Macro: Sandcastle economics
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Summary: The US December CPI showed a bumpy path in disinflation, with higher headline inflation and a core that didn't cool as expected. Despite this, Treasury yields declined, with the 2-year yield falling 11bps to 4.25%, as investors didn't see the data affecting the Fed's rate-cut likelihood. ECB's Lagarde expressed confidence in managing inflation and stated that interest rates have peaked. Oil prices rose due to increased Mideast tensions. USDJPY traded lower amid escalating geopolitical risks. The US earnings season commenced with major banks reporting today.
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US Equities: Stocks recovered from their post-CPI losses, with the Nasdaq 100 inching up 0.2% to 16,821 while S&P 500 sliding 0.1% to 4,780, amid falls in Treasury yields. The US earnings season starts, with JPMorgan, Bank of America, Wells Fargo and Citigroup, among others, reporting today.
Fixed income: In spite of a hotter-than-expected CPI report, Treasury yields finished the session lower, led by a 11bp decline in the 2-year yield to 4.25%. The 10-year yield fell 6bps to 3.97%. Investors brushed off the CPI prints, considering them not consequential to the Fed’s inclination to cut rates. The $21 billion 30-year Treasury bond auction went well with decent demand. Across the pond, the ECB President, Christine Lagarde said the European Central Bank will start cutting rates once it is convinced that inflation is falling towards the 2% target.
China/HK Equities: The Hang Seng Index ended a 7-day streak of losses, rebounding 1.3%. Technology and pharmaceutical stocks led the advance. Wuxi Biologics and Wuxi Apptec were the two best performers with the benchmark index, followed by Meituan, which gained 5.4%. Reports of SOE banks being instructed by the PBoC to extend loans at preferential rates to cities to take over residential projects to turn into affordable rental housing and plans of issuance of long-term special government bonds helped boosted the sentiment somewhat. Additionally, the Chinese Academy of Sciences projected the Chinese economy to grow at 5.3% in 2024. The CSI300 Index climbed 0.6%.
FX: Dollar gained on the CPI uptick, but gains were reversed later and it ended the session only marginally higher. Japanese yen was a standout performer despite a gain to 146.41 in USDJPY after the CPI release. Pair traded lower and extended the decline to 145 in early Asian hours amid risk off as airstrikes on Houthis increased escalation risks for Mideast tensions. EURJPY testing 159 and AUDJPY testing 97 handles. GBPUSD is another pair to watch as it is back to test the 1.2770-levels that has held up multiple times since end-December, and UK monthly GDP is on the radar today. EURUSD also still close to a test of 1.10, while AUDUSD attempting a move back above 0.67 with China yuan support continuing and rate cut in focus for next week.
Commodities: Oil prices surged higher as Mideast tensions ratcheted up. The US and UK launched airstrikes against Houthi rebel targets in Yemen, and Iran also raised stakes as its Navy captured an oil tanker off the coast of Oman. Risk of escalation could unnerve markets. Gold was down post-CPI but reversed from $2,015, rising back to $2,030 and extending the gains in Asia on Mideast tensions.
Macro:
Macro events: China CPI/PPI (Dec), China Trade (Dec), China Aggregate Financing (Dec), UK GDP (Nov), US PPI (Dec), Canada Housing Starts (Dec). Also on Saturday, key will be the Taiwan presidential/parliamentary elections.
Earnings: United Health, JPMorgan Chase, Bank of America, Wells Fargo, BlackRock, Citigroup, Bank of NY Mellon
In the news:
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