Global Market Quick Take: Asia – January 12, 2024

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:

• US December CPI reaffirmed that the last leg of disinflation is proving bumpy as headline inflation rose and core did not cool as expected. Both headline and core rose 0.3% MoM (vs. 0.1% and 0.3% respectively earlier) while the headline YoY rose 3.4% from 3.1% in November and 3.2% expected. Core was at 3.9% YoY from 4.0% previously, but higher than the 3.8% expected. Core goods prices were flat after being in decline for the last six months. Core services inflation eased a notch, but shelter inflation, which the market has been waiting to come down, rose by 0.4% MoM, remaining elevated at 6.2% YoY but lower than 6.5% last month. Services less rent rose 0.6% MoM and 3.5% YoY.
• Jobless claims for the week ended 6 Jan ticked lower to 202k from 203k previously and below the 210k expected. Continued claims (w/e 30th Dec) declined to 1.834mln from 1.868mln and shy of the consensus 1.871mln.
• A host of Fed speakers were on the wires. Loretta Mester said that a March rate cut is too early for her while Thomas Barkin noted he would not prejudge outcome of March or other meetings. Both are voters this year. Goolsbee (2025 voter) also did not specify a bias for the March decision, but all three seemed to agree that December inflation was not a surprise.
• ECB’s Lagarde was also talking and she expressed confidence in the European Central Bank's handling of inflation, and confirmed that interest rates have reached a peak although she cannot predict when they might decrease.
• Taiwan is holding elections this Saturday to elect a new president and vice-president, as well as the 113 members of a new parliament – the Legislative Yuan. Polls showing a lead of the Lai Ching-te and Hsia Bi-Khim, candidates of the incumbent Democratic Progressive Party (DPP) in the presidential race, followed by Hou Yu-in and Jaw Shau-kong of the Kuomintang (KMT), and then Ko Wen-je and Wu Hsin-ying of the Taiwan People’s Party (TPP). The fight over the seats at the Legislative Yuan is severe and there is a possibility that the DPP may not maintain a majority there.

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:

• US, UK Launch Airstrikes on Houthi Rebel Targets in Yemen (Bloomberg)
• Airbus lands record orders in 2023, beats Boeing on deliveries (Reuters)
• Bitcoin ETF Trades Top $4.6 Billion in ‘Ground-Breaking’ Day (Bloomberg)
• Tesla Berlin to stop most output for two weeks due to Red Sea disruption (Reuters)

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