Financial Markets Today: Quick Take – January 5, 2023 Financial Markets Today: Quick Take – January 5, 2023 Financial Markets Today: Quick Take – January 5, 2023

Financial Markets Today: Quick Take – January 5, 2023

Macro 6 minutes to read
Saxo Strategy Team

Summary:  Equity markets managed to keep an even keel yesterday, with a lack of direction in US equity markets continuing well into its third week. Late yesterday, the minutes from the last FOMC meeting offered the latest pushback against market expectations for rate cuts as soon as year-end, while gold and especially the JPY eased back lower from their recent strength on treasury yields halting their slide. Tomorrow’s US jobs report for December offers the next test for global markets.


What is our trading focus?

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

The US equity market once again chopped back and forth yesterday as the action has been bottled up in a range in the S&P 500 for nearly three weeks. The market may be waiting for the next batch of US data and the impact on treasury yields for choosing a direction, with tomorrow’s batch of data the next important hurdle for markets. The technical focus for S&P 500 traders is the range low and the 61.8% Fibonacci retracement near 3,780 for the March futures contract. For Nasdaq 100 trader, the cycle low near 10, 750 and the nominal intraday lows from last October a bit lower still are the key focus. Ironically, strong US economy data may be the most negative for equity markets in the short run if yields jump.

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

Hang Seng Index climbed more than 1% and CSI300 surged nearly 2% as China continue to roll out additional reopening measures and supports to the economy. On Thursday, China announced the much-anticipated gradual reopening of the border between Hong Kong and the mainland starting from January 8, 2023. Internet platform giants Alibaba (09988:xhkg) and Meituan (03690:xhkg), China restaurant chain Haidilao (06862:xhg), beer brewers China Resources Beer (00291:xhkg) and Budweiser (01876:xhkg) were among the top gainers within the Hang Seng Index. In A-shares, baijiu (Chinese white liquor) surged in anticipation of rebound in consumption. Electric equipment, household electronic appliances, and logistics stocks also outperformed.

FX: JPY rally reversed, USDCNH testing key levels

The US dollar found a modicum of support yesterday as treasury yields stabilized and as the Fed delivered the expected message in its latest set of meeting minutes – a pushback against market expectations for the Fed to cut rates as soon as this year. The next important step for the USD will be on tomorrow’s December jobs report and next Thursday’s December CPI release. USDJPY bounced well above 132.00 after its recent test below 130.00 on signs that the yen’s recent surge may need more support from new developments (a larger drop in global yields in particular) after resetting from 150.00+ in USDJPY terms. The Chinese yuan continued its resurgence on hopes for a boost to Chinese growth on the other side of the current Covid trauma, with USDCNH testing its 200-day moving average near 6.87 for the first time since April.

Crude oil (CLG3 & LCOH3)

Crude oil found a bid on Wednesday following a two-day tumble of more than 9% tumble on China demand and global growth worries. The bounce has so far primarily been driven by short covering while also signalling an end to selling from funds who bought the market aggressively ahead of yearend. For now, a surge in Covid-19 cases across China is clouding the near-term demand outlook, overshadowing optimism and delaying the timing of when commodity consumption in the world’s top importer will eventually rebound. The API reported a 3.3-million-barrel increase in US crude stocks with gasoline stocks also rising while distillates dropped. The EIA will release its weekly report later today.

Gold (XAUUSD) sees increased two-way action after hitting fresh six-month high

Gold’s run of gains extended to a fourth day on Wednesday but after touching $1865 some two-way actions emerged potentially signalling traders have started to book profit. Gold, silver and platinum have been favoured by traders during the first days of trading, with momentum from last year being carried over. Driven by recession and stock market valuation risks, an eventual peak in central bank rates combined with the prospect of a weaker dollar and inflation not returning to the expected sub-3% level by yearend. It is worth remembering that traders' conviction at the beginning of a new year always tends to be low for fear of catching the wrong move. At the same time, however, the fear of missing out can also drive a rapid build-up in positioning which subsequently can be left exposed should a change in direction occur. Focus on Friday’s US job report with resistance at $1865 & $1878 while the current strong uptrend may not be challenged unless the price breaks below $1800

Europe’s gas price (TTFMc1) slump continues

Europe’s gas prices have fallen by more than 50% during the past month and on Wednesday the Dutch TTF futures contract closed at €65/MWH ($20/MMBtu), the lowest since October 2021. The slump has been driven by a combination of mild weather and at times strong production from renewables as well as reduced industrial consumption resulting in an unusual seasonal increase in inventories. Gas held in storage across Europe is currently 164 TWh above the five-year average and close to a full month of peak winter withdrawals. With LNG imports still strong and demand down by more than 10% the continent has now ended up in a situation, unthinkable just a couple of few months ago, where prices need to stay low in order to divert LNG shipments away from Europe in order not to overwhelm storage facilities.

Wheat (ZWc1) tumbles on ample Black Sea supply.

The Chicago wheat contract has lost more than 5% during the first trading days to trade near a one-month low. Forced lower by an abundance of low-price wheat from Russia and Ukraine providing stiff competition to U.S. exporters where production has been hit by drought, and recently, by severe cold. Russia, the world's largest wheat exporter, look set to double its exports to a record 21.3 million tons for the first half of 2023. This following a record grain crop of 151.0 million tons last year, including 102.7 million tons of wheat. In addition to strong Russian shipments, European Union soft-wheat exports are running about 6% higher than a year earlier, and Australia’s top shipper loaded a monthly record 2.18 million tons of grain in December.

Yields on US Treasuries (TLT:xnas, IEF:xnas, SHY:xnas) stabilized after their steep fall to start the year

US Treasury yields arrested their descent yesterday after the 10-year benchmark hit 3.66%, rising a few basis points. At the short end of the curve, yield pulled back slightly higher as well, perhaps lifted at the margin by a strong JOLTS survey for November and the ISM Manufacturing survey showing a stronger employment sub-index. The price action was little affected by the FOMC minutes release, which saw the Fed continuing its pushback against market expectations for easing as soon as year-end. Tomorrow’s US data, including the December jobs report and ISM Services Index, offer the next test for the treasury market.

What is going on?

France’s inflation is cooling down BUT…

Inflation is cooling down in several eurozone countries. France is the last example. In December, the EU-harmonized CPI rose 6.7 % year-over-year versus expected 7.3 %. On a monthly basis, inflation decreased 0.1 % versus expected +0.4 %. This is positive, of course. But it will likely not be sufficient for monetary policy to shift out of tightening mode just yet. There is a high risk that inflation will increase again in Spring/Summer this year due to higher energy prices. This could be fueled by a deficit in the oil market due to OPEC+ cuts and EU ban on Russian oil and difficulties filling gas inventories for next year in the EU. Therefore, it is too early to believe the peak in inflation is effectively behind us in the eurozone.

The FOMC minutes sent out mixed messages

FOMC participants worried that the downshift from a 75bp hike to a 50-hike would be interpreted by the market as the signal of a pivot and warned that “an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the committee’s reaction function, would complicate the committee’s effort to restore price stability”. Nonetheless, the minutes showed that “many” participants argued for balancing two risks: the risk “insufficiently restrictive monetary policy could cause inflation to remain above the Committee’s target for longer than anticipated” and the other risk of “the lagged cumulative effect of policy tightening could end up being more restrictive than is necessary to bring down inflation to 2 percent and lead to an unnecessary reduction in economic activity”. That points to a data-dependent risk management approach going forward. Separately, Minneapolis Fed President Kashkari said in an article that he saw rate hikes “at least at the next few meetings”, leading to a terminal rate of 5.25-5.50%.

UK Mortgage Approvals plunged in November

A clear sign that higher interest rates are impacting the UK housing market, approvals plunged to 46.1k in November, a stunning drop from 59k in October and for wider perspective, a sign of very weak activity relative to the average of well over 60k approvals per month in the years before the pandemic outbreak.

Amazon to lay off over 18k employees

This was more than previously expected as the company over-expanded its warehouse and logistics infrastructure after the wild increase in demand from pandemic-era stimulus. Shares rose some 1.7% after hours yesterday.

US House of Representatives still has no speaker

The narrow Republican majority in the House after the mid-term elections last November means that nearly all Republicans must agree on a candidate, with a small cabal of Trumpist-leaning Republicans continuing to block the candidacy of Keven McCarthy, who failed three more votes yesterday in his effort to become the next Speaker of the House. This issue could gain considerable importance for the debt ceiling issue in the US if a more confrontational figure acceptable to the GOP extremists is eventually found.

What are we watching next?

US data today and tomorrow

Today we will get the latest weekly US jobless claims number as this data series has yet to show material weakening in the US labour market, market bets of Fed cuts by year-end notwithstanding. The December ADP Private Payrolls data is also up today, with that data series showing a rather persistent decline in payrolls growth since Q2 of last year. It is expected at +150k after +127k in November. Tomorrow’s calendar is important as the Fed has clearly expressed the most uncertainty on the inflationary pressures from the employment-intensive services side of the economy. This could make the market sensitive to strong surprises in the Nonfarm payrolls change number (expected around +200k, with considerable recent attention on the divergence in this survey relative to the far weaker household survey used to calculate the overall unemployment rate) and average hourly earnings. Ninety minutes after the jobs data, we’ll have a look at the December ISM Services survey after November saw a surprising improvement in the survey to 56.5 after the cycle low of 54.4 in October.

Earnings to watch

The earnings calendar is light in the first week of the new year, but in a couple of weeks the first Q4 earnings releases will begin to be released. The Q4 earnings season will continue its focus on margin pressures related to input costs on employees and raw materials including energy. Today’s earnings focus is Walgreens Boots Alliance (WBA) and Conagra Brands, with WBA expected to -3% revenue growth y/y for the quarter that ended on 30 November adding to the series of quarters with negative revenue growth. Conagra Brands is expected to deliver 7% revenue growth y/y for the quarter that ended on 30 November as the manufacturer of packaged foods is able to pass on inflation to its customers.

  • Today: Walgreens Boots Alliance, Conagra Brands, Lamb Weston, Constellation Brands, RPM International
  • Friday: Naturgy Energy

Economic calendar highlights for today (times GMT)

  • 0900 – Poland Dec. Flash CPI
  • 0930 – UK Final Dec. Services PMI
  • 1000 – Eurozone Nov. PPI
  • 1000 – Italy Dec. CPI
  • 1230 – US Dec. Challenger Job Cuts
  • 1230 – US Fed’s Harker (2023 FOMC voter) to speak
  • 1315 – US Dec. ADP Private Payrolls change
  • 1330 – Canada Nov. International Merchandise Trade
  • 1330 – US Nov. Trade Balance
  • 1330 – US Weekly Initial Jobless Claims
  • 1400 – Poland National Bank Governor Glapinski press conference
  • 1530 – EIA Natural Gas Storage Change
  • 1600 – EIA Weekly Crude and Fuel Stock Report
  • 1830 – US Fed’s Bullard (non-voter) to speak
  • 2330 – Japan Nov. Labor Cash Earnings

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.