Original insights into market moving news

[PODCAST] European Open Rundown 17th January 2022

  • Asian equity markets traded with a mild positive bias following the similar close last Friday on Wall Street
  • Chinese GDP and industrial production exceeded expectations, whilst retail sales disappointed
  • The PBoC reduced rates on its 1-year Medium-term Lending Facility and 7-day reverse repos by 10bps each
  • European futures are indicative of a mildly firmer open with the Eurostoxx 50 future higher by 0.3%
  • The USD is relatively flat above the 95.00 mark with price action within the G10 FX space contained
  • Looking ahead, today's docket sees a lack of tier 1 highlights with US markets closed for MLK day
  • The desk will shut at 18:00GMT/13:00ET today and reopen the same day for the beginning of Asia-Pac coverage at 22:00GMT/17:00ET today


New York Governor Hochul said NY COVID case rates are dropping and turning a corner. (Newswires)

UK is set to scrap its self-isolation law in favour of a move towards learning to live with COVID. (The Telegraph)

Dutch PM Rutte said restrictions in the Netherlands will be eased and non-essential stores can reopen as of Saturday, while bars, restaurants and museums remain closed until at least Jan 25th. (Newswires)

Japanese PM Kishida says serious shortage of hospital beds needs to be avoided at all costs and they will bring forward COVID-19 vaccination booster shots for elderly and general public by up to two months. It was earlier reported that Japan is considering stricter COVID-19 measures for Tokyo and surrounding areas after Tokyo hospital bed occupancy reached 19.3%, while Tokyo and surrounding areas could enter a quasi-state of emergency on Monday or Tuesday. (Newswires/FNN)

Beijing tightened rules for entering the city in which it required travellers to get a COVID-19 test within 72 hours of arrival in the capital after it reported its first Omicron case and as it prepares for next month’s Winter Olympics, while it was separately reported that Xi’an city lifted restrictions after a three-week lockdown. In relevant news, China’s NDRC called on local governments to minimise the impact from COVID-19 measures during the approaching Lunar New Year holiday to support a recovery in consumption, while it noted that local governments should avoid a one-size fits all COVID-19 epidemic and control measures, as well as minimise the impact on people’s lives. (Newswires)


Asian equity markets traded with a mild positive bias following the similar close last Friday on Wall Street where most major indices rebounded from intraday losses but with price action choppy amid weak US data, hawkish Fed commentary and as the large banks got earnings season underway. ASX 200 (+0.3%) was kept afloat after strength in tech, energy and consumer stocks offset the underperformance in the commodity linked sectors. Nikkei 225 (+0.8%) was underpinned by a weaker currency and strong Machinery Orders, as well as last week’s reports that the BoJ conducted its first ETF purchases since October. However, upside for Japan was capped by reports that the government is mulling tighter COVID-19 restrictions for Tokyo and surrounding areas which could shift to a quasi-state of emergency as soon as today, while KOSPI (-1.5%) was the worst performer after North Korea conducted another missile launch which involved what is believed to be two ballistic missiles. Hang Seng (-1.7%) and Shanghai Comp. (+0.7%) were varied despite the better-than-expected Chinese GDP and Industrial Production data which showed China’s economy grew by 4.0% vs exp. 3.6% in Q4 although this was still the weakest growth in a year and a half and Retail Sales printed notably below estimates. Furthermore, the PBoC announced it is to reduce rates on its 1-year Medium-term Lending Facility and 7-day reverse repos by 10bps each, as well as boosted the amount of funds through its MLF which helped the mainland stay afloat. Conversely, the Hong Kong benchmark lagged its regional counterparts although casino stocks were rampant after Macau unveiled its proposed reforms to gaming laws which were less severe than feared and with plans for a maximum of six gaming licenses likely to limit entrance into the industry to the current operators. Finally, 10yr JGBs were flat with demand constrained amid the gains in stocks, while JGBs have also shrugged off the pressure seen in T-note and Bund futures amid the BoJ’s presence in the market for nearly JPY 1.4tln of JGBs with mostly 1yr-10yr maturities and with the central bank kick-starting its two-day policy meeting.

PBoC injected CNY 100bln via 7-day reverse repos with the rate cut by 10bps to 2.10% and it also injected CNY 700bln via 1-year MLF vs CNY 500bln maturing with 1-year Medium-term Lending rate cut by 10bps to 2.85%. (Newswires)

PBoC set USD/CNY mid-point at 6.3599 vs exp. 6.3604 (prev. 6.3677)

  • Chinese GDP QQ SA (Q4) 1.6% vs. Exp. 1.1% (Prev. 0.2%)
  • Chinese GDP YY (Q4) 4.0% vs. Exp. 3.6% (Prev. 4.9%)
  • Chinese Industrial Output YY (Dec) 4.3% vs. Exp. 3.6% (Prev. 3.8%)
  • Chinese Retail Sales YY (Dec) 1.7% vs. Exp. 3.7% (Prev. 3.9%)
  • Chinese House Prices YY (Dec) 2.6% (Prev. 3.0%)

China stats bureau said China's 2021 GDP grew by 8.1% Y/Y and that its economy maintained a steady recovery last year although noted that China's economy faces a more complex, severe and uncertain external environment. Furthermore, the stats bureau head said there is room for policy to support growth and downward pressure on China's economy is still relatively large. (Newswires)

Chinese government entities are being urged by the leadership to provide more “direct and precise support” for market entities this year which means targeting micro and small businesses, as well as the poor, students, farmers and those that are self-employed, according to SGH Macro Advisers. Furthermore, it was noted that measures introduced by the State Council in the past month include allowing MSMEs in the manufacturing industry to defer certain tax payments for Q4 and providing additional lending support for such firms severely hit by the pandemic, floods and increases in raw material prices. (SGH Macro Advisers)

China is reportedly seeking a WTO review of Australian anti-dumping measures. (Newswires)

  • Japanese Machinery Orders MM (Nov) 3.4% vs. Exp. 1.4% (Prev. 3.8%)
  • Japanese Machinery Orders YY (Nov) 11.6% vs. Exp. 6.1% (Prev. 2.9%)


UK PM Johnson is reportedly planning a mass clearout in Downing Street and is preparing a raft of announcements in an effort to save his premiership as he also refuses to take responsibility for the lockdown parties scandal. (The Sunday Times/FT)

UK Conservative Party Chairman Dowden said UK PM Johnson will need to take further steps following the Downing Street lockdown gatherings, while Dowden noted that Johnson should remain as PM. (Newswires)

UK PM Johnson witnessed his staff have regular drinks gatherings on Fridays during lockdown restrictions. (The Mirror) PM Johnson has been questioned by Sue Gray over the "partygate" allegations. (Telegraph)

UK opposition Labour party leader Starmer said he thinks PM Johnson broke the law and then lied about what happened. (BBC)

Hundreds of UK construction businesses are reportedly going bust monthly amid higher materials costs and a reduced pool of skilled workers post-Brexit. (FT)

ECB's Schnabel said the ECB must not raise rates too quickly and warned that a premature rate increase could choke the economic recovery. (Sueddeutsche Zeitung)

Fitch affirmed the European Stability Mechanism at AAA; Outlook Stable and also affirmed Greece at BB; Outlook revised to Positive from Stable. (Newswires)

  • UK Rightmove House Prices MM (Jan) 0.3% (Prev. -0.7%)
  • UK Rightmove House Prices YY (Jan) 7.6% (Prev. 6.3%)


In FX markets, the DXY was rangebound with price action quiet amid the extended weekend stateside for Martin Luther King Jr. Day although it held on to Friday’s gains above the 95.00 level. EUR/USD remained subdued and retested support at 1.1400 owing to the recent USD strength, while ECB's Schnabel warned the ECB must not raise rates too quickly and that a premature rate increase could choke the economic recovery. GBP/USD was also lacklustre as the backlash against PM Johnson continues, although Conservative Party Chairman Dowden said Johnson should remain as PM and it was also reported that the PM is preparing a mass ‘clearout’ in Downing Street and a raft of policy announcements in an effort to save his premiership. USD/JPY extended on its gains amid the constructive mood in Japan and antipodeans were despondent after losing ground to their US counterpart and following recent losses in the metals complex, while stronger than expected Chinese GDP and Industrial Production data only provided minimal support for yuan and its proxies as Retail Sales missed and given that the central bank had just lowered its MLF and 7-day reverse repo rates shortly before the data announcements.


Commodities were rangebound in which WTI crude futures remained above the USD 84/bbl level after the advances seen on Friday where oil prices shrugged off a firmer greenback, as well as reports that China agreed with the US to release crude oil reserves around the Lunar New Year. Furthermore, a rise in the latest US rig count and comments from the EU that suggested an improvement in Iranian nuclear discussions did little to derail prices which were kept afloat amid the mostly positive mood in stocks and as a winter storm hit the US East Coast over the weekend. Gold was little changed as price action reflected the uneventful trade picture in USD amid the extended weekend for MLK Jr. Day, while copper traded sideways and failed to benefit from better than expected Chinese GDP data for Q4 as this still showed the weakest growth since Q2 2020.

Baker Hughes Rig Count (W/E 14th Jan): Oil +11 at 492, natgas +2 at 109, Total +13 at 601. (Newswires)


A source close to the Iran nuclear talks said they are increasingly dealing with the sequencing of nuclear and sanctions steps, while they are in the "nitty gritty", most tedious and demanding stage of negotiations. The source added that the problem is not the issues but the limited amount of time although the mood has improved because sides are now dealing with something concrete and something that can be translated into words. Furthermore, there was no break in talks as some returned to capitals over the weekend and there are proposals on the table about how some economic operators can get some comfort if the US reimposes sanctions, while they are said to working on the idea of a re-implementation day of less than 48 hours after months of preparation in which Iran and the US implement agreed measures. (Newswires)

Ukraine said it had evidence that last Friday’s cyberattack on government websites was likely to have been conducted by Russia, while a Ukraine security official said the cyberattack defacing government websites was cover for more covert destructive activity and was carried out by a cyber-espionage group linked to Belarusian intelligence which reports noted suggests Russia could have used its ally to create plausible deniability, while the group had previously targeted Lithuania, Latvia and Poland, as well as spread narratives criticising NATO. (Newswires/FT)

Russia's Kremlin stated that recent reports of a sabotage operation in Ukraine are "unfounded". (Newswires)

North Korea fired two projectiles that are believed to be ballistic missiles from Pyongyang Sunan Airport, according to the South Korean military. There were also comments from the Japanese Defence Ministry said the North Korean projectiles landed outside Japan's Exclusive Economic Zone, while Japanese Chief Cabinet Secretary Matsuno stated that North Korea's recent actions are a threat to regional peace and security which Japan strongly condemns. (Newswires)


The whole Treasury curve sold off by around 6bps as earlier strength reversed into the NY afternoon with increased market certainty in the approaching Fed hiking cycle and little qualms over data misses amid Omicron. Futures volumes have been decent. 2s +7.2bps at 0.971%, 3s +6.7bps at 1.267%, 5s +7.2bps at 1.553%, 7s +7.6bps at 1.726%, 10s +7.2bps at 1.781%, 20s +7.0bps at 2.183%, 30s +6.9bps at 2.123%. 5yr TIPS +5.3bps at -1.275%, 10yr TIPS +6.6bps at -0.701%, 30yr TIPS +6.4bps at -0.106%. T-Notes found interim support of 128-14 in the European morning before touted short-covering saw a decent rally to highs of 128-25+ just after the downbeat retail sales print, with cash 10s hitting lows of 1.706%. But, the data didn't add much weight to the bid, and not long after better selling emerged towards the front-end into the NYSE open as stocks found some strength. There was a lot of attention on comments from JPMorgan CEO Dimon, who said we could see as many as seven Fed hikes this year, which did coincide with when the selling began. But, the back-end caught up to the front-end's selling after the UoM Michigan survey showed yet another rise in consumer inflation expectations. T-Notes trundled lower into the NY afternoon, where they found support at 128-06 into settlement, but additional selling has been seen in post-settlement trade. Support in cash 10s is seen at the recent post-COVID peak of 1.80%. Note that we now enter the FOMC blackout with no tier 1 data out of the US next week (rates traders have attention on the 20yr bond auction), and given there has been no public pushback from Fed hawks and doves alike on a March rate liftoff and balance sheet reduction this year, perhaps the market can now comfortably position for such with expectations Powell will give a more formal signal at the January FOMC. T-note (H2) futures settle 6 ticks higher at 128-18+.

Fed's Williams (voter) said inflation is too high which they need to bring down and that the Fed would not want to see it persist at high levels, while he added that he doesn't know what the path of the Fed Funds rate will be this year because it will be driven by data and that FOMC forecast for hikes this year is completely sensible. Williams also said the Fed's holding of longer term securities puts downward pressure on long term rates and the eventual balance sheet normalisation may lead to a relaxation of the downward pressure on long term yields and that there is a natural process long term rates will rise somewhat as the Fed normalises its balance sheet and he views balance sheet normalisation coming after a rates lift off, as well as noted that the Fed has to be flexible and adjust when conditions change. Furthermore, he said it makes sense for the Fed to move towards rate hikes and removing accommodation after seeing the dramatic improvement in the labour market and high inflation, while he noted the Fed will likely not wait as long as it has in the past to begin shrinking the balance sheet and that its pretty clear the Fed's asset purchases are coming to an end in March with the ending of the last round of asset purchases to not have an obvious effect on the economic outlook. (Newswires)

Walmart (WMT) is reportedly quietly readying to enter the metaverse with plans for its own crypto currency and collection of NFTs. (CNBC)