK: Preliminary estimates showed that the IHS Markit/CIPS UK Services PMI fell to 53.3 in January 2022 from 53.6 the previous month, unexpectedly forecasting a rise to 54.8. The latest data showed that the services sector expanded at its slowest pace in 11 months as customer-facing categories such as hotels and travel weakened. Still, new orders growth rebounded from a 10-month low in December, helped by looser pandemic restrictions and fewer concerns about Omicron. On the price front, both input costs and output expenses rose at the second-fastest pace since the survey began in July 1996, driven by rising raw material costs, team member wages, and energy bills.

- EU: Preliminary estimates show the IHS Markit Eurozone Services PMI fell to 51.2 in January 2022 from 53.1 the previous month, below the consensus of 52.2. The latest figures on new COVID-19 restrictions show that services output has grown slowly since April last year. Travel and entertainment activities have contracted at a rate not seen since February last year, as are transport and media jobs. At the same time, many other business service providers and financial services companies continued to report solid growth. As a result, the flow of new business into the industry slowed to near-stagnation, while job growth fell to its lowest level since May last year. On the price front, average selling price inflation hit a new high.

- EU: Preliminary estimates showed the IHS Markit Eurozone Manufacturing PMI rose to 59 in January 2022 from 58 in December, the most substantial increase in factory activity in five months, helped by easing supply chain delays. These figures compare with a market forecast of 57.5%. Supply constraints have been reduced, assisting many companies in ramping up production, although staff problems have limited output at some factories. Average supplier delivery delays have seen a minor extension since January last year, with fewer supply shortages and shipment delays reported. All major manufacturing sectors posted gains, including the auto industry, which saw output rise for the second month in a row. In addition, employment growth was at its highest level since last July, imported inflation was the lowest since April 2021, while price increases continued to rise. Finally, the outlook for manufacturers has brightened, with the easing of supply chain delays helping to push future output expectations to their highest level since last June.

- JP: Flash data showed the au Jibun Bank Japan Services PMI fell to 46.6 in January 2022 from 52.5 the previous month. The latest figures show the services sector contracted for the first time in four months and the fastest pace since August 2021, amid growing fears over the OmiCon strain as new infections reintroduce restrictions in parts of the country. Then it soared to a record high. New orders fell at the fastest pace in five months, while new export orders fell after rising late last year. In addition, the unemployment rate accelerated for the second month in a row to the fastest level since May 2020, while the backlog of construction dwindled after rising in December. Furthermore, both inputs cost inflation and sales price inflation moderated on the price front. Finally, confidence fell to its lowest level in a year.

- JP: A quick reading showed the au Jibun Bank-Japan Composite PMI fell to 48.8 in January 2022 from a final 51.8 a month ago. This is the first time the private sector has contracted since September 2021, starting with a surge in COVID-19. Since last August, the service sector has seen the sharpest decline in activity, with restrictions reimposed in several prefectures, including the capital Tokyo, while output growth by manufacturers accelerated slightly. However, both production and new orders fell after rising in December, while employment fell for the first time in a year, and the backlog of jobs dwindled after rising the previous month. Meanwhile, export sales accelerated amid signs of improving global demand. Meanwhile, price pressures appear to have peaked as businesses note input price inflation has slowed for the first time in five months, while output costs have eased. Finally, market sentiment fell to its lowest level in a year.

- AU: The Flash COVID-19 assessment shows Australia's IHS MARIT IT Composite PMI fell sharply to 45.3 in January from 54.9 in December, the first in four months in private sector activity due to the latest surge in COVID-19 infections in April shrink. Services declined (45 to 55.1), and manufacturing growth slowed sharply (55.3 to 57.7). In January, private-sector output and demand fell, causing job growth to stall. At the same time, amid the chaos, the backlog of work continued to build up while input prices rose. Business optimism is also on the back of Covid-19 and has fallen sharply from its lowest point since April 2020, amid reports of a spike in CVID-19 infections and supply chain issues.

 

• LOOKING AHEAD:

Today, investors will receive:

- USD: HPI m/m, S&P/CS Composite-20 HPI y/y, CB Consumer Confidence, and Richmond Manufacturing Index.

- EUR: German IFO Business Climate and Belgian NBB Business Climate.

- GBP: Public Sector Net Borrowing, and CBI Industrial Order Expectations.

- JPY: BOJ Core CPI y/y.

- NZD: Trade Balance.

- AUD: CPI q/q, Trimmed Mean CPI q/q, NAB Business Confidence, and Bank Holiday.

 

• KEY EQUITY & BOND MARKET DRIVERS:

- Australia's 10-year government bond yield fell below 1.88%, its lowest level since Jan. 14, as global risk aversion returned and most major stock indexes continued their sharp losses. Still, growing expectations that the Reserve Bank of Australia will start raising interest rates in the first half of the year and end quantitative easing as soon as February has restrained the slide in yields. Australia's unemployment rate fell to an 11-year low of 4.2 percent in December, and traders are now eyeing the fourth-quarter inflation report to confirm their bets on rate hikes. However, Governor Lowe said there would be no rate hikes until 2023. Nevertheless, the RBA's case for more hawkishness was strengthened.

- The yield on benchmark Japanese 10-year government bonds hovered below 0.14%, not far from an 11-month high of 0.15% ahead of the Federal Reserve’s monetary policy meeting on Jan. 14. Meanwhile, 18 Japanese regional leaders urged Prime Minister Yoshihiko Kishida to expand the lifting of emergency measures that would allow the prefectures to shorten business hours restrict mobility, among other criteria. On Saturday, a record 54,411 infections were registered across the country, leading thousands of people to self-isolate at home and causing labor shortages at many companies.

- Yields on French 10-year oats fell to 0.3% from a 21-month high of 0.41% on Jan. 19, as investors rushed into safe-haven bonds amid heightened geopolitical risks. Imminent military activity on the Russian-Ukrainian border has led to the withdrawal of U.S. and British embassy staff from Kiev after talks between Russia and NATO members failed to ease tensions. Meanwhile, investors monitor the possibility of sanctions on Russia and its impact on EU trade, especially energy. Elsewhere, the Bank of France estimated that the economy grew by 0.6% in the fourth quarter of 2021, remaining on track with its recovery plan despite a surge in OmiCon variants in December. World Bank President François de Galhau noted that the French economy would grow by 3.6% in 2022, while French Finance Minister Bruno Le Maire said the spread of the Omicron variant would not interrupt growth.

- Italian 10-year BTP yields retreated to 1.33% after hitting an 18-month high of 1.45% on Jan. 18, as widespread risk aversion led investors to seek safety in European debt instruments. Rising tensions between Russia and the West have fueled fears of Europe's economic recovery as sanctions imposed on Russia could jeopardize Europe's already fragile energy supplies. Elsewhere, European Central Bank Governing Council member Robert Holzmann said considerable uncertainty about how long inflation could stay above the central bank's 2 percent target. The Italian government has kicked off a presidential election on the political front as multiple lawmakers see current Prime Minister Mario Draghi as a possible option. However, parliamentary elections are unlikely to occur if Draghi steps down. Still, a potential setback in forming a new government could delay the full implementation of the 191.5 billion euro EU recovery fund.

- Germany's benchmark bond yield fell to -0.09% at the end of January, touching positive territory for the first time since Jan. 19, 2019, as investor appetite for safe-haven bonds resumed as stock market volatility intensified. In addition, tensions on the Russia-Ukrainian border have returned to the forefront as Joe Biden considers strengthening the U.S. military presence in Eastern Europe. EU officials reiterate warnings of tough sanctions on Russia's concerns. Looking ahead, though, bond demand will decline as major central banks get tougher. The Federal Reserve will raise interest rates on the fund in March for the first time since 2018. In addition, there is growing confidence that the ECB will raise the deposit rate for the first time in 11 years later this year and cut it to zero by the end of 2023.

- U.S. futures fell early Monday, with the Dow down more than 200 points and the S&P 500 and Nasdaq both down more than 1% after last week's sharp sell-off. Last week saw disappointing results from Netflix and Goldman Sachs, and traders remained cautious ahead of earnings this week from big tech companies such as IBM, Microsoft, Tesla, and Apple. In addition, the Fed is expected to confirm a rate hike in March and a balance sheet shrinkage later this year, although the magnitude of the walk remains uncertain. Meanwhile, geopolitical tensions between the U.S. and Russia over Ukraine weighed on investor sentiment as Russia could take military action at any time.

- The yield on the benchmark U.S. 10-year Treasury note continued to fall to 1.73% in the last week of January, its lowest level in nearly two weeks, as stocks remained volatile and investors awaited the Federal Open Market Committee meeting. The Fed plans to raise the federal funds rate in March and lower its balance sheet later this year, although the size of the hike remains uncertain. Meanwhile, tensions between the U.S. and Russia have risen after the U.S. urged U.S. citizens in Ukraine to leave immediately.

 

• STOCK MARKET SECTORS:

- High: Consumer Discretionary, Energy, Industrials.

- Low: Utilities, Health Care, Consumer Staples.

 

• TOP CURRENCY & COMMODITIES MARKET DRIVERS:

- CAD: The Canadian dollar traded above $1.26, its weakest since Jan. 10, as negative risk sentiment pushed the greenback higher. Traders focused on monetary policy decisions from the U.S. central bank and the Bank of Canada, expected to outline tightening amid rising inflation. The Fed plans to raise the federal funds rate in March and lower its balance sheet later this year, although the size of the hike remains uncertain. Also, tensions between Russia and NATO over Ukraine show little sign of easing, prompting investors to seek safe-havens. Meanwhile, the new coronavirus strain in Canada proved milder than initially estimated. At the same time, activity and inflation data continued to show signs of accelerating, prompting investors to bet on a possible rate hike during the Bank of China's next policy meeting.

- USD: The U.S. dollar index rose to a two-week high above 96 on Monday, moving further away from a two-month low of 94.8 earlier this month. The U.S. dollar index turned to safety ahead of the Federal Reserve's monetary policy decision as tensions intensified between the U.S. and Russia. Russian military action in Ukraine could happen at any time, and the U.S. urged U.S. citizens in Ukraine to leave immediately. Meanwhile, the Federal Reserve ends its two-day meeting on Wednesday. While the central bank is not expected to adjust interest rates, expectations are growing that the central bank will come up with a tightening plan to curb persistently high inflation.

- RUB: On Monday, the ruble-based MOEX-Russian index fell more than 7 percent to 3,200, its lowest level since December 2020, amid heightened geopolitical tensions. The prospect of continued tough sanctions on Russia from the West sparked a massive stock sell-off on the Moscow exchange amid the threat of imminent military action on the Russian-Ukrainian border. Gazprom led losses of 8.7% among blue chips as sanctions could cast doubt on Germany's approval of the Nord Stream 2 pipeline. Meanwhile, the new Russian Volatility Index, which measures market expectations for 30-day volatility, surged 24% to 68.1, its highest level since March 2020.

- GBP: sterling fell to $1.35 in the fourth week of January, moving further away from a more than two-month high of $1.37485 hit on Jan. 11, as investors digested PMI data showing UK private sector growth slowed to an 11-month low, and demand for the U.S. dollar is supported by expectations that the Federal Reserve will this week announce a March rate hike to curb inflation. Meanwhile, as UK Prime Minister Boris Johnson braces for the findings of the Downing Street party during the 2020 lockdown, his leadership faces a severe test this week amid rising political uncertainty damage to the pound. Elsewhere, investors see a high chance of another rate hike by the Bank of England next week after data last week showed that UK consumer inflation rose more than expected in December to 5.4%, the fastest pace since March 1992. At its highest level, the core index excluding volatility items rose a record 4.2%.

- CNY: On Monday, the offshore yuan rose to a 3-1/2-year high against the dollar at around 6.33, amid strong corporate demand as the central bank took firmer measures ahead of the Lunar New Year holiday. The People's Bank of China set the midpoint at 6.3411 yuan per dollar before the market opened to the firmest fixed rate since May 2018. Meanwhile, the yuan has continued to appreciate even after a series of policy easing measures by Beijing, with the People's Bank of China slashing several critical short- and medium-term interest rates to boost economic growth. China's policy moves stand in stark contrast to other significant economies expected to normalize monetary conditions this year. Analysts expect the People's Bank of China to roll out easing measures in the first half of this year and further cut interest rates and lower the reserve requirement ratio in the first quarter.

- JPY: The yen firmed above $114 on Monday, holding on to last week's gains, supported by inflation concerns and falling risk appetite. Investors sold riskier assets, while the safe-haven yen rose on renewed worries about rising inflation, policy uncertainty, and heightened geopolitical tensions. In its quarterly outlook report, the Bank of Japan noted that inflationary pressures are building, with core consumer prices expected to hit 1.1% in the fiscal year ending March 2023, and warned that if raw material costs continue to soar, inflation could accelerate at a rate that could faster than expected. A Reuters article also reported that policymakers in Japan debate when to signal an eventual rate hike, possibly even before inflation hits the central bank’s 2 percent target. Meanwhile, last week, the Bank of Japan decided to maintain its ultra-easy monetary policy, as widely expected.

- AUD: The Australian dollar fell below $0.719 on Monday as risk aversion expanded while traders braced for more aggressive tightening by the Federal Reserve. The U.S. central bank ends its two-day meeting on Wednesday. While no rate change is expected, a growing number of Fed officials said they were ready to accelerate the pace of policy normalization. Investors are also awaiting Australia's fourth-quarter inflation data, which could set the stage for the central bank to end bond purchases in February and bolster market expectations for a rate hike as soon as May or June. Australia's CPI is expected to rise 3.2% in the December quarter, while core inflation is expected to rise to its fastest level since 2014 at 2.4%. 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.

 

• CHART OF THE DAY:

The CAC 40 index fell 4 percent to close at 6,788 on Monday, its lowest level since December, as rising tensions over the military conflict between Russia and Ukraine dampened sentiment ahead of Wednesday's Federal Reserve statement. Fed policymakers are expected to confirm a federal funds rate hike in March. Technology stocks led losses by 5.6%, led by Soitec (-7.4%) and Capgemini (-5.9%) on the corporate front. Industrial stocks fell 5%, led by Worldline (-7.3%) and Saint-Gobain (-8.4%) on concerns about disruptions to commodity supply chains. Meanwhile, Orpea shares fell 16.1% before being suspended after releasing a book detailing how nursing homes treat seniors. Meanwhile, EDF shares fell 1.6 percent after Bernstein cut the power company's target price to 8.5 euros from 14.5 euros. The utility has been down 23% since the beginning of the year.•  France CAC 40 index - D1, Resistance around ~ 7423, Support (target zone) around  ~ 6960 & 6692

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