US EARLY MORNING: Index futures are flat, Treasuries are rallying; focus sharpens around Thursday's US CPI data release amid a thin docket for today

SNAPSHOT: APAC equities rallied on a positive lead from Wall Street, as well as continued optimism around China reopening, while European shares follow suit, trading a touch in the green, but off highs. US stock index futures are trading around unchanged after Tuesday’s upside, and Treasuries are slightly bid, while the Dollar Index is around flat. Crude futures are tilting lower after a surprise (and significant) build within weekly data reported by the API. There hasn’t been anything significantly incremental for the macro narrative, and as such, traders are beginning to sharpen their focus on Thursday US CPI data release for December, ahead of crucial bank earnings on Friday.

POWELL WAS A NOTHINGBURGER: Tuesday upside for US stocks seems to have been inspired by a lack of fresh hawkishness from Fed Chair Powell in his remarks at the Riksbank. This could either signal that the Fed chief was satisfied with current messaging, or that given the subject matter, this was not the forum for Powell to provide a meaningful update (the panel was on central bank independence); additionally, markets were positioning in a hawkish fashion into Powell’s appearance, and as such, the upside may have been a function of unwinding that positioning. Afterall, it seems unlikely that the Fed is completely satisfied with the messaging at the moment, given that money markets continue to chart a course for interest rates more dovish than the Fed’s December SEPs, and are also pricing rate cuts towards the end of this year, which Fed officials have leaned back on. And while we are seeing progress on inflation, Chair Powell has previously warned that despite cooling, it was still significantly above target, meaning that the Fed should stick to its course. On that note, some analysts argued that Powell's lack of fresh insight may have been a calculated move to avoid meddling with expectations regarding Thursday's release of December inflation metrics, or even expectations for the February FOMC, where money markets are expecting another downshift to 25bps increment hikes, which may be the last of the cycle. For traders, the next major focus is that CPI release to see if inflation data is showing those further signs of ‘substantial progress’ that the Fed wants to see following cooling in October and November, before it is comfortable in refocussing its attention on the deteriorating growth backdrop. The consensus currently expects that the December CPI data will show another paring back in annual rates of inflation, and while that will likely give legs to further stock upside, analysts at JPMorgan have been telling their clients that they continue to be bearish, and have argued that the S&P 500 will likely re-test the lows seen in 2022; accordingly, JPM has been telling clients to fade any near-term rallies.

DAY AHEAD: Today’s economic data slate is thin, with only the weekly MBA mortgage applications data of note. On the supply front, the US Treasury will auction 10yr notes following a solid sale of 3s on Tuesday, which was supported by resurging indirect demand (which is seen as a proxy to gauge foreigner demand). Energy traders will be watching the DoE’s weekly energy inventory update after the API equivalent reported a large surprise build in crude stocks afterhours on Tuesday. Full daily schedule sheet can be accessed here.

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11 Jan 2023 - 09:20- EquitiesData- Source: Newsquawk

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