US equity futures were little changed, trading in a narrow ten point range during a muted overnight session on Monday as investors braced for a moderation in Fed rate increases after the Fed mouthpiece suggested a 25bps hike is now the baseline (coming at a time when the Fed is now in a quiet period until the Feb 1 FOMC meeting), while bracing for a busy week of earnings. S&P 500 and Nasdaq futures each rose 0.1% at 7:45 a.m. ET after both underlying benchmarks rallied on Friday. The tech-heavy Nasdaq 100 Index has posted three weeks of gains, the longest winning streak since mid-August. 10Y TSY yield rose 2bps to 3.50%, while the dollar rebounded from nine-month lows against the euro and a group of other currencies, after a slew of Federal Reserve officials laid out the case for a downshift in the Fed's rate-tightening campaign. China and most Asian markets were closed for the Lunar New Year holiday.
In premarket trading, Tesla rose more than 2% as sentiment toward the EV maker recovers after aggressive price cuts are seenas helping it gain market share. Salesforce climbed 4.1% after hedge fund Elliott Investment Management took a substantial activist stake in the enterprise software giant. Western Digital shares gained 1.4% after a Bloomberg report that the company and Kioxia are progressing in their merger talks. Western Digital would spin off its flash business and merge it with Kioxia, creating a publicly traded company in the US, according to people familiar with the matter. Spotify shares advanced 2.6% in US premarket trading, after Bloomberg reported that the music streaming company is said to be planning job cuts as soon as this week, amid layoffs in the broader tech industry. Bank stocks are lower in premarket trading following their best day since November on Friday. In corporate news, Germany’s antitrust regulator opened an investigation into PayPal over potential obstruction of competitors. Here are some other notable premarket movers:
- AMD and Qualcomm rise after they were upgraded at Barclays, while Applied Materials declines amid a downgrade. Barclays says it’s more positive on semiconductor companies with data center, PC and handset exposure, but remains negative on semiconductor capital equipment stocks. AMD gains 2.5%, Qualcomm advances 2.1%, Applied Materials declines 2%
- Pliant Therapeutics surges 69% after the biotech announced data from its phase 2 trial for bexotegrast, its treatment for idiopathic pulmonary fibrosis (IPF), prompting analysts to raise their price targets on the stock.
- Western Digital shares gain 1.4% after a Bloomberg report that the company and Kioxia are progressing in their merger talks. Western Digital would spin off its flash business and merge it with Kioxia, creating a publicly traded company in the US, according to people familiar with the matter.
- Keep an eye on Warner Music as it was downgraded to equal-weight from overweight at Barclays, which said the recording company’s financial performance has been too volatile to justify a premium valuation. Peer Universal Music is maintained at overweight.
- Keep an eye on Flywire as it was initiated with an equal weight rating at Morgan Stanley, with the broker expecting faster growth due to the payments company’s “significant competitive product advantages” and untapped potential with global colleges and universities.
- Planet Labs stock could be in focus after it was initiated at equal-weight by Morgan Stanley, which expects the wireless telecom firm to boost annual revenue by 20%-25% over the next two-to-five years and achieve positive free-cash flow toward the end of that period.
- Deutsche Bank expects another volatile year for US software stocks as investors look for a bottom amid weakening fundamentals. Downgrades Check Point, Matterport, Workday, CrowdStrike and SentinelOne, while raising Shopify and Confluent.
- PTC Inc. is upgraded to overweight from sector weight at KeyBanc, with analysts saying the US software provider could be “one of the best” free cash flow growth stories over the next three years.
Investors are increasingly contrasting the US picture with a relatively rosier outlook for Europe, which many reckon will manage to dodge recession this year. Forecasts of a US recession in the second half of 2023, the ongoing wrangling in Congress over the debt ceiling and signals from companies weighed on equity index futures, which struggled to build on Friday’s momentum that lifted S&P 500 after four days of losses.
On Friday Fed Governor Christopher Waller, one of the more hawkish officials at the US central bank, joined other policymakers in backing another moderation in the size of rate increases when they next gather. Investors are also weighing the incoming stream of corporate earnings for signs of how corporate margins are holding up against inflation and economic slowdown pressures. By contrast, ECB policymakers Klaas Knot and Peter Kazimir spoke in favor of continuing with half-point interest-rate increases at the next two meetings, adding to the hawkish comments made last week by fellow ECB officials.
And while there were several notable bullish calls over the weekend, most notably at Goldman where traders clashed over the fate of the market, one place where there was no change in the dour mood was Morgan Stanley whose strategist Michael Wilson said that the improving sentiment toward US equities is at odds with a backdrop of weakening economic data and earnings: “The question is when will equity indices price the current weakness in the leading data and the eventual weakness in the hard data?,” said the strategist, who ranked No. 1 in last year’s Institutional Investor survey. “We think it’s this calendar quarter.”
Earnings were also a concern for JPMorgan strategist Mislav Matejka, who notes that the environment will be particularly challenging this year, with corporate pricing power starting to reverse, just as margins are near record-high in the US and in Europe.
European stocks also opened higher as they looked to continue their solid start to the year but gains have since evaporated with the Stoxx 600 now trading flat. Tech, miners and real estate are the strongest performing sectors while chemicals and travel underperform. The Stoxx 600 index was steady, having risen nearly 7% this year, almost double the S&P 500’s gain. Meanwhile, the euro strengthened to the highest since April 2022. The single currency is up almost 2% this year against the greenback, after falling nearly 6% last year. “The market has decided recession risks were overdone for Europe and you can see that in the outperformance of European stocks and the euro,” Rabobank strategist Jane Foley said. Here are some of the biggest European movers on Monday:
- Intesa gains as much as 3.3% after Citi said the Italian lender remains adequately capitalized even after latest charges linked to EBA guidelines that will impact capital this year
- Atos rises as much as 6.2%, after French weekly Le Journal du Dimanche reported that engineering firm Astek was interested in buying a stake in Atos’ data and cybersecurity unit Evidian
- Boliden rises as much as 2.9% after Berenberg raised to buy from hold and lifted price target. The miner is well placed to benefit from the rally in commodity prices, Berenberg writes
- GTT rises after the French group acknowledged the suspension of a decision by the Korea Fair Trade Commission relating to its activities with Korean shipyards in relation to LNG carriers
- National Express shares jump after the public transport group announced its German rail subsidiary won a €1b contract to operate the RE1 and RE11 Rhein-Ruhr-Express lines until 2033
- ISS shares rise as much as 3.3%, with Morgan Stanley saying the organic growth and free cash flow reported by the Danish facilities manager is ahead of prior expectations
- Symrise drops as much as 8.6% after a larger- than-anticipated margin miss. Peers Givaudan and Croda also fell
- DSM falls as much as 5.5% after the Dutch chemicals and ingredients group extended the acceptance period for shareholders to tender ordinary shares
- Juventus shares fall as much as 13% in Milan after authorities penalized the soccer team, with a cut in its point standing because of how it accounted for player transfers
- Informa shares fall on Monday after UBS downgrades to neutral from buy, saying the consensus has largely priced in a recovery in the events firm’s China business
Earlier in the session, Asian stocks rose with Japan leading gains as much of the region was closed for the Lunar New Year holiday, as prospects for slower Federal Reserve policy tightening lifted investor sentiment. The MSCI Asia Pacific Index was up 0.4%, on track for its highest close since June 9, driven by gains in Tokyo-listed technology shares including Keyence and Tokyo Electron. Key share gauges also rose in India. Trading overall was light with markets shut in Greater China and a number of other countries. Asian equities have been outperforming global peers this year amid optimism over China’s reopening and its easing crackdown on large tech companies. While further moderation in Fed rate hikes should be another tailwind for the region, questions linger over the outlook for the global economy.
Federal Reserve Governor Christopher Waller, one of the more hawkish officials at the US central bank, Friday joined other policymakers in backing another moderation in the size of rate increases when they next gather. “If the inflation rate drops as expected, and the Fed finally decides to stop raising interest rates, it would then be positive for stock prices in the long term, but we are probably not there yet,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. The MSCI Asia benchmark is up 7.7% so far in 2023, more than double the gain in the S&P 500 Index, and is trading above technical levels often seen as overbought. Japan’s Topix has underperformed with a rise of less than 3% amid expectations the nation’s central bank may move away from its ultra-easy monetary policy.
Japanese equities rose, following US peers higher as comments from Federal Reserve officials calmed concerns over aggressive monetary tightening. The Topix Index rose 1% to 1,945.38 as of the market close in Tokyo, while the Nikkei 225 advanced 1.3% to 26,906.04. Keyence contributed the most to the Topix’s gain, increasing 2.8%. Out of 2,161 stocks in the index, 1,832 rose and 263 fell, while 66 were unchanged. “The rebound of US Nasdaq had a positive influence on Japanese equities, as it cooled concerns over tech-related stocks,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. “While the stock market rallied on potential easing of monetary tightening by the Fed officials, it might be still early to be optimistic about the economic situation,” Sera said.
Australian stocks ticked higher, extending their winning streak to four days. The S&P/ASX 200 index rose 0.1% to close at 7,457.30. Energy and technology stocks contributed the most to the benchmark’s advance. Karoon was the top performer after reporting higher reserves at its Bauna oil project in Brazil. In New Zealand, the S&P/NZX 50 index fell 0.2% to 11,948.72
In FX, the diverging rate bets pressured the dollar, which stayed just off nine-month lows against a basket of peers. The Bloomberg Dollar Spot Index dropped as much as 0.3% before paring, and the greenback weakened against all of its Group- of-10 peers apart from the yen. Scandinavian and Antipodean currencies were the best performers. Pressure on the greenback has increased after last week’s weak retail sales data and a slump in business equipment production reinforced the challenges for the world’s biggest economy.
- The euro rose as much as 0.7% to 1.0927, the highest since April 21, before paring. Options gauges however point to downside risks for the euro.
- The pound rose to a seven-month high of 1.2448. Gilts advanced, led by the front end of the curve
- The yen was sold in the Asia session and Japanese bond futures extended gains as the BOJ’s offer of five-year loans drew strong demand, spurring traders to cover their short positions. Institutional investors have turned bullish on the yen for the first time since June 2021 as speculation mounts over the future of the BOJ’s ultra-easy monetary policy
In rates, Treasuries drift lower with the curve steeper and long-end yields cheaper by up to 2.5bp on the day. No strong catalyst for price action with S&P 500 futures little changed near top of Friday’s range. US 10-year yields trade just over 3.50%, cheaper by ~2bp vs Friday’s close with bunds and gilts slightly outperforming in the sector; front-end Treasuries steady, steepening 2s10s and 5s30s by ~1bp.US auctions resume Tuesday with $42b 2-year note sale, ahead of $43b 5-year and $35b 7-year notes Wednesday and Thursday. Euro-area bonds followed US Treasuries. Focus Monday will be on the host of ECB speakers including for hints on the direction of policy ahead of next week’s rate decision. US session is light on calendar events with Fed speakers in quiet period ahead of Feb. 1 policy announcement.
In commodities, crude futures advance with WTI gaining 0.5% to trade near $82.00. G7 is considering two price caps for Russian oil products, one for expensive products such as diesel or gasoline and another for cheaper products e.g. fuel oil, via Politico citing EU diplomats. India is planning to lower gold import duty to prevent the increase in smuggling, according to Reuters sources. Spot gold has been waning from its USD 1,935.41/oz overnight peak, with traders citing profit-taking following the yellow metal’s recent run higher. LME Copper printed a +6month peak overnight given the positive demand picture and supply-side concerns regarding Peru.
Bitcoin is supported on the session and resides at the top-end of a USD 22.94k-22.30k range, albeit it is yet to re-test the January 21st YTD peak of USD 23.35k.
Today's calendar is relatively quiet with just the Leading index on deck.
- S&P 500 futures little changed at 3,987.75
- STOXX Europe 600 up 0.2% to 453.10
- MXAP up 0.5% to 167.79
- MXAPJ up 0.2% to 551.49
- Nikkei up 1.3% to 26,906.04
- Topix up 1.0% to 1,945.38
- Hang Seng Index up 1.8% to 22,044.65
- Shanghai Composite up 0.8% to 3,264.81
- Sensex up 0.6% to 60,975.85
- Australia S&P/ASX 200 little changed at 7,457.27
- Kospi up 0.6% to 2,395.26
- German 10Y yield little changed at 2.18%
- Euro up 0.4% to $1.0902
- Brent Futures up 0.5% to $88.07/bbl
- Brent Futures up 0.5% to $88.07/bbl
- Gold spot down 0.1% to $1,924.23
- U.S. Dollar Index down 0.30% to 101.71
Top Overnight News from Bloomberg
- Responding to massive state aid the US is providing for its green transition, European Council President Charles Michel is proposing steps to strengthen the bloc’s economies that would involve a new bond program to even out the different financial situations of EU member states
- The ECB should continue with half- point interest-rate increases at the next two meetings and the time to slow the pace of hikes is “still far away,” according to Governing Council member Klaas Knot
- ECB Governing Council member Olli Rehn said “there are grounds for significant increases” in the key interest rate in the winter and early spring, reiterating comments he’d made earlier in the week
- Japanese government representatives at the BOJ’s December policy meeting requested an urgent time out in a likely sign of their surprise at planned adjustments to the bank’s yield curve control program
- Some BOJ board members said the bank must communicate clearly that adjustments to the conduct of yield curve control aim to make easing more sustainable and aren’t a policy shift toward an exit, according to minutes of December policy meeting
- Australian central bank chief Philip Lowe’s prospects for an extension of his role are far from clear-cut, according to economists, with some highlighting political hurdles to his reappointment
A more detailed recap of overnight news courtesy of Newsquawk
Asia-Pacific stocks began the week with a positive bias but with gains capped amid mass closures across the region. ASX 200 was rangebound as weakness in the defensive sectors was counterbalanced by gains in energy and tech, in which the latter took impetus from last Friday’s outperformance in the Nasdaq after Netflix’s strong subscriber numbers and Google’s announcement to cut its workforce by 12,000. Nikkei 225 was the biggest gainer and rose above 26,900 to print a fresh monthly high where it then met some resistance, while overnight newsflow was extremely light and China, Hong Kong, Taiwan, South Korea, Singapore, Malaysia, Indonesia and Vietnam are all closed for the Lunar New Year holiday.
Top Asian News
- China's box office film sales totalled CNY 1.34bln on the first day of the Lunar New Year holiday (2022 1.45bln YY; 2021 1.67bln YY), via SCMP.
- China CDC chief epidemiologist said the possibility of a large-scale rebound of a COVID outbreak during the next two or three months is very small as 80% of China’s population has already been infected, according to Reuters. Furthermore, China reported that COVID-19 deaths in the week leading to the Lunar New Year topped 12,600.
- Japanese PM Kishida said will pick the new BoJ Governor by taking the economic situation in April into account and it is too soon to say if there is a need to change the government-BoJ accord, according to Reuters. It was also separately reported that PM Kishida said the government will nominate the new BoJ Governor in February.
- BoJ December meeting minutes stated the central bank will add some easing if necessary and several members said the effect of powerful monetary easing will continue even if the BoJ widens the yield target band. Furthermore, a few members said the BoJ must clearly explain that widening of the yield band is not a move eyeing the exit from ultra-loose policy, while a member said the BoJ must conduct a review of its policy framework sometime in the future.
- New Zealand’s ruling Labour Party voted to choose Chris Hipkins as the new PM and Carmel Sepuloni was named as the Deputy PM, while incoming PM Hipkins stated that Finance Minister Robertson indicated that he wants to continue in the role, according to Reuters.
European bourses are modestly firmer, Euro Stoxx 50 +0.2%, amid a relatively quiet start to the week given the mass APAC closures from the Lunar New Year holiday. Sectors have a similar mild positive bias with Tech and Basic Resources the marginal outperformers. Stateside, futures are essentially unchanged, with the ES capped by 4k and the Fed blackout period underway going into the second busiest week of earnings this season. Banks including Wells Fargo (WFC), Bank of America (BAC) and JPMorgan (JPM) are said to be planning payment wallets to compete with the likes of PayPal (PYPL) and Apple Pay (AAPL), according to WSJ.
Top European News
- UK electricity network operator National Grid had emergency coal-fired plants warm up amid expectations of tight supply and increased demand due to cold weather, while it will pay households to use less power during early Monday evening, according to FT.
- UK has started a post-Brexit review of EU's investor fund regulations amid concerns that Europe is not acting fast enough on appropriate safeguards, according to FT.
- Ireland’s Foreign Affairs Minister has described ongoing NI Protocol talks as "very challenging", according to BBC's Parker; “We would hope that those negotiations would be successful but they are very challenging.”
- French President Macron said Germany is to join the new hydrogen pipeline project between Spain and France, according to Reuters.
- Fitch affirmed Ireland at AAA; Outlook Stable and affirmed Norway at AAA; Outlook Stable, while it affirmed Hungary at BBB; Outlook Cut to Negative from Stable.
- ECB’s Knot said to expect the ECB to hike by 50bps in February and March, followed by more steps in May and June, according to Reuters.
- ECB's Nagel says ECB is to return inflation to target without causing a recession, via Econostream; thinks this will be achieved by the end of 2024/25.
- ECB's Villeroy said the ECB will continue to raise rates, but possibly at a slightly slower pace than in recent months, but will do so to a level necessary to keep inflation under control, via Econostream.
- The DXY has eased further to the benefit of most peers across the board as the Fed blackout period commences with a 25bp hike almost entirely priced in.
- AUD and NZD are among the outperformers ahead of inflation data, with AUD/USD surpassing 0.70 and NZD/USD testing 0.65.
- EUR continues to benefit from hawkish ECB guidance, EUR/USD above 1.09 at best, while JPY is the relative laggard after dovish December minutes.
- CHF gleans modest support from Credit Suisse lifting its SNB forecast for March to 50bp vs prev. 25bp while the CAD is relatively steady pre-data/Wednesday's BoC.
- Brazil and Argentina aim for greater economic integration and decided to advance discussions regarding a common South American currency that could be used for financial and commercial flows, according to an article jointly penned by the countries' leaders.
- Hawkish ECB vibes continue to hold sway as sellers fade upticks in debt, Bunds sub-138.00, Gilts under 104.00 after brief bounces to 138.44 and 104.63 respectively.
- T-notes a bit more resilient as Fed hawk Waller joins 25bp hike advocates for February's FOMC, 10 year bond within 115-07/114-30 range vs last Friday's 115-02 close
- Crude benchmarks are somewhat choppy in contained ranges of circa. USD 1/bbl given the mass APAC closures; though, prices overall are underpinned by a rosier demand picture.
- Kuwait temporarily suspended operations at three ports on Sunday due to bad weather, according to state news agency KUNA.
- US Treasury Secretary Yellen said western countries are working on price caps for Russian refined petroleum products to ensure the continued flow of diesel but added it is complicated and there is a possibility that things may not go to plan, according to Reuters.
- G7 is considering two price caps for Russian oil products, one for expensive products such as diesel or gasoline and another for cheaper products e.g. fuel oil, via Politico citing EU diplomats.
- EU Securities Watchdog ESMA says EU gas price cap could impact the orderly functioning of markets and impact financial stability, according to a draft report cited by Reuters.
- Japanese insurers will raise insurance by about 80% on ships carrying LNG in Russian waters, according to Nikkei.
- Netherlands seeks to close the Groningen gas field this year which is the largest in Europe and earthquake-prone, while an official noted that it was very dangerous to keep operating the field and that they aim to shut it by October 1st but would wait to see if there is a shortage of gas after the winter, according to FT.
- India is planning to lower gold import duty to prevent the increase in smuggling, according to Reuters sources.
- Spot gold has been waning from its USD 1,935.41/oz overnight peak, with traders citing profit-taking following the yellow metal’s recent run higher.
- LME Copper printed a +6month peak overnight given the positive demand picture and supply-side concerns regarding Peru.
- Joint French-German statement following a summit between French President Macron and German Chancellor Scholz stated they will support and assist Ukraine for as long as necessary and they support efforts to prosecute perpetrators of war crimes, according to Reuters. Furthermore, French President Macron commented at the summit that he doesn’t rule out sending Leclerc tanks to Ukraine and that training time needs to be taken into account, while he added that sending tanks should not endanger France’s own security.
- German Defence Minister Pistorius said he thinks there will be a decision soon regarding tanks for Ukraine whichever way it may fall, while it was also reported that German Foreign Minister Baerbock said Germany would not stand in the way if Poland sends Leopard tanks to Ukraine, according to Reuters and French television LCI.
- A Russian warship armed with hypersonic missiles will participate in joint naval exercises with China and South Africa in February, according to Reuters.
- Russian Kremlin says that there have been no announcements yet on whether President Putin will run for another term in office in 2024.
- EU ministers have agreed a new sanctions package against Iran, according to the Swedish EU Presidency.
US Event Calendar
- 10:00: Dec. Leading Index, est. -0.7%, prior -1.0%
DB's Jim Reid concludes the overnight wrap
Morning from an exceptionally cold and misty England. I've been feeling dreadful after a virus struck me down on Friday. I've had three very bad colds since the end of November, an ear infection, and now a virus that for the first time in this spell has given me a fever! My wife has had a similar path over the last two months and the kids have all had strep A. The difference is that within 2-3 days they bounced back completely whereas us old timers can't get a break this winter and have to look after their hyperactivity at the weekends while we lie on the sofa feeling sorry for ourselves. We've done more covid tests as a family recently than we needed to do throughout the entire pandemic. All negative! I can only assume that our immune systems had a break for 2 plus years around covid and are now taking a winter to rev back up!
We'll get the latest health check on global growth momentum this week amid releases of Q4 US GDP (Thursday) and global PMI numbers (tomorrow). US leading indicators today will also be of note as we are around levels only previously associated with recessions. In addition, PCE, personal spending (both Friday) and durable goods orders (Thursday) will also be released.
Key central bank events will include the BoC decision, and Summary of Opinions and minutes from the BoJ's shock December meeting (all Wednesday). In earnings, all eyes will be on Microsoft (tomorrow), Tesla and ASML (both Wednesday), amongst others.
The Fed are now in their blackout period so the usual mini vol around Fed speakers won't be there this week. However, there are quite a few growth signposts to engage markets. We'll expand upon a few of the key upcoming events now. It's not a top tier release but today's US leading indicators (consensus -0.7% vs -1.0% last month and likely around -5.5% YoY) will likely remain at levels only previously associated with recessions. Last month the Conference Board, who publish this series, said the following: “Only stock prices contributed positively to the US LEI in November. Labor market, manufacturing, and housing indicators all weakened—reflecting serious headwinds to economic growth… The US LEI suggests the Federal Reserve’s monetary tightening cycle is curtailing aspects of economic activity, especially housing. As a result, we project a US recession is likely to start around the beginning of 2023 and last through mid-year.”
This is interesting as we felt when we did our 2023 outlooks we were the opposite way round to consensus. We expected a good start for risk assets this year but a very bad end to the year on our long-standing H2 23 recession call. To be honest, the US data has generally been poorer than anticipated this year so far which is fascinating as markets are rallying hard.
We'll get a good read on global growth momentum with tomorrow's global flash PMIs which will take into account China’s reopening and falling gas prices. Then we'll see how growth was faring going into this year with Q4 US GDP on Thursday. Our economists expect +3.2% annualised (consensus +2.7%). Interestingly they expect +1.8% for Q1 with H2 being where the US recession hits. Consensus on Bloomberg is around 0% for Q1 so that's a potential battle ground once actual hard data comes through.
Other notable data releases on Thursday include durable goods orders, new home sales, and the Chicago Fed national activity index. All will be closely watched for signs of weakness seen in the data so far this month.
Friday’s core PCE release will occupy the Fed's minds on their blackout period ahead of next week's FOMC. Our economists don't expect the same declines as recently seen in CPI as some of the stronger components in PPI last week are better correlated to PCE components. They expect a +0.4% monthly gain in the core PCE price index.
With that Fed blackout, ECB speakers will take center stage, especially today with Lagarde being the highlight. Dutch CB chief Knot continued his recent hawkish rhetoric over the weekend suggesting that “We made a step down in December from 75 to 50 basis points — that will be the pace for a multiple number of meetings… So that means at least the two in February and March.” So that will challenge the Euro rates bulls after the recent rally. We saw a big reversal from the yield lows (+20bps on 10yr Bunds) on Thursday (and into Friday) after Lagarde's hawkish Davos commentary. Knot is also on the agenda again tomorrow. You'll see the full list of speakers in the day-by-day week ahead at the end. Back across the pond, the BoC are expected to hike 25bps on Wednesday. A few weeks ago many were expecting a pause but a recent stretch of firm data has moved the consensus back in favour of a hike.
Over in Asia, key data releases for Japan will include the aforementioned PMIs and the Tokyo CPI (Thursday). Aside from the BoJ's Summary of Opinions for the January meeting, the minutes of the December meeting will also be released and our economists highlight the importance of analysing how the decision to double the yield curve control range was reached. Elsewhere in the region, the Lunar holidays will curtail a lot of the week's activity with many bourses shut until midweek with China shut all week.
In corporate earnings, Microsoft will kick off the reporting season for Big Tech tomorrow, with the rest of the group reporting next week. All eyes will be on Tesla post-market on Wednesday ahead of earnings from traditional automakers next week as investors try to grasp trends for EV demand. Other earnings highlights are in the calendar at the end.
This morning in Asia many major equity markets are closed for the Lunar New Year holiday with, as mentioned, mainland Chinese markets remaining shut until January 30. Amid a subdued trading, the Nikkei (+1.21%) is the standout performer, mirroring Friday’s strong finish on Wall Street after a broad rally in the US tech stocks. Meanwhile, the S&P/ASX 200 (+0.12%) is also trading in positive territory in early trading. In overnight trading, US equity futures tied to the S&P 500 (-0.09%) and NASDAQ 100 (-0.09%) are just below flat ahead of the start of a busy week of earnings. Meanwhile, yields on 10yr USTs (-1.28bps) edged lower to trade at 3.47% as we go to press.
Yields on 10yr Japanese Government Bonds (0.38%) remained below the BoJ’s 0.5% ceiling after the central bank said it will provide 1trn yen of collateralised loans for banks as it attempts to keep rates from rising. In the FX market, the dollar index (-0.24%) declined for the fourth consecutive day to trade at 101.78 amid concerns over US economic growth.
Recapping last week now. The strong start to the year for risk assets took a bit of a pause mid-week on heightened US recession risks, only to close out strongly again. The S&P 500 rose sharply on Friday (+1.89%) to leave the S&P 500 'only' down -0.66% on the week. Tech stocks led the rally on Friday with the NASDAQ up +2.66% (up +0.55% on the week), with positively received earnings releases from the likes of Netflix, and news of cost reduction at Google, helping. The Stoxx 600 rallied +0.37% on Friday but was fairly flat (-0.09%) on the week.
Bonds also saw decent sized swings on the week with the 10yr Treasury yield +8.7bps to 3.48% on Friday, their largest move up since mid-December, but still down -2.5bps for the week but having traded as low as 3.32% on Wednesday.
Over in Europe, there was a similar sell-off on Friday in fixed income as the market had to face a hawkish end to the week from the ECB speakers (especially Lagarde). 10yr bunds rose +11.2bps on Friday to 2.177%, the largest increase since the end of December, although for the week as a whole they were up just +0.9bps. Yields on 10yr OATs (+14.0bp) and BTPs (+21.8bps) also increased significantly on Friday but were down -0.9bps and -1.8bps for the week respectively.
Commodities again had a decent week following continued optimism surrounding China’s reopening. WTI crude was up +1.82% over the week to $81.31/bbl (+1.22% on Friday), its highest closing level since mid-November. Brent crude also rallied over the week, up +2.476% (+1.71% on Friday).