• GLOBAL CAPITAL MARKETS OVERVIEW:

The U.S. stock market was volatile on Tuesday, with the Dow rebounding sharply for the second straight session. Dip buyers emerged to help pare significant average losses amid an intraday sell-off sparked by Federal Reserve concerns and the conflict between Russia and Ukraine. The Dow rose 80 points after falling more than 800 points from an intraday low, the S&P lost 0.4%, and the Nasdaq Composite fell 1.0% after falling more than 3%. On the corporate front, tech stocks were weighed down by higher earnings expectations, with Nividia down more than 4% and Amazon down 3.1%. Elsewhere, GE shares fell more than 6% after the company beat earnings estimates but missed sales and has mixed 2022 forecasts. Meanwhile, Johnson & Johnson shares rose 3% after the company forecast sales of a coronavirus vaccine of $3 billion in 2022. In addition, American Express surged more than 7% on earnings, profit, and revenue optimism, while rising bond yields boosted the bank's earnings. European shares closed slightly higher on Tuesday in their worst sell-off since June 2020, with upbeat gains from Ericsson and Logitech providing some support for concerns about Wednesday's much-anticipated Federal Reserve monetary policy decision and Russia-Ukraine tensions. Frankfurt's DAX rose 0.8%, and the pan-European Stoxx 600 gained 0.7%, led by a 2.9% gain in banks and a 0.8% decline in technology shares. On the corporate front, Swiss computer peripherals maker Logitech International (up 6.2%) raised its earnings forecast for the current fiscal year, and Sweden's Ericsson (up 7.6%) reported higher-than-market core earnings for the fourth quarter expected. On the other hand, Credit Suisse (-0.9%) warned that it could report a net loss in the fourth quarter due to new legal charges. On the economic data front, German business morale improved in January for the first time in seven months. On Tuesday, the CAC 40 rose 0.7% to close at 6,838, rebounding in part from the previous session's 4% drop, supported by the banking sector and energy sector, as investors awaited the Fed's policy statement tomorrow. Still, concerns over a potential military conflict in Ukraine are weighing on sentiment. On the corporate front, financials rose 1.8%, led by BNP Paribas (3.2%) and Societe Generale (3%), while energy shares rose 2.5%, following a rise in oil prices, led by TechnipFMC (6.1%). Interparfums shares rose 4.5% after the group reported a 52.7% increase in annual turnover and confirmed its 2022 operating margin target of 15%. Meanwhile, Publicis rose 4.3% after Oddo BHF changed its headline to "outperform" and raised its target price to 70.5 euros from 58 euros. The FTSE 100 rose 1.0% to end at 7,371 on Tuesday, in line with its European peers, partially offsetting a 2.5% drop in the previous session, helped by a rebound in bank shares that pushed up expectations tighter monetary policy rate of return. Also, heavyweight oil inventories rose due to tight supplies due to the military conflict in Ukraine and risks in the Middle East. Meanwhile, investors remain cautious as they await the Federal Reserve's monetary policy decision tomorrow. Investors expect a hawkish stance from U.S. policymakers, while in the U.K., the Bank of England is likely to raise interest rates at its policy meeting next week. Royal Mail shares rose 1.3% on the corporate front after the company said it would cut 700 managers as part of a cost-cutting effort. On the other hand, shares of consumer goods maker Unilever fell 0.2% after it revealed plans to cut about 1,500 management jobs. Canada's main stock index, the S&P/TSX, fell for a sixth straight session on Tuesday, unchanged from levels not seen since Oct. 6 last year and in line with U.S. indexes, as investors weighed in on the Federal Reserve and Bank of Canada in their respective The prospect of aggressive tightening at Wednesday's meeting is growing increasingly uneasy. Meanwhile, tensions on the Russian-Ukrainian border continue to worry investors, while Canada has ordered the families of diplomats to leave Kiev temporarily. On Tuesday, Russia's rule-based Moxie index rose 1.6 percent to hover around 3,280, partially recovering from a 5.9 percent slump in the previous session, supported by banking and commodity-backed stocks. Still, the benchmark has lost 11.7% since the start of the year and is heading for its worst January since 2008, amid the looming threat of military action against Ukraine and possible Western sanctions. In addition, expectations of rate hikes by the Federal Reserve and the Russian central bank also hurt sentiment. State-backed Gazprom has lost 15% this year as sanctions threaten German approval of the Nord Stream 2 pipeline. A massive sell-off in Russian assets sent the ruble to a 14-month low against the dollar, prompting Russia's central bank to suspend foreign currency purchases on Monday. Major Asia-Pacific stock markets closed sharply lower on Tuesday after a day of chaotic trading on Wall Street amid concerns about tightening global monetary policy and heightened geopolitical tensions between the U.S. and Russia over Ukraine. The Shanghai Composite (-2.6% to 3,433) and Korea Composite (2.6% to 2,720) led losses. In addition, the Hang Seng Index fell 1.7% to close at 24244 points, and the ASX 200 index fell 2.5% to close at 6962 points, mainly due to banking, mining, and oil stocks, the Nikkei 225 index fell 1.7% to close at 27111 points, auto and Technology stocks were the worst performers.The S&P/ASX 200 index fell 2.49% on Tuesday to close at an eight-month low of 6,962 as investors continued to sell risky assets on fears of more aggressive monetary tightening by the Federal Reserve. Investors also weighed the prospect of a faster-than-expected rate hike after Australia's core inflation rate surpassed the central bank's 2.6 percent target in the fourth quarter of 2021. The annual rate beat forecasts of 2.3% and was registered in the RBA's 2% to 3% target range, challenging policymakers as they don't expect core inflation to hit 2.5% until the end of 2023. Almost all sectors in the Australian market fell, led by energy, mining, financials, and technology companies. Significant decliners included BHP Billiton (down 1.25%), Pilbara Mining (down 6.34%), Commonwealth Bank (down 2.04%), Westpac (down 2.84%), Woodside Petroleum (down 3.98%), Brainchip Holdings (down 11.6%) and Noble Leisure (down 1.46%).

 

• REVIEWING ECONOMIC DATA:

Looking at the last economic data:

- US: Manufacturing activity in the U.S. Region 5 fell to a four-month low of 8 in January 2022 from 16 in December, as new orders and employment fell. The findings show that businesses are still struggling to find the skills they need despite steadily rising wages. The third component of the composite index, the shipments index, rose slightly. The order backlog index fell sharply, while the supplier delivery index remained high and the inventory index remained near record lows. Businesses' perceptions of changes in the local business environment remain slightly negative; however, businesses are optimistic about the future. Survey participants' average growth rate of prices paid and received rose in January.

- US: The average price of single-home mortgages guaranteed by Fannie Mae and Freddie Mac in the U.S. increased to 1.1% from November 2021, the same as in October. Over the past four months, the average increase was 1%, lower than the more significant gains in the previous spring and summer months, suggesting house price growth is likely to slow further in 2022 as interest rates rise. Across the nine census divisions, monthly home price changes ranged from +0.5% in the Northwest-Central division to +1.9% in the South Atlantic division. Home prices rose 17.5% year-on-year in November, little changed from the previous month's 17.4% rise. Will Doerner, a regulatory economist in the FHFA's Research and Statistics Division, said: "This new trend is a welcome shift, but remains a double-digit change from the monthly average we have seen over the past 20 years. times, which echoes concerns about housing market access and affordability.”

- US: The S&P Caleloic Case Shiller U.S. 20-city home price index rose 18.3% in November from a year earlier, the lowest since May but slightly above expectations for an 18% increase. Home prices are still increasing thanks to low inventory and quick turnover, but rising mortgage rates are starting to impact. Phoenix (32.2%), Tampa (29%), and Miami (26.6%) continued to have the highest annual growth rates. Prices were the strongest in the South and Southeast (both 25%), with each region continuing to record impressive gains. The national index, which covers all nine U.S. census divisions, rose 18.8% from a year earlier, down 19% the previous month.

- UK: The Confederation of British Industry's (CBI) quarterly manufacturing optimism index fell to -9 in the first quarter of 2022 from +2 in the previous three months, indicating that morale among manufacturers was at its lowest in a year. The industry faces high cost and price pressures, with average costs in the quarter ended January rising at the fastest pace since April 1980, while companies expect total new order growth to slow in the next quarter. Supply issues continued to worsen, with the share of firms citing a shortage of skilled labor as a factor likely to limit output in the next quarter, rising to the highest level since October 1973. However, the share of firms citing material availability as a potential limiting factor increased from the previous quarter. The multi-decade high is down but still rising by historical standards. Nevertheless, in April 1988, investment intentions in factories and machinery for the next 12 months reached their highest level.

- UK: The Federation of British Industrial's latest monthly Industrial Trends survey shows the Federation of British Industrial's order balance remained unchanged at +24 in January 2022, beating market forecasts of 22, close to the record of 26 set in November. Output is expected to be stable (23), finished goods inventories have rebounded from historical lows (-17 vs. 24). In contrast, domestic prices are expected to be higher (+66 vs. 62), a measure of export orders is the lowest since August 2021 (-17 vs. 24) -10 to -1). However, British manufacturers are set to raise prices by the most since 1977 over the next three months after facing the most significant cost rise since 1980 and a severe labor shortage.

- EU: Germany's Ifo business climate index rose to 95.7 in January 2022, recovering from a 10-month low of 94.8 hits in December, beating market expectations of 94.7, amid signs of easing industrial supply shortages and retail delivery bottlenecks. While companies' expectations have risen sharply (95.2 to 92.7 in December), their assessment of the current situation is less positive (96.1 to 96.9). Sentiment improved across all sectors: manufacturing (19.9 to 17.4); services (7.7 to 4.6); trade (-1.3 to -4.1); and construction (8.7 to 7.6).

- SK: South Korea's economy grew by 4 percent at its fastest pace in 11 years, thanks to strong export demand. Meanwhile, GDP grew at an annual rate of 4.1% in the fourth quarter, up from 4% in the previous quarter and above the consensus forecast of 3.7%. Private consumption (6.3% in Q3 vs. 3.3% in Q3) and government consumption (8.1% in Q3 vs. 6.5% in Q3) both improved from the previous quarter. However, fixed investment (1.1% vs. 1.5% in the third quarter) slowed down, dragging down by a construction investment drop (-1.7%). Net trade also failed to significantly contribute to growth in the fourth quarter, with export growth (6.1%) lagging import growth (9.7%).

- AU: Australia's NAB Business Confidence Index fell to 12 from 12 in December 2021, below levels seen during the delta wave. It was the first negative reading since August and the lowest level since July 2020, amid growing concerns about the rapid spread of the omicron strain. Sentiment fell across sectors except mining, with entertainment, transportation, and wholesale seeing the most significant declines. Meanwhile, business conditions eased but remained above long-term averages, as employment fell sharply (2 to 11 in November), sales (14 to 14), and profitability remained unchanged (10 to 9). There were declines in wholesale, financial, commercial, and real estate. Capacity utilization fell to 80.6% from 83.2% in November, as forward orders fell and capital spending rose slightly. "The findings are consistent with the start of a slowdown in the economy, which is somewhat similar to the data from when NSW and Victoria first went into lockdown," NAB chief economist Alan Oster said.

- AU: Annual inflation in Australia rose to 3.5% from 3% in Q3, above market estimates of 3.2%, driven by higher fuel prices, global supply chain issues, material shortages, and increased demand ahead of Christmas. The main upward pressure comes from transportation (12.5% vs. 10.4% in Q3), food and non-alcoholic beverages (1.9% vs. 1.3%), alcohol and tobacco (1.1% vs. 4.4%), housing (4% vs. 1.6%) , furniture (3.6% vs. 6.0%), entertainment (2.1% vs. 2.3%), health (3.3% vs. 4.9%), and insurance and financial services (2.2% vs. 1%). At the same time, communication costs fell by less (-0.5% and -1.0%, respectively). On a quarterly basis, consumer prices rose 1.3% in the fourth quarter, the highest in five quarters, and 0.8% in the third quarter, driven by higher fuel costs for new homes and vehicles. The RBA's adjusted average CPI rose 2.6% year-on-year, the highest level in 7-1/2 years and surpassing the midpoint of the central bank's 2-3% target for the first time since June 2014. Compared with the previous quarter, the index rose 1%.

- NZ: The New Zealand services sector index rose 49.7 in December, rising to fifth from 47.2 the previous month, with the services sector contracting in 2021. Among the key sub-indices, activity/sales (50.7) reached its first positive activity level since July, while new orders/business (51.7) and inventories/stocks (51) surpassed unchanged levels of 50. Meanwhile, supplier deliveries (49.5) and employment (49.2) remained below the 50 thresholds. "The PSI and PMI took together to make us cautious about expectations for a rebound in GDP in the fourth quarter and momentum in early 2022. The primary factor, of course, is how the economy handles under the new traffic light system," said senior economist Kreibers. Omicron is circulating in the community. Going into the red setting affects gathering limits, which has o many service industries."

 

• LOOKING AHEAD:

Today, investors will receive:

- USD: Goods Trade Balance, Prelim Wholesale Inventories m/m, New Home Sales, Crude Oil Inventories, FOMC Statement, Federal Funds Rate, and FOMC Press Conference.

- CAD: BOC Monetary Policy Report, BOC Rate Statement, Overnight Rate, and BOC Press Conference.

- JPY: BOJ Summary of Opinions, and SPPI y/y.

- NZD: Credit Card Spending y/y, and CPI q/q.

- CHF: Credit Suisse Economic Expectations.

- EUR: German 10-y Bond Auction.

 

• KEY EQUITY & BOND MARKET DRIVERS:

- The yield on the benchmark 10-year U.S. Treasury note edged up to 1.78% on Tuesday, away from a two-week low at the start of the week, due to market volatility and falling stocks? The sell-off continues as investors await the decision of the Federal Open Market Committee tomorrow. The Fed is set to raise the federal funds rate in March and lower its balance sheet later this year. However, the scale of the hike remains uncertain, and investors fear the central bank will tighten monetary policy more aggressively than expected.

- Australia's 10-year government bond yield rebounded to 1.95% on Tuesday, close to a near three-year high of 1.99% reached last week, after higher-than-expected inflation data reinforced the case for an earlier rate hike. Australia's headline inflation rate rose to 3.5% in 4Q 2021, compared with market forecasts of 3.2%, while core consumer prices climbed to a yearly high of 2.6% to 2.6%, above the central bank's 2% midpoint to 3% target range. The Reserve Bank of Australia does not expect underlying inflation to breach 2.5 percent until late 2023, a key figure for its interest rate outlook. Traders are now betting with confidence that the RBA's benchmark rate will be set at 0.25 percent as soon as May and will be raised four more times this year.

- European stock futures edged higher on Tuesday after falling to multi-month lows a day earlier, marking their worst session since June 2020. Market volatility will continue on the day as investors try to shake off fears of Fed tightening and U.S.-Russia geopolitical tensions over Ukraine. Ericsson beat earnings estimates on the corporate front, while Credit Suisse announced that its fourth-quarter earnings would be "negatively impacted" by an increase in litigation terms. On the data front, Germany's Ifo business climate and UK CBI optimists will focus.

- U.S. stock futures fell on Tuesday after a highly volatile session that saw the Nasdaq erase nearly 5% of its losses to end the day in a positive light. Dow futures fell 0.7%, while S&P 500 and Nasdaq 100 futures fell 0.9% and 1.3%, respectively. In Monday's regular session, the major moving averages fell 3.25% to 4.9% before advancing, with the Dow (0.29%), S&P 500 (0.28%), and Nasdaq (0.63%) all holding gains. However, the tech-heavy Nasdaq remains in correction territory, about 14% below its November peak. At the start of the year, market volatility was driven by the prospect of higher U.S. interest rates. The U.S. central bank ends its two-day meeting on Wednesday, and while the central bank is not expected to adjust interest rates, it will remain on a tightening path this year as it grapples with decades of high inflation. Meanwhile, the market is also awaiting more quarterly results this week as investors focus on guidance from corporate earnings and signs of slowing growth.

- 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.

 

• STOCK MARKET SECTORS:

- High: Energy, Financials.

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

 

• TOP CURRENCY & COMMODITIES MARKET DRIVERS:

- CNY: The offshore yuan hovered around $6.33 against the dollar on Tuesday, hitting its highest level in 3-1/2 years, buoyed by more prudent policy from the central bank and strong business demand ahead of the Lunar New Year holiday. The People's Bank of China set the midpoint at 6.3418 yuan per dollar before the market opened to its highest level 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.

- NZD: The New Zealand dollar fell to a more than one-year low above $0.67 on Tuesday, still under pressure from geopolitical risk-driven risk aversion and rising expectations for more aggressive Fed tightening. 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. Meanwhile, the Reserve Bank of New Zealand hiked interest rates twice last year to 0.75%, and amid persistent inflation and record-low unemployment, the policy on February 23 is widely expected. At the meeting, interest rates will rise to 1.0%. Investors are also awaiting Thursday's fourth-quarter inflation data from New Zealand, which is likely to accelerate at the fastest pace since 1990 to 5.7%.

- AUD: The Australian dollar held near five-week lows below $0.715 on Tuesday, offsetting a brief jump earlier in the session on solid consumer price data. Investors weighed the prospect of Australia's early acceleration after Australia's core inflation accelerated to 2.6% in the fourth quarter of 2021, more than a forecast of 2.3% and a registration in the Reserve Bank's halfway target range of 2.3% quick. The latest inflation figures pose a challenge to the RBA. It has repeatedly insisted that domestic interest rates will not likely rise until 2023 or until inflation continues to push above its 2-3 percent target range. Meanwhile, the yuan remains under risk-averse pressure due to rising geopolitical risks and more aggressive Fed tightening expectations.

- USD: On Tuesday, the U.S. dollar index hovered near a two-week high of 96, amid concerns about a faster pace of Fed tightening and heightened tensions in Ukraine. The U.S. central bank 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. Money markets expect the first rate hike in March, followed by a three-quarter percentage point increase by the end of the year. Rising geopolitical risks also supported the safe-haven dollar after NATO said it put troops on standby and strengthened Eastern Europe with more ships and fighter jets, which Russia denounced as an escalation of tensions.

 

• CHART OF THE DAY:

On Tuesday, the FTSE MIB index rose 0.2% to close at 26,029, after falling 4% yesterday, supported by energy and bank stocks as investors await the Fed's policy statement after the market closes tomorrow. Still, concerns over a potential military conflict in Ukraine continued to weigh on sentiment and fuel unrest. As a result, energy shares rose 1.8%, tracking gains in oil prices. Meanwhile, financial stocks closed up 0.5%, led by UniCredit, which gained 2.6% after reports that it lost interest in Moscow-based lender Otkritie bank. On the political front, Italian government officials have resumed voting on the country's new head of state after the first round of voting did not lead to a candidate gaining a 2/3 majority.• Italy FTSE MIB index - D1, Resistance (consolidation) around ~26610, Support (consolidation) around ~ 25298.

 

Growth stocks pace decline in a volatile session

• GLOBAL CAPITAL MARKETS OVERVIEW:

The U.S. stock market was volatile on Tuesday, with the Dow rebounding sharply for the second straight session. Dip buyers emerged to help pare significant average losses amid an intraday sell-off sparked by Federal Reserve concerns and the conflict between Russia and Ukraine. The Dow rose 80 points after falling more than 800 points from an intraday low, the S&P lost 0.4%, and the Nasdaq Composite fell 1.0% after falling more than 3%. On the corporate front, tech stocks were weighed down by higher earnings expectations, with Nividia down more than 4% and Amazon down 3.1%. Elsewhere, GE shares fell more than 6% after the company beat earnings estimates but missed sales and has mixed 2022 forecasts. Meanwhile, Johnson & Johnson shares rose 3% after the company forecast sales of a coronavirus vaccine of $3 billion in 2022. In addition, American Express surged more than 7% on earnings, profit, and revenue optimism, while rising bond yields boosted the bank's earnings. European shares closed slightly higher on Tuesday in their worst sell-off since June 2020, with upbeat gains from Ericsson and Logitech providing some support for concerns about Wednesday's much-anticipated Federal Reserve monetary policy decision and Russia-Ukraine tensions. Frankfurt's DAX rose 0.8%, and the pan-European Stoxx 600 gained 0.7%, led by a 2.9% gain in banks and a 0.8% decline in technology shares. On the corporate front, Swiss computer peripherals maker Logitech International (up 6.2%) raised its earnings forecast for the current fiscal year, and Sweden's Ericsson (up 7.6%) reported higher-than-market core earnings for the fourth quarter expected. On the other hand, Credit Suisse (-0.9%) warned that it could report a net loss in the fourth quarter due to new legal charges. On the economic data front, German business morale improved in January for the first time in seven months. On Tuesday, the CAC 40 rose 0.7% to close at 6,838, rebounding in part from the previous session's 4% drop, supported by the banking sector and energy sector, as investors awaited the Fed's policy statement tomorrow. Still, concerns over a potential military conflict in Ukraine are weighing on sentiment. On the corporate front, financials rose 1.8%, led by BNP Paribas (3.2%) and Societe Generale (3%), while energy shares rose 2.5%, following a rise in oil prices, led by TechnipFMC (6.1%). Interparfums shares rose 4.5% after the group reported a 52.7% increase in annual turnover and confirmed its 2022 operating margin target of 15%. Meanwhile, Publicis rose 4.3% after Oddo BHF changed its headline to "outperform" and raised its target price to 70.5 euros from 58 euros. The FTSE 100 rose 1.0% to end at 7,371 on Tuesday, in line with its European peers, partially offsetting a 2.5% drop in the previous session, helped by a rebound in bank shares that pushed up expectations tighter monetary policy rate of return. Also, heavyweight oil inventories rose due to tight supplies due to the military conflict in Ukraine and risks in the Middle East. Meanwhile, investors remain cautious as they await the Federal Reserve's monetary policy decision tomorrow. Investors expect a hawkish stance from U.S. policymakers, while in the U.K., the Bank of England is likely to raise interest rates at its policy meeting next week. Royal Mail shares rose 1.3% on the corporate front after the company said it would cut 700 managers as part of a cost-cutting effort. On the other hand, shares of consumer goods maker Unilever fell 0.2% after it revealed plans to cut about 1,500 management jobs. Canada's main stock index, the S&P/TSX, fell for a sixth straight session on Tuesday, unchanged from levels not seen since Oct. 6 last year and in line with U.S. indexes, as investors weighed in on the Federal Reserve and Bank of Canada in their respective The prospect of aggressive tightening at Wednesday's meeting is growing increasingly uneasy. Meanwhile, tensions on the Russian-Ukrainian border continue to worry investors, while Canada has ordered the families of diplomats to leave Kiev temporarily. On Tuesday, Russia's rule-based Moxie index rose 1.6 percent to hover around 3,280, partially recovering from a 5.9 percent slump in the previous session, supported by banking and commodity-backed stocks. Still, the benchmark has lost 11.7% since the start of the year and is heading for its worst January since 2008, amid the looming threat of military action against Ukraine and possible Western sanctions. In addition, expectations of rate hikes by the Federal Reserve and the Russian central bank also hurt sentiment. State-backed Gazprom has lost 15% this year as sanctions threaten German approval of the Nord Stream 2 pipeline. A massive sell-off in Russian assets sent the ruble to a 14-month low against the dollar, prompting Russia's central bank to suspend foreign currency purchases on Monday. Major Asia-Pacific stock markets closed sharply lower on Tuesday after a day of chaotic trading on Wall Street amid concerns about tightening global monetary policy and heightened geopolitical tensions between the U.S. and Russia over Ukraine. The Shanghai Composite (-2.6% to 3,433) and Korea Composite (2.6% to 2,720) led losses. In addition, the Hang Seng Index fell 1.7% to close at 24244 points, and the ASX 200 index fell 2.5% to close at 6962 points, mainly due to banking, mining, and oil stocks, the Nikkei 225 index fell 1.7% to close at 27111 points, auto and Technology stocks were the worst performers.The S&P/ASX 200 index fell 2.49% on Tuesday to close at an eight-month low of 6,962 as investors continued to sell risky assets on fears of more aggressive monetary tightening by the Federal Reserve. Investors also weighed the prospect of a faster-than-expected rate hike after Australia's core inflation rate surpassed the central bank's 2.6 percent target in the fourth quarter of 2021. The annual rate beat forecasts of 2.3% and was registered in the RBA's 2% to 3% target range, challenging policymakers as they don't expect core inflation to hit 2.5% until the end of 2023. Almost all sectors in the Australian market fell, led by energy, mining, financials, and technology companies. Significant decliners included BHP Billiton (down 1.25%), Pilbara Mining (down 6.34%), Commonwealth Bank (down 2.04%), Westpac (down 2.84%), Woodside Petroleum (down 3.98%), Brainchip Holdings (down 11.6%) and Noble Leisure (down 1.46%).

 

• REVIEWING ECONOMIC DATA:

Looking at the last economic data:

- US: Manufacturing activity in the U.S. Region 5 fell to a four-month low of 8 in January 2022 from 16 in December, as new orders and employment fell. The findings show that businesses are still struggling to find the skills they need despite steadily rising wages. The third component of the composite index, the shipments index, rose slightly. The order backlog index fell sharply, while the supplier delivery index remained high and the inventory index remained near record lows. Businesses' perceptions of changes in the local business environment remain slightly negative; however, businesses are optimistic about the future. Survey participants' average growth rate of prices paid and received rose in January.

- US: The average price of single-home mortgages guaranteed by Fannie Mae and Freddie Mac in the U.S. increased to 1.1% from November 2021, the same as in October. Over the past four months, the average increase was 1%, lower than the more significant gains in the previous spring and summer months, suggesting house price growth is likely to slow further in 2022 as interest rates rise. Across the nine census divisions, monthly home price changes ranged from +0.5% in the Northwest-Central division to +1.9% in the South Atlantic division. Home prices rose 17.5% year-on-year in November, little changed from the previous month's 17.4% rise. Will Doerner, a regulatory economist in the FHFA's Research and Statistics Division, said: "This new trend is a welcome shift, but remains a double-digit change from the monthly average we have seen over the past 20 years. times, which echoes concerns about housing market access and affordability.”

- US: The S&P Caleloic Case Shiller U.S. 20-city home price index rose 18.3% in November from a year earlier, the lowest since May but slightly above expectations for an 18% increase. Home prices are still increasing thanks to low inventory and quick turnover, but rising mortgage rates are starting to impact. Phoenix (32.2%), Tampa (29%), and Miami (26.6%) continued to have the highest annual growth rates. Prices were the strongest in the South and Southeast (both 25%), with each region continuing to record impressive gains. The national index, which covers all nine U.S. census divisions, rose 18.8% from a year earlier, down 19% the previous month.

- UK: The Confederation of British Industry's (CBI) quarterly manufacturing optimism index fell to -9 in the first quarter of 2022 from +2 in the previous three months, indicating that morale among manufacturers was at its lowest in a year. The industry faces high cost and price pressures, with average costs in the quarter ended January rising at the fastest pace since April 1980, while companies expect total new order growth to slow in the next quarter. Supply issues continued to worsen, with the share of firms citing a shortage of skilled labor as a factor likely to limit output in the next quarter, rising to the highest level since October 1973. However, the share of firms citing material availability as a potential limiting factor increased from the previous quarter. The multi-decade high is down but still rising by historical standards. Nevertheless, in April 1988, investment intentions in factories and machinery for the next 12 months reached their highest level.

- UK: The Federation of British Industrial's latest monthly Industrial Trends survey shows the Federation of British Industrial's order balance remained unchanged at +24 in January 2022, beating market forecasts of 22, close to the record of 26 set in November. Output is expected to be stable (23), finished goods inventories have rebounded from historical lows (-17 vs. 24). In contrast, domestic prices are expected to be higher (+66 vs. 62), a measure of export orders is the lowest since August 2021 (-17 vs. 24) -10 to -1). However, British manufacturers are set to raise prices by the most since 1977 over the next three months after facing the most significant cost rise since 1980 and a severe labor shortage.

- EU: Germany's Ifo business climate index rose to 95.7 in January 2022, recovering from a 10-month low of 94.8 hits in December, beating market expectations of 94.7, amid signs of easing industrial supply shortages and retail delivery bottlenecks. While companies' expectations have risen sharply (95.2 to 92.7 in December), their assessment of the current situation is less positive (96.1 to 96.9). Sentiment improved across all sectors: manufacturing (19.9 to 17.4); services (7.7 to 4.6); trade (-1.3 to -4.1); and construction (8.7 to 7.6).

- SK: South Korea's economy grew by 4 percent at its fastest pace in 11 years, thanks to strong export demand. Meanwhile, GDP grew at an annual rate of 4.1% in the fourth quarter, up from 4% in the previous quarter and above the consensus forecast of 3.7%. Private consumption (6.3% in Q3 vs. 3.3% in Q3) and government consumption (8.1% in Q3 vs. 6.5% in Q3) both improved from the previous quarter. However, fixed investment (1.1% vs. 1.5% in the third quarter) slowed down, dragging down by a construction investment drop (-1.7%). Net trade also failed to significantly contribute to growth in the fourth quarter, with export growth (6.1%) lagging import growth (9.7%).

- AU: Australia's NAB Business Confidence Index fell to 12 from 12 in December 2021, below levels seen during the delta wave. It was the first negative reading since August and the lowest level since July 2020, amid growing concerns about the rapid spread of the omicron strain. Sentiment fell across sectors except mining, with entertainment, transportation, and wholesale seeing the most significant declines. Meanwhile, business conditions eased but remained above long-term averages, as employment fell sharply (2 to 11 in November), sales (14 to 14), and profitability remained unchanged (10 to 9). There were declines in wholesale, financial, commercial, and real estate. Capacity utilization fell to 80.6% from 83.2% in November, as forward orders fell and capital spending rose slightly. "The findings are consistent with the start of a slowdown in the economy, which is somewhat similar to the data from when NSW and Victoria first went into lockdown," NAB chief economist Alan Oster said.

- AU: Annual inflation in Australia rose to 3.5% from 3% in Q3, above market estimates of 3.2%, driven by higher fuel prices, global supply chain issues, material shortages, and increased demand ahead of Christmas. The main upward pressure comes from transportation (12.5% vs. 10.4% in Q3), food and non-alcoholic beverages (1.9% vs. 1.3%), alcohol and tobacco (1.1% vs. 4.4%), housing (4% vs. 1.6%) , furniture (3.6% vs. 6.0%), entertainment (2.1% vs. 2.3%), health (3.3% vs. 4.9%), and insurance and financial services (2.2% vs. 1%). At the same time, communication costs fell by less (-0.5% and -1.0%, respectively). On a quarterly basis, consumer prices rose 1.3% in the fourth quarter, the highest in five quarters, and 0.8% in the third quarter, driven by higher fuel costs for new homes and vehicles. The RBA's adjusted average CPI rose 2.6% year-on-year, the highest level in 7-1/2 years and surpassing the midpoint of the central bank's 2-3% target for the first time since June 2014. Compared with the previous quarter, the index rose 1%.

- NZ: The New Zealand services sector index rose 49.7 in December, rising to fifth from 47.2 the previous month, with the services sector contracting in 2021. Among the key sub-indices, activity/sales (50.7) reached its first positive activity level since July, while new orders/business (51.7) and inventories/stocks (51) surpassed unchanged levels of 50. Meanwhile, supplier deliveries (49.5) and employment (49.2) remained below the 50 thresholds. "The PSI and PMI took together to make us cautious about expectations for a rebound in GDP in the fourth quarter and momentum in early 2022. The primary factor, of course, is how the economy handles under the new traffic light system," said senior economist Kreibers. Omicron is circulating in the community. Going into the red setting affects gathering limits, which has o many service industries."

 

• LOOKING AHEAD:

Today, investors will receive:

- USD: Goods Trade Balance, Prelim Wholesale Inventories m/m, New Home Sales, Crude Oil Inventories, FOMC Statement, Federal Funds Rate, and FOMC Press Conference.

- CAD: BOC Monetary Policy Report, BOC Rate Statement, Overnight Rate, and BOC Press Conference.

- JPY: BOJ Summary of Opinions, and SPPI y/y.

- NZD: Credit Card Spending y/y, and CPI q/q.

- CHF: Credit Suisse Economic Expectations.

- EUR: German 10-y Bond Auction.

 

• KEY EQUITY & BOND MARKET DRIVERS:

- The yield on the benchmark 10-year U.S. Treasury note edged up to 1.78% on Tuesday, away from a two-week low at the start of the week, due to market volatility and falling stocks? The sell-off continues as investors await the decision of the Federal Open Market Committee tomorrow. The Fed is set to raise the federal funds rate in March and lower its balance sheet later this year. However, the scale of the hike remains uncertain, and investors fear the central bank will tighten monetary policy more aggressively than expected.

- Australia's 10-year government bond yield rebounded to 1.95% on Tuesday, close to a near three-year high of 1.99% reached last week, after higher-than-expected inflation data reinforced the case for an earlier rate hike. Australia's headline inflation rate rose to 3.5% in 4Q 2021, compared with market forecasts of 3.2%, while core consumer prices climbed to a yearly high of 2.6% to 2.6%, above the central bank's 2% midpoint to 3% target range. The Reserve Bank of Australia does not expect underlying inflation to breach 2.5 percent until late 2023, a key figure for its interest rate outlook. Traders are now betting with confidence that the RBA's benchmark rate will be set at 0.25 percent as soon as May and will be raised four more times this year.

- European stock futures edged higher on Tuesday after falling to multi-month lows a day earlier, marking their worst session since June 2020. Market volatility will continue on the day as investors try to shake off fears of Fed tightening and U.S.-Russia geopolitical tensions over Ukraine. Ericsson beat earnings estimates on the corporate front, while Credit Suisse announced that its fourth-quarter earnings would be "negatively impacted" by an increase in litigation terms. On the data front, Germany's Ifo business climate and UK CBI optimists will focus.

- U.S. stock futures fell on Tuesday after a highly volatile session that saw the Nasdaq erase nearly 5% of its losses to end the day in a positive light. Dow futures fell 0.7%, while S&P 500 and Nasdaq 100 futures fell 0.9% and 1.3%, respectively. In Monday's regular session, the major moving averages fell 3.25% to 4.9% before advancing, with the Dow (0.29%), S&P 500 (0.28%), and Nasdaq (0.63%) all holding gains. However, the tech-heavy Nasdaq remains in correction territory, about 14% below its November peak. At the start of the year, market volatility was driven by the prospect of higher U.S. interest rates. The U.S. central bank ends its two-day meeting on Wednesday, and while the central bank is not expected to adjust interest rates, it will remain on a tightening path this year as it grapples with decades of high inflation. Meanwhile, the market is also awaiting more quarterly results this week as investors focus on guidance from corporate earnings and signs of slowing growth.

- 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.

 

• STOCK MARKET SECTORS:

- High: Energy, Financials.

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

 

• TOP CURRENCY & COMMODITIES MARKET DRIVERS:

- CNY: The offshore yuan hovered around $6.33 against the dollar on Tuesday, hitting its highest level in 3-1/2 years, buoyed by more prudent policy from the central bank and strong business demand ahead of the Lunar New Year holiday. The People's Bank of China set the midpoint at 6.3418 yuan per dollar before the market opened to its highest level 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.

- NZD: The New Zealand dollar fell to a more than one-year low above $0.67 on Tuesday, still under pressure from geopolitical risk-driven risk aversion and rising expectations for more aggressive Fed tightening. 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. Meanwhile, the Reserve Bank of New Zealand hiked interest rates twice last year to 0.75%, and amid persistent inflation and record-low unemployment, the policy on February 23 is widely expected. At the meeting, interest rates will rise to 1.0%. Investors are also awaiting Thursday's fourth-quarter inflation data from New Zealand, which is likely to accelerate at the fastest pace since 1990 to 5.7%.

- AUD: The Australian dollar held near five-week lows below $0.715 on Tuesday, offsetting a brief jump earlier in the session on solid consumer price data. Investors weighed the prospect of Australia's early acceleration after Australia's core inflation accelerated to 2.6% in the fourth quarter of 2021, more than a forecast of 2.3% and a registration in the Reserve Bank's halfway target range of 2.3% quick. The latest inflation figures pose a challenge to the RBA. It has repeatedly insisted that domestic interest rates will not likely rise until 2023 or until inflation continues to push above its 2-3 percent target range. Meanwhile, the yuan remains under risk-averse pressure due to rising geopolitical risks and more aggressive Fed tightening expectations.

- USD: On Tuesday, the U.S. dollar index hovered near a two-week high of 96, amid concerns about a faster pace of Fed tightening and heightened tensions in Ukraine. The U.S. central bank 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. Money markets expect the first rate hike in March, followed by a three-quarter percentage point increase by the end of the year. Rising geopolitical risks also supported the safe-haven dollar after NATO said it put troops on standby and strengthened Eastern Europe with more ships and fighter jets, which Russia denounced as an escalation of tensions.

 

• CHART OF THE DAY:

On Tuesday, the FTSE MIB index rose 0.2% to close at 26,029, after falling 4% yesterday, supported by energy and bank stocks as investors await the Fed's policy statement after the market closes tomorrow. Still, concerns over a potential military conflict in Ukraine continued to weigh on sentiment and fuel unrest. As a result, energy shares rose 1.8%, tracking gains in oil prices. Meanwhile, financial stocks closed up 0.5%, led by UniCredit, which gained 2.6% after reports that it lost interest in Moscow-based lender Otkritie bank. On the political front, Italian government officials have resumed voting on the country's new head of state after the first round of voting did not lead to a candidate gaining a 2/3 majority.• Italy FTSE MIB index - D1, Resistance (consolidation) around ~26610, Support (consolidation) around ~ 25298.

 

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