Financial Markets Today: Quick Take – January 16, 2023 Financial Markets Today: Quick Take – January 16, 2023 Financial Markets Today: Quick Take – January 16, 2023

Financial Markets Today: Quick Take – January 16, 2023

Macro 6 minutes to read
Saxo Strategy Team

Summary:  US equity markets ended last week on a high note, as the US S&P 500 Index closed above its 200-day moving average and within a point of the psychologically pivotal 4,000 level as Q4 earnings season is now under way. The currency market could steal the limelight this week as a pivotal Bank of Japan is up on Wednesday. Will Governor Kuroda declare victory on bringing inflation back to Japan and shift policy again, triggering a further spike in the Japanese yen?


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)

US equities continue to toy with key resistance levels as Q4 earnings season got underway on Friday, dipping intraday but ending the week on a high note, just one point shy of the psychologically important 4,000 level in the S&P 500 index (cash index, the future trades clear of 4k), which is also just above the 200-day moving average and near other technical levels. Today is a market holiday in the US, but through next week’s heavy calendar of megacap earnings reports, traders will watch whether the market can clear this key resistance area and make a bid to surpass the December pivot highs near 4,100 for the cash index. The Nasdaq 100 index has more work to do, still trading almost 600 points below its 200-day moving average and the December pivot highs above 12,100.

Hong Kong’s Hang Seng (HIF3) and China’s CSI300 (03188:xhkg)

The CSI300 surged over 2%, led by pharmaceuticals, computing, and nonbank financials. Expectations of reacceleration of economic activities as a result of reopening and relaxation of regulation continued to boost market sentiment. Corporate filing information showed that The Chinese authorities had recently taken up “special management shares” also known as “golden shares” in local units of Alibaba and Tencent (00700.xhkg) apparently to exert influence over business decisions far beyond the around 1% equity stake that otherwise represents under normal situations. Investors generally welcome the move as it tends to signal that the Chinese authorities are shifting from a less predictable and heavy-handed crackdown on internet platform companies to more institutionalized and predictable supervision of the industry. By mid-day Monday, Alibaba and Tencent each gained about 1% and the Hang Seng Index advanced 0.7%.

FX: JPY takes centre stage this week as BoJ to meet Wednesday

The Japanese yen gained over 3% against the USD last week, moving from highs of 132.87 to lows of 127.46 on Friday. The yen was also stronger on all the crosses amid Bank of Japan’s unscheduled bond buying operations as the markets continued to test the policy yield cap of 0.5% ahead of the BoJ meeting this week and speculation of further policy tightening (more below). The US dollar was also broadly weaker, as EURUSD posted marginal new cycle highs overnight above 1.0870. AUDUSD has found a bid of late on anticipation of China’s reopening, testing 0.7000 overnight but reversing back a bit lower into early European trading today. Australia’s employment data will be key on Thursday. GBPUSD will focus on the host of UK data, from labour market data tomorrow morning, to the CPI release on Wednesday and Retail Sales data on Friday.

Crude oil (CLG3 & LCOH3) trades softer after last week's strong gains

Crude oil prices were steady to softer in early Monday trading after recording over 8% gains last week on China’s reopening optimism.  China’s road traffic levels are continuing to rebound from record low levels following the easing of COVID-19 restrictions. A congestion index comprising the 15 cities with the most vehicles registrations has risen by 31.3% vs a week earlier. Meanwhile, increased import quotas by China saw oil demand pick up in the physical market. Sentiment was also bolstered by expectations of the Federal Reserve slowing its interest rate hikes, following lower than expected inflation. Shale executives looking to substantially increase drilling would need US oil prices to climb to $89 a barrel, according to the latest energy survey by the Federal Reserve Bank of Kansas City. OPEC and IEA release their monthly oil market reports on Tuesday and Wednesday.

Gold and copper trades softer following last week's surge

Gold together with copper has been the in-demand commodities at the start of the year on China demand recovery hopes and not least the softer dollar and bond yields as the market adjust lower their expectations for future US rate hikes. Gold reached an eight-month high and copper a six-month high overnight before running into some light profit-taking. With RSIs on both in overbought territory, the underlying strength of both metals will sooner or later be tested, and the dollar probably holds the key. Hence the importance of Wednesday’s BoJ meeting, the outcome of which may trigger a major move in USDJPY (see below). Gold demand in India may suffer a temporary setback as traders adapt to near record prices. In addition, we have yet to see demand for ETF’s, often used by long-term focused investors, spring back to life with total holdings still hovering near a two-year low.

US Treasury yields rebounded slightly Friday (TLT:xnas, IEF:xnas, SHY:xnas)

After trading near the cycle lows of late last year into 3.40% for the 10-year benchmark on benign inflation data last week and a series of very strong auctions for especially longer-dated US Treasuries, the 10-year yield rebounded toward 3.50%. US treasury markets are closed for a holiday today.

What is going on?

Iron ore loses heat, falling 4.5% after China accuses parties of price gouging

The key steel making ingredient, iron ore (SCOA) fell 4.5% to $119.85 in Asia today, after China’s top economic planner, the National Development and Reform Commission (NDRC), said its cracking down on illegal activities such as hoarding and price gouging as it attempts to keep the iron ore price stable, after the iron ore price had risen 65% from October. Still iron ore inventory levels are lower than they were a year ago, when China’s economy was effectively in lockdown. Shares of iron ore majors, however, remained near their record highs with investors remembering that China has made such accusations in the past, and the iron ore price has recovered. BHP ended slightly higher, closing around record high territory, Rio fell slightly from its records while Fortescue Metals fell 2%.

Corn (ZCH3) closed last week with strong gains following the US crop output report

Corn prices recorded their biggest weekly gain since August as droughts curb the world’s supply buffer. The US Department of Agriculture unexpectedly cut its outlook for US domestic production and available stocks of both corn and soybeans, a sign that an ongoing drought from last year may continue to underpin prices. The worst Argentinian drought in 60 years also led to a downgrade in the outlook for soybeans and corn production, some of that being partly offset by an expected bumper harvest in Brazil. Corn prices were up over 3% in the week and Soybeans up over 2%. Part of the rally being driven by wrongfooted speculators who ahead of the report had cut bullish corn bets by 24%.

Hedge funds opened their 2023 accounts by aggressively cutting exposure across the agriculture sector

With energy also being sold, the latest COT report covering the week to January 10 saw buying being concentrated in just a few metal contracts led by copper and gold. Overall, the gross long across the 24 major commodity futures tracked in our weekly update fell by 15% to 1,194,000 contracts, the biggest one-week drop in six months. The changes were in line with price development across the different sectors with gains in precious (0.6%) and industrial metals (1.7%) being offset by losses in energy (-3.9%) grains (-2.7%), softs (-3%) and livestock (-1.5%).

What are we watching next?

Bank of Japan meeting on Wednesday shaping up as major event risk

The recent news flow and rumor mill sees the Bank of Japan announcing further tweaks to its policy this Wednesday at its meeting, with a further JPY surge on Friday a clear sign that the market sees the meeting as a major event risk. As well, the Bank of Japan again broke its daily record for Japanese government bond purchases Friday as yields defied its 0.5% cap. The BOJ bought roughly 10 trillion yen ($78 billion) in JGBs over the past two days, with a 5 trillion yen purchase on Friday topping the high it had just set Thursday and is preparing to purchase more Japanese government bonds today, according to the Nikkei Somewhat ironically, the anticipated further widening of the BoJ’s yield-curve-control “band” (de facto more of a “cap”) on 10-year JGB’s this week or at a future meeting comes as long yields are dropping sharply elsewhere, accentuating the tightening of spreads between Japanese yields and those in, for example, Europe and the US.

Earnings to watch

The Q4 earnings season continues this week, with a relatively light schedule before next week’s mother lode of mega-cap earnings reports.  The key uncertainty is credit quality in 2023 as it is linked to the degree of a recession, or even whether there will be a recession at all in the US economy. Overall, the Q4 earnings season is likely going to see an extension of value and tangible companies performing better than intangible-driven companies. Interesting names this week include a former high-flyer like Netflix, which has achieved a more than 100% rally of its 2022 lows coming into this week’s report, even if it trades at under 50% of its peak valuation back in late 2021.

  • Tuesday: Sartorius Stedim, Morgan Stanley, Goldman Sachs, Interactive Brokers
  • Wednesday: EQT, Charles Schwab, PNC Financial Services, Kinder Morgan
  • Thursday: Procter & Gamble, Netflix
  • Friday: Investor, Sandvik, Ericsson, Schlumberger

Economic calendar highlights for today (times GMT)

  • US Markets Closed for Martin Luther King, Jr. Holiday
  • 1300 – Poland Dec. Core CPI
  • 1500 – UK Bank of England Governor Beaily to testify on financial stability
  • 2330 – Australia Jan. Westpac Consumer Confidence
  • 0200 – China Dec. Industrial Production/Retail Sales/Q4 GDP

Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:

Apple Sportify Soundcloud Stitcher

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.