Financial Markets Today: Quick Take – January 18, 2023

Financial Markets Today: Quick Take – January 18, 2023

Macro 6 minutes to read
Saxo Be Invested
Saxo Strategy Team

Summary:  The Bank of Japan was going to surprise overnight no matter what it decided, and with the market leaning for some kind of further tweak in policy after a December move, Governor Kuroda and company surprised by indicating no change at all in the initial statement, sending the JPY sharply lower. Elsewhere yesterday, the euro was marked lower on a story that the ECB is set to slow the pace of hikes already after the February ECB meeting. US December Retail Sales on tap today.



What is our trading focus?

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

US equities continue to trade in a pivotal area ahead of the heart of earnings season set for the coming couple of weeks, with the 200-day moving average and 4,000 area in focus for the S&P 500. Financial conditions remain very easy as corporate credit spreads and the VIX continue to poke into the low range of the last year as the market hopes for a soft landing for the economy and as the Fed is seen as easing away from its tightening regime after another two 25 basis point hikes at coming meetings. 

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

Hang Seng Index ticked up by 0.3% and CSI300 edged down by 0.1%. Online and mobile gaming names led in both the Hong Kong and mainland bourses. China released 88 new licenses of online/mobile games, including one title from Tencent (00700:xhkg), up 1.2%. and one title from NetEase (09999:xhkg), up 4.6%. The other internet names, however, traded weak, with around 1% to 3% losses. Vice-Premier Liu He’s speech at Davos attempted to assure the audience about a 2023 recovery in the Chinese economy and stability in the real estate sector. He also sang from the same recent hymn book of other Chinese leaders to try to assure the world about China’s openness and not resorting to equalitarianism in its drive for common prosperity.

FX: JPY weakens as BoJ refuses to tweak policy, ECB surprises with dovish shift.

The market was leaning for further policy tightening from the Bank of Japan after December’s surprise widening of the yield-curve-control “band”, but the Bank of Japan failed to deliver, leading to the yen getting shocked back lower, in part on the unwinding of the largest spike in implied volatility for over-night options over the event in years. More below on the BoJ. Elsewhere, officials from the ECB were quoted late yesterday afternoon, indicating a that, while the expected 50 basis point hike is likely for February, there is increasing support for a deceleration to 25-basis point hikes at subsequent meetings. This development took the euro sharply lower yesterday as, for example, German 2-year yields dropped over 10 basis points on the news.

Crude oil (CLG3 & LCOH3) pushes higher

Crude oil edged higher, thereby erasing early January losses, after OPEC’s Secretary General Haitham Al Ghais said he’s optimistic about the outlook for the global economy and with that demand for crude oil. The oil producer group said that a potential slowdown in advanced economies is countered by accelerating growth in Asia. The market is expected to tighten as Russia’s supply suffers from G7 price caps and China’s demand recovery underpins. Russia said it expects Western sanctions to have a significant impact on its oil product exports, likely leaving it with more oil to sell. Focus today the dollar following the BOJ meeting and not least IEA’s Oil Market Report for January. EIA’s weekly stock report delayed until Thursday. 

Gold correction risk with dollar the key focus

Gold traded softer overnight in response to dollar strength after the Bank of Japan failed to deliver another tweak to its interest rate policies (see above).  While industrial metals such as copper continues higher on China demand hopes, the yellow metal continues to get most of its directional input from the dollar. ETF flows and risk reversals in the options market have remained flat for weeks with no sign of demand despite the recent rally, potentially signalling increased risk of a short-term correction driven by recently established speculative longs.

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

The Bank of Japan stood pat on its current policy mix even as the market was leaning for some further policy tweak, sending JGB’s sharply lower and taking US yields down a few notches as well overnight, with the 10-year benchmark Treasury yield poking back below 3.50%. The focus remains on incoming data and the shape of the US yield curve, with December US Retail Sales data up today.

What is going on?

BOJ maintains policy unchanged, launches new tool to support bond market

The Bank of Japan left its policy levers unchanged at the January meeting, defying heavy market speculation of another tweak after the surprise in December. The announcement saw the yen plunge by over 2%, as the central bank said it would continue large-scale purchases of government bonds and increase it on a flexible basis as needed. The central bank, in a new measure to maintain yield control policy, also extended a loan offer to banks for funds of up to 10 years against collateral for both fixed- and variable-rate loans. Meanwhile, the BOJ still sees inflation getting back to sub-2% range this year. Core CPI estimate for FY2022 was only slightly raised to 3.0% for 2.9% previously, while the FY2023 estimate of 1.6% was maintained. In the press conference, BoJ Governor Kuroda said that the sustainable inflation goal is not yet in sight, suggesting low odds that he will declare victory on bringing back inflation before his exit in April.

Goldman Sachs plunges, Morgan Stanley soars after both banks report earnings

Goldman Sachs plunged yesterday after its earnings report, dropping more than 6% on rising expenses and on rising compensation costs for employees. Revenues dropped on reduced M&A activity and its foray into retail banking continues to drag on results. Morgan Stanley, meanwhile, was the S&P 500’s second best performer on the day, jumping over 5% after reporting Q4 earnings, with strong results in its wealth management division noted

Industrial metals boosted by upbeat China data

Better than expected economic data from China helped boost sentiment in the base metal sector. China’s December activity data came in better-than-expected, while protests in Peru continued to cloud the supply outlook for copper. HG Copper trades above $4.25 after surging to the highest since June, and up 11.6% this month after recording nine consecutive daily gains. Prices for Iron ore also rose in Singapore to back above $120, locking in gains of over 1%.

Gloomy US survey data – NY Fed manufacturing

The NY Fed's Empire manufacturing survey tumbled to -32.9 in January from -11.2 in December, well beneath the consensus -9 and marking the lowest level since mid-2020 and the fifth worst reading in the survey’s history. Both new orders and shipments plummeted sharply, and moderation in input and selling price growth was seen. Fed member Barkin (non-voter) repeated that median CPI is still too high, saying that he needs to see inflation convincingly back to target before Fed pauses rate hikes and that he is not in favour of backing off too soon

UK Dec. CPI out this morning and slightly hotter than expectations as the headline rose +0.4% MoM and +10.5% year-on-year vs. +0.3%/+10.5% expected, respectively while the core CPI level rose +6.3% YoY vs. +6.2% expected and +6.3% in November. Sterling traded slightly firmer after the data.

What are we watching next?

ECB’s dovish surprise likely as inflation slows

The ECB is considering a slower pace of rate hikes than Christine Lagarde indicated in December. While a 50bps increase next month remains the most likely outcome, a 25bps move in March is gaining support. Inflation in the Eurozone is slowing, and a sharp drop in natural gas prices suggest that we can continue to expect lower inflation in the months to come at least until the 2023 winter risks emerge. The final CPI print for December for the Euro-are will be released today and ECB’s minutes of the December meeting are due tomorrow.

Earnings to watch

The Q4 earnings season continues today with more US financial services companies reporting, including the retail-focused PNC Financial Services and Charles Schwab. Kinder Morgan is a company operating an extensive pipeling transportation and energy storage network, while EQT is a US-based natural gas producer and the second largest producer in the largest US shale gas production area in Appalachia (the Marcellus shale). Guidance on the future productivity of its reserves could be a focus there after the wild ride for natural gas this year on Russia’s invasion of Ukraine.

  • Today: EQT, Charles Schwab, PNC Financial Services, Kinder Morgan
  • Thursday: Procter & Gamble, Netflix
  • Friday: Investor, Sandvik, Ericsson, Schlumberger

Economic calendar highlights for today (times GMT)

0900 – IEA's Oil Market Report for January
1000 – Eurozone Final December CPI
1330 – US Dec. Retail Sales
1330 – US Dec. PPI
1400 – US Fed’s Bostic (non-voter) to speak
1415 – US Dec. Industrial Production and Capacity Utilization
1500 – US Jan. NAHB Housing Market Index
1900 – US Fed Beige Book
1900 – US Fed’s Harker (voter 2023) to speak
0001 – UK Dec. RICS House Price Balance
0030 – Australia Dec. Employment Change / Unemployment Rate

 

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

Apple Sportify Soundcloud Stitcher

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

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.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. 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.