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[PODCAST] US Open Rundown 6th January 2022

  • European bourses are pressured, Stoxx 600 -1.0%, following a downbeat APAC handover given the FOMC Minutes spillover; NQ, -0.4%, continues to lag
  • European Banking names are the primary outperformer given yield action as the US 10yr nears 1.75% and the German equivalent 0.00% (best -0.033%)
  • DXY is positive but has been pressured as FX peers receive a boost for the broad yield action; JPY leads and AUD lags in a continuation of APAC performance
  • Looking ahead, highlights include German CPI (Prelim.), US ISM Services PMI, IJC and Factory Orders


China has advised citizens to cut long-haul trips on the Lunar New Year (1st Feb). China's Xian Xinjiang International Airport suspends all international passenger flights until further notice amid COVID. (Newswires)

Japanese PM Kishida will decide on possible quasi-emergency declaration for parts of Japan on Friday. Separately, Japan has asked US to take COVID measures at its bases in Japan, including restrictions on leaving the base, Kyodo reports. (Newswires)

  • Japanese new COVID cases could exceed 4,000 today (yesterday 1,256), according to NHK; Tokyo daily COVID cases 641 (vs yesterday's 390)


Asia-Pac equities succumbed to the downbeat handover from Wall Street, which saw growth and tech stocks among the hardest hit by the hawkishly perceived FOMC minutes - with the Nasdaq closing lower by 3.3%. Markets were spooked by the prospect of an earlier Fed rate lift-off and closer balance sheet runoff trigger date. US equity futures resumed trade relatively flat with a downward bias around the prior day’s lows and drifted lower after the Chinese cash open. Eurozone equity futures experienced more pronounced losses with the DAX and Euro Stoxx 50 Mar'20 contracts down by over 1.5% each after the end of the Tokyo lunch break. In APAC, the ASX 200 (-2.7%) was pressured by its tech sector alongside its gold miners. The Nikkei 225 (-2.9%) also saw outflows from Tech and Electronics, whilst Services and Air Transportation were hit by the domestic COVID situation. The overnight JPY appreciation also provided headwinds for the Japanese exporters in the Index. The KOSPI (-1.0%) traded lower to a lesser extent following yesterday’s underperformance. The Hang Seng (+0.7%) and Shanghai Comp (-0.3%) initially saw milder losses with the PBoC conducting another daily liquidity drain at half the size of the prior day's operation, whilst Chinese Services PMI also topped expectation with accompanying commentary highlighting lower inflationary pressure. In fixed income, US T-note futures initially clambered off lows amid potential early APAC demand as stocks sentiment remained sour, but this upside faded throughout the session and cash yields went back on the rise - with the US 10yr yield above 1.73% heading into the European open - the highest since March 2021. Meanwhile, the BoJ said it will inject JPY 2tln into the market via temporary bond purchases, a move that came after the Japanese 10yr yield hit 0.105% - levels seen last November - before tracking Treasury yields higher.

China will reportedly strengthen oversight on fiscal finance and spending, according to reports citing Xinhua. (Newswires)

PBoC injected CNY 10bln via 7-day reverse repo at maintained rates of 2.20% for a net daily drain of CNY 100bln (vs prev. CNY 200bln drain)


BoJ could revise up its FY22 CPI forecast to the low 1% ranges (from the current 0.9% forecast), according to reports citing Nikkei. (Newswires)

BoJ offered to buy JPY 2tln in JGBs under temporary agreements. (Newswires)


UK Markit/CIPS Services PMI Final (Dec) 53.6 vs. Exp. 53.2 (Prev. 53.2); Composite PMI Final (Dec) 53.6 vs. Exp. 53.2 (Prev. 53.2)

EU IHS Markit Construction PMI (Dec) 52.9 (Prev. 53.3); German IHS Markit Construction PMI (Dec) 48.2 (Prev. 47.9)

German North Rhine-Westphalia State CPI YY (Dec) 5.2% (Prev. 5.1%); MM (Dec) 0.5% (Prev. -0.3%)

  • The mainland figure, to be released at 13:00GMT/18:00EST, is expected at 5.1% YY (prev. 5.2%) and 0.4% MM (prev. -0.2%)


North Korea said it test-fired a "hypersonic" missile Wednesday, according to Yonhap. (Newswires)

Police in Kazakh city of Almaty notes of tens of rioters being "eliminated", according to Ifax. (Newswires)

Russian Foreign Ministry says they see events in Kazakhstan as a foreign-inspired attempt to undermine state security using force. (Newswires)


European bourses, Stoxx 600 (-1.0%), are lower across the board as the region focuses on the fallout from the hawkishly perceived FOMC minutes which suggested rate lift-off may be warranted sooner or at a faster pace than was earlier anticipated. The handover from the APAC region was also a downbeat one as investors focused on the consequences of tighter monetary policy stateside with the Nikkei 225 (-2.9%) the laggard in the region amid a firmer JPY. US futures are a touch softer with the ES lower by 0.1% whilst the NQ (-0.3%) narrowly lags following yesterday’s session of heavy losses which saw the cash index close lower by 3.3%. Developments in the yield space will likely remain a driver for prices as the US 10yr yield eyes 1.75% to the upside. In a recent note, analysts at Goldman Sachs have suggested increasing rates should be favourable for European equities given the larger share of shorter-duration and rate sensitive sectors in the Stoxx 600. Goldman’s year-end target for the index is at 530 vs. current level of 488 and recommends European banking and energy names. Elsewhere, Berenberg maintains a bullish outlook on the region amid expectations that synchronized global growth will support an extension of the EPS recovery this year. Sectors in Europe are, for the most part, lower with Tech underperforming peers with the Stoxx 600 Tech Index (-2.5%) erasing a bulk of the gains seen since December 20th. Elsewhere, Banking names are faring notably better than peers and have moved notably into positive territory overall (Stoxx 600 Banking Index +1.0%) as the sector remains underpinned by the more favourable yield environment which has brought 0% to the upside into play for the German 10yr yield. In terms of stock specifics, Carrefour (+4.1%) is the clear outperformer in the Stoxx 600 with reports suggesting that PE firms could back a bid for the Co. by Auchan for EUR 23.50/shr. SocGen (+2.6%) is also seen higher on the session after the Co.’s ALD is to purchase LeasePlan for EUR 5bln. To the downside, Dr Martens (-8.6%) sits at the foot of the Stoxx 600 after Pemira offloaded 65mln shares in the Co.


DXY - Having largely shrugged off a bumper ADP print, Markit’s services and composite PMIs, the Buck paid full attention to the account of December’s Fed policy meeting that was clearly more hawkish than the actual event, latest set of SEP dot plots and chair Powell’s press conference. Indeed, FOMC members generally noted that it might necessary to tighten sooner and more aggressively than previously anticipated, while some are of the opinion that QT may start relatively quickly after the end of tapering, so March is live for lift-off as inferred by Waller recently and unwinding the balance sheet could follow shortly after. In response, the Greenback firmed up almost across the board and the index would arguably have been even higher if the Yen continued to track yields in context of UST/JGB differentials instead of risk sentiment that has been rattled by the latest Fed guidance. However, the DXY is holding just above 96.000 and below 96.500 within a 96.393-089 range awaiting two scheduled Fed speakers (Daly and Bullard), US trade data, the services ISM and factory orders.

JPY - As noted above, the Yen is outperforming and maintaining its recovery momentum on risk rather than rate dynamics, with Usd/Jpy retreating through 116.00 again, but not any closer to the semi-psychological 115.50 level that also forms the top of a decent band of option expiries starting from 115.45 (1.1 bn).

AUD/NZD - At the other end of the G10 spectrum, risk-off positioning along with their US peer’s revival has hit the Aussie and Kiwi especially hard, as Aud/Usd strives to keep sight of 0.7150 and Nzd/Usd faces a similar task around the 0.6750 mark, though the latter is benefiting from a turnaround in the Aud/Nzd cross towards 1.0600. In terms of regional news, Fitch affirmed its AA rating for NZ with a positive outlook, while Australia’s final services and composite PMIs were unrevised and Queensland suffered its first COVID related fatality since April last year.

CHF/GBP/CAD/EUR - Also tracking their US rival, albeit to varying degrees and well off overnight or earlier lows amidst some consolidation, retracement and corrective price/yield action in other global bonds to the initial bear-flatting in Treasuries post the aforementioned FOMC minutes. In fact, the Euro has reclaimed 1.1300+ status in wake of supportive Eurozone data including PPI, German industrial orders and state CPIs that infer an upside bias to the consensus for the national reading. Conversely, option expiry interest in Eur/Usd is heavily skewed to the downside today and may drag the pair back down - see 8.09GMT post on the Headline Feed for details. Elsewhere, the Franc is staying afloat of 0.9200, the Pound is meandering between 1.3559-1.3490, but still within striking distance of the 100 DMA (at 1.3555 today) and the Loonie has recouped losses from under 1.2800 ahead of Canadian trade data and with some assistance from an even firmer rebound in crude prices (WTI up to Usd 79.25/brl at best).

SCANDI/EM - Some protection for the Nok from overall risk aversion as Brent tops Usd 82/brl, while the Cnh and Cny are relying on an upbeat Caixin Chinese services PMI to cushion headwinds and the Try received some short-lived respite via reports suggesting that Turkey could pay FX-linked deposit compensation to banks with bonds.

Reports suggest that Turkey could pay FX-linked deposit compensation to banks with bonds. (Newswires)

Notable FX Expiries, NY Cut:

  • EUR/USD: 1.1210-20 (1.1BN), 1.1225 (1.0BN), 1.1270-75 (1.6BN), 1.1290-1.1300 (1.9BN), 1.1330-40 (710M), 1.1420-25 (640M)
  • USD/JPY: 115.00 (925M), 115.45-50 (1.1BN)


US Treasuries appear to be taking some time out and the curve is re-steepening after the initial bear-flattening reaction to last night’s hawkish FOMC minutes. However, the 10 year T-note remains precarious above 128-16 and equivalent yield poised just shy of the psychological 1.75% level that could easily spark another rout in bonds, while corrective losses are stacking up elsewhere as Bunds teeter on the brink of 170.00 and only a few basis points away from flat in cash terms, while Gilts hold close to the base of their deeper Liffe band and the yield extends gains well beyond 1%. In short, after doubling the pace of its QE unwind in December and adding two more rate hikes to the 2022 dot plot path, the account of the Fed’s meeting revealed prospects of an earlier lift-off and faster hikes thereafter with a shorter lead time between the first move and shrinking the balance sheet. More immediately, trade data, the services ISM and factory orders before more timely Fed input via Daly and Bullard.


Crude benchmarks are underpinned this morning in-spite of the pressure seen in global equities after the December FOMC minutes; action was has become more pronounced throughout the morning and now sees WTI, for instance, eclipse yesterday's peak by circa USD 0.50/bbl. The upside in the benchmarks has occurred as a grinding bid since the arrival of European participants, after a softer APAC session given the broader risk aversion. Of note this morning is commentary from Goldman Sachs’ Global Head of Commodities Currie who stated that he is extremely bullish on commodities, believing that the super cycle could continue for decades. Separately, it is worth remaining cognisant of the increasing focus on Kazakhstan/Uzbekistan geopolitics, though overnight reports indicated there was no output disruption yet due to the Kazak fuel protests. Elsewhere, spot gold and silver are pressured but have lifted off of the overnight lows spurred by the FOMC minutes and the ongoing rally in yields experienced globally since. Separately, the likes of copper are under pressure given broader risk sentiment though the LME contact has reclaimed the 9.5k mark.

Uzbekistan has temporarily suspended gas exports to cover domestic needs, according to Interfax. (Newswires)

Chinese Caixin Services PMI (Dec) 53.1 vs Exp. 51.7 (Prev. 52.1); Composite 53 (Prev. 51.2). *"The measures for input costs and the prices charged by service providers both dropped from the previous month, indicating lower inflationary pressure. But raw material and labor costs were still high."*

PBoC set USD/CNY mid-point at 6.3728 vs exp. 6.3702 (prev. 6.3779)