Summary: The Japanese Yen experienced steep declines, with USDJPY reaching 145.83, nearing a test of 146. Notable movements occurred in crosses, with EURJPY testing 160, the highest since December. The Nasdaq 100 and S&P 500 approached record highs at 16,793 and 4,783, respectively. Meta surged 3.7% post a positive analyst report. The SEC approved spot bitcoin ETFs. Focus turns to the US CPI report today and the start of the US earnings season, featuring leading U.S. banks tomorrow.
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US Equities: The Nasdaq 100 Index climbed 0.7% to 16,793, and the S&P 500 Index added 0.6% to 4,783, both just a touch shy of record highs. Meta rose 3.7% after a favorable analyst report. Nvidia gained 2.3%, and Microsoft was 1.9% higher. The SEC approved several spot bitcoin ETFs for the first time for trade starting Thursday. These approved ETFs include ARK 21Shares Bitcoin ETF, Bitwise Bitcoin ETF, Blackrock’s iShares Bitcoin Trust, Hashdex Bitcoin ETF, Fidelity Wise Origin Bitcoin Fund, Franklin Bitcoin ETF, Grayscale Bitcoin Trust GBTC, Invesco Galaxy Bitcoin ETF, Valkyrie Bitcoin Fund, VanEck Bitcoin Trust, and WisdomTree Bitcoin Fund. Eyes are now on the CPI report later today and the kickoff of the earnings season with leading U.S. banks reporting tomorrow.
Fixed income: Ahead of the CPI data on Thursday, Treasuries were steady. The 2-year yield ticked down 1bp to 4.36%, while the 10-year yield edged up 2bps to 4.03%. The money market is pricing in an approximately 70% chance of a 25bp rate cut at the March FOMC. Increasing discussion among traders about the timing of a slowdown or end to quantitative tightening has also increased. For more information, see this Saxo article.
China/HK Equities: The Hang Seng Index declined for the seventh consecutive day, falling 0.6% on Wednesday. The weakness was across the board, with notable underperformance in auto names. Pharmaceutical stocks bucked the market decline, seeing some gains. The CSI300 shed 0.5% while healthcare and solar outperformed. In anticipation of monetary easing, deflation, and sluggish economic growth, the Chinese 10-year government bond yield fell below 2.5% to close at 2.49%. At the CES consumer electronics show in Las Vegas, Xpeng announced that it will begin accepting orders for its flying cars later this year, with deliveries scheduled for late 2025.
FX: The dollar was mostly sideways ahead of the US CPI data scheduled for release today, however steep declines seen in the Japanese yen again. USDJPY rose to highs of 145.83, approaching a test of 146 which has held up last week and also for much of December. Bigger moves however seen on the crosses, with EURJPY testing 160, the highest levels since the start of December, and GBPJPY just shy of 186. EUR strength was also broad, and EURUSD surged above 1.0970 and 1.10 remains on watch. AUDUSD stuck around 0.67 despite the miss in Nov CPI yesterday, while kiwi slipped. Bitcoin was back in the spotlight following the SEC approval of ETFs, and XBTUSD now trades above 46,500 after an initial gain to over 47,500.
Commodities: Crude oil traded lower after the EIA reported a surprise 1.3m barrels stock build driven by a 2m b/d export slump, coming in contrast to API data that had shown inventory drawdown. Supply concerns also however accelerated with Houthi rebels escalating attacks. Gold struggled to keep its gains and reversed after touching $2,040, slipping back lower to sub-$2,030 levels.
Macro: Fed’s John Williams (voter) said that monetary policy is tight enough to nudge inflation down to the Fed’s 2% goal but policymakers need more evidence before they can “dial back” interest rates. He noted that risks to the economy are two sided, and rate decisions will be made meeting-by-meeting and driven by the totality of data. The NY Fed President sees 2024 GDP at around 1.25% (beneath Fed median Dec SEP of 1.4%), 2024 unemployment at 4% (beneath Fed median of 4.1%), 2024 inflation at 2.25% (beneath Fed median of 2.4%) and 2% in 2025 (beneath Fed median of 2.1%).
Macro events: US CPI (Dec) – preview here, US Jobless Claims, US Budget (Dec), Italy Industrial Production (Nov), Spain Industrial Production (Nov), Japan Regional Economic Report (Jan), Japan Economic Coincident Index (Nov).
Earnings: Infosys, Tesco, Marks & Spencer, Fast Retailing, Seven I, Largan Precision, Tata Consultancy
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