Monday and Beyond

Monday Ranges: 

Euro: $1.0802-$1.0874

JPY/$: JPY127.23-JPY128.87

GBP: $1.2172-$1.2289

CAD/$: CAD1.3353-CAD1.3418

AUD: $0.6941-$0.7019

MXN/$: MXN18.7313-MXN18.8566

Rumors of an emergency BOJ meeting sent the dollar to its lows in Tokyo, slightly below the pre-weekend low (~JPY127.46). The on-the-run (most current) 10-year yield settled above the 0.50% cap and the generic 10-year bond has not traded below the 0.50% level since January 5. The market is pressing hard, and volumes in the futures market are elevated. News of higher producer prices (10.2% year-over-year in December from a revised 9.7% in November that was initially 9.3%) did not help matters. The median forecast was for 9.5%. The BOJ meeting concludes Wednesday. 

China reports a slew of December data first thing Tuesday, including Q4 GDP. The economy was fragile before the exit from zero-Covid policy. The median forecast in Bloomberg’s survey calls for a 1.1% quarter-over-quarter contraction. Separately on Monday, the PBOC kept the benchmark 1-year lending facility rate steady at 2.75% and increased the volume from CNY650 bln to CNY779 bln, slightly less than expected. New house prices fell 0.25% in December, matching November’s decline. The market continues to look through the near-term woes and anticipates a stronger recovery. Foreign investors continue to pour back into Chinese stocks. The CSI 300 rose by nearly 1.6% on Monday, lifting  the year-to-date gain to 6.9%. Mainland shares that trade in HK are up 9.6% so far this year. Although the PBOC continued to set the dollar’s reference rate near expectations, on Monday, the dollar closed higher against the yuan, and above the pre-weekend high. The dollar snapped a three-day slide and closed up 0.5%, which is the biggest gain since late November.

Foreign investors are also buying S Korean shares. The Kospi rose by 0.6% to extend its advancing streak for the ninth consecutive session. It is up 7.3% so far this year. Australia’s ASX 200 gained 0.8% on Monday and has risen for the past four sessions. It has risen in eight of the past nine sessions for a nearly 5% gain this year. 

The euro and sterling traded quietly in Europe. Sentiment has improved on the margin. At the end of last week, German figures suggest the economy stagnated in Q4 rather than contract. And the UK economy surprised by growing in November (0.1%) after expanding in October (0.5%). It contracted by 0.8% in September. Lower energy prices may be helping. Despite a cold snap, natural gas prices fell to fresh 16-month lows. Europe’s Stoxx 600 rose 0.4% on Monday, its fourth consecutive gain. It has fallen in only two sessions so far this year and is up nearly 7% YTD. Tomorrow, Germany reports its ZEW investor survey, and the UK releases its latest employment data. 

Tomorrow, in the US, the Empire State manufacturing survey is due. It is the first reading for January, and it is expected to improve to -8.6 from -11.2. NY Fed President William speaks. Wednesday brings retail sales (likely weak), PPI (softer), and industrial production (likely the third consecutive decline). The Beige Book will be released late in the session, and the November TIC data on portfolio capital flows as the equity market closes. On Wednesday, the Fed’s Bostic Harker, and Logan are scheduled to speak. Monday, Canada reported softer than expected November manufacturing sales (flat vs. 0.3% median forecast) and a 1.3% rise December existing home sales. 

The Bank of Canada meets on January 25. The market is pricing in about a 75% chance of a quarter-point hike. On Tuesday, Canada reports December CPI, which is projected to ease to 6.4% from 6.8%, which would be the lowest since February. The underlying core measures may slip a little.

Disclaimer