Macro: Sandcastle economics
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Chief China Strategist
Summary: A stronger-than-expected increase in ADP private-sector employment and lower initial jobless claims lifted Treasury yields, pushing the 10-year yield to test 4%. The Yen weakened amid rising Treasury yields and reduced expectations for changes in Japan's monetary policy this month. USDJPY rose 0.9% to 144.63, approaching resistance at 144.95. Apple dipped 1.2% following a second analyst downgrade citing inventory concerns. Attention now turns to the eagerly awaited US jobs report.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: A rise in bond yields and selling in mega-cap stocks weighed on the benchmark indices, with the Nasdaq 100 shedding 0.5% to reach 16,282 and the S&P 500 Index sliding 0.3% to 4,689. Amazon declined 2.6%, while Apple fell 1.2% after an analyst issued the second downgrade from an investment bank this week, lowering the rating to neutral from overweight due to concerns about inventory overhangs. Walgreens Boots initially plunged as much as 12%, later paring some losses to settle at 5.1% lower, following the drugstore chain's dividend cut and revising guidance in retail comparable sales to a decline.
Fixed income: A stronger-than-expected increase in ADP private-sector employment data and a smaller-than-expected reading in initial jobless claims propelled yields higher across the curve. The 10-year Treasury yield tested 4% again and settled near the intraday high, up 8bps. The 2-year yield rose 5bps to 4.38%. Today, the Bureau of Labor Statistics will release the jobs report, in which investors will closely scrutinize non-farm payrolls (median forecast: +175k), hourly earnings (median forecast: +0.3% M/M, +3.9% Y/Y), and the unemployment rate (median forecast: 3.8%) to gain insights into the timing of the first rate cut by the Fed.
China/HK Equities: The Hang Seng Index concluded Thursday's session flat, oscillating between gains and losses within a narrow range, lacking clear direction. Hong Kong property developers saw declines following analyst downgrades, while shipping and energy stocks recorded gains. In the mainland, the CSI 300 Index declined by 0.9%, with food and beverage, real estate, and electric equipment stocks dragging down the performance. The Standing Committee of the Political Bureau of the Central Committee of the CCP held a meeting on Thursday to hear reports about party matters, and the post-meeting press release did not mention the economy.
FX: The Yen weakened as Treasury yields rose, coupled with diminishing expectations of changes to Japan’s ultra-loose monetary policy when a decision is due on January 23 following the BoJ’s two-day meeting. After the recent earthquake in Japan, some economists who were calling for policy changes in January removed their calls. USDJPY increased by 0.9% to 144.63, with its next major resistance at 144.95 in sight. Nonetheless, market participants still assign a significant probability of the BoJ ending its negative interest rate policy in April.
Commodities: According to EIA data, US nation-wide crude oil inventories fell 5.5 million barrels last week, surpassing 5.0 million expected. However, netting the 1 million barrels addition to the strategic petroleum reserve, the decline narrowed 4.4 million barrels. In addition, high inventories in Cushing, the delivery point for the WTI futures contracts, and build-up in gasoline and distillates inventories exerted downward pressure on crude oil. The WTI crude dropped by 0.7% to $72.19 and the Brent crude fell 0.8% to $77.59. Looking ahead for Q1, Saxo’s Head of Commodity Strategy, Ole Hansen, expects Brent crude oil to be rangebound around $80 as non-OPEC+ supply and concerns about global growth offset OPEC+ production cuts and the impact of the Middle East tension.
Macro:
Macro events: US non-farm payrolls, unemployment rate & average hourly earnings (Dec); Eurozone Harmonized CPI (Dec); UK PMI construction (Dec); Japan consumer confidence (Dec); Japan Jibun Bank Services PMI (Dec, final); Singapore retail sales (Nov).
Earnings: Constellation Brands
In the news:
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