Investment Bank Outlook 13-01-2022

Credit AgricoleAsia overnightInvestors appear stunned at the moment. US inflation came out in line with market expectations and led to little further moves in market pricing for the Fed and UST yields. Indeed, even further hawkish speak from FOMC members did not really move rates markets. The USD did move, however, as investors exited long positions, which saw a collapse in the currency during North American trading. In the Asian session, investors seem to be waiting for the next impetus. Eyes are on China, where there are newswire reports that Chinese authorities have told local banks to restrict property loans to local governments. A majority of Asian bourses and S&P500 futures were trading lower at the time of writing. G10 FX remained stunned in the wake of the USD’s collapse and was range-bound during the Asian session.CIBCFX FlowsEUR$ didn’t do much but better bid. The upward momentum ran into some hedging activities from North Asian accounts. Believe there are offers located in the 1.1460’s, previous high was 1.1464 on November 15. In terms of option strikes, plenty on the downside, nearest 1.1425 for €1.45bn. Two ECB speakers, Guindos and Elderson.$CAD got below the 200-day SMA 1.2501 only briefly, looking to test overnight’s low 1.2496. Small selling of ¥-crosses in the late morning, AUD$ backed off and $CAD popped back onto 1.25-handle. Real test could be 1.2493, previous low from November 16. There are several option strikes rolling off tomorrow, $400mio at 1.2485, $840mio at 1.2500, $400mio at 1.2510 and $1.11bn at 1.2525.BoC meets on the January 26, forecast is unchanged but there is one US bank who’s calling for BoC rate hike. Our macro strategist Bipan wrote Canada’s stature as a smaller, export[1]dependent economy, it’s usually the BoC that tends to lag the Fed when it comes to shifting monetary policy. There have been a few exceptions of course – in 2002/03 and 2010, BoC raised rates without the Fed following suit. However, in both of those instances, there was untoward pressure on the CAD that adversely impacted real economic activity and contributed to undermining the inflation mandate. As a result, those same rate hikes were taken back with cuts before the next hiking cycle began from the Fed.AUD$ resistance 0.7300-05 area, will be interesting to see if it will withstand the challenge. Data-free until next week’s crucial December employment data.CitiEuropean OpenWaters were calm during the Asian session post the strong US CPI yesterday. USD was seen mixed against the G10, with no notable moves, while UST front end yields were down a touch. Equities and energy trickled lower as well. USD Asia was flat as well. Overnight, Fedspeak reinforced front end pricing, while as Russia talks continue to produce headlines. We also note that the US senate will be considering Nord Stream 2 sanctions later today.Fedspeak will be the main highlight of the day, however, with the Senate hearing for Brainard at 15:00 GMT, and Barkin (17:00 GMT), Evans (18:00 MGT) and the Dallas Fed town-hall discussion at 23:00 GMT. GBP will want to note that UK foreign minister Liz Truss, will meet the EU’s chief negotiator Maris Sefcovic today.

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Fed Powell: Inflation Should Peak out in Mid-2022

Powell's speech disappointed proponents of the idea that the Fed is in a hurry to normalize policy with the pace priced in by market expectations, which were shaped after the release of the minutes of the December FOMC meeting. Despite assurances that the Fed will not allow high inflation to take root in consumers expectations, Powell discouraged markets by the baseline scenario that price pressures should top out in the middle of this year. Given this dovish stance, it is difficult to expect the Fed to raise rates four times this year. The overbought dollar came under pressure, risk assets were given reprieve, and the Treasuries rose, as the worst-case scenario for this market in the near future was avoided. Commodities and commodity-sensitive currencies such as the NZD and AUD also reacted positively. Bitcoin was also able to defend support at $ 40K.However, the speed at which the Fed's stance towards inflation has changed throughout 2021 (from the first rate hike in 2024 to at least two rate hikes in 2022) serves as an important reminder that the central bank's inflation forecast will likely be revised more than once this year. Therefore, the markets will pay special attention to the US inflation report for December, which appears today. Inflation above the 7% forecast or core inflation above 5% could raise doubts as to whether the Fed will be able to stick to its baseline forecast (inflation peak in 2022). The dollar may have a chance of bouncing, especially if core inflation exceeds forecasts, as it excludes goods or services with volatile prices and allows to see the underlying trends in supply and demand.From a technical point of view, the dollar index approached the lower border of the monthly range and a strong inflation report will allow counting on a false breakout and rebound from the 95.50 level or consolidation near the level. However, earlier, on January 3, the price had already tested and bounced off the support level, and the repeated downward movement signals intentions to try to break through the level and somewhat discourages buying the dip:Another interesting information may be contained in the "Beige Book", the release of which is scheduled for today, as well as speech of traditional Fed dove, Neil Kashkari.As for the ECB, there is a gradual consolidation of hawkish opinions. The new head of the Bundesbank, Nagel, said he doubted that inflation was caused solely by temporary factors. Too frequent attacks from hawks in the Governing Council could cast doubt on the ability of ECB head Lagarde to uphold the dove line and pose a risk to expectations that the ECB will lag behind the Fed on policy normalization. However, before the release of the ECB's official inflation forecasts in March, such comments are likely to be insufficient to support the European currency.GBP posted tepid response to the political buzz surrounding Prime Minister Johnson's accusations that he attended a Downing Street party in May 2020 when social restrictions were in effect. GBPUSD has broken through the upper border of the descending channel, which may accelerate the upward movement if it succeeds in gaining a foothold above the line today:The CAD broke yesterday the 1.26 level and is approaching an important psychological support level - the 1.25 level, where the 200-day MA resides as well. Relatively high oil prices and the prospect of a tightening in Bank of Canada policy thanks to recovery in the labor market were the main drivers of the recent decline. However, in my opinion, one should count on a rebound near 1.25, as a breakthrough below the support will likely require an even more positive trend in the oil market, which is difficult to expect in the near future, given that oil is also approaching a local high, where it will also meet serious resistance. The strengthening of the dollar on a strong inflation report will also lend more credence to such a scenario in CAD.

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Morgan Stanley, BNP Paribas See Return of Big Currency Swings

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Market Spotlight: Trading Scenarios For Today's US CPI Release

US CPI In FocusThe main data focus today, and for the week as a whole, is the December US CPI reading. Given the high level of hawkish Fed expectations the market will be looking to today’s data to essentially confirm a March rate hike. While the December jobs number was weaker than expected, bulls are taking this as a sign of the tightness in the labour market (especially given the fall back in unemployment and the lift in wages). With this in mind, a strong inflation reading today will likely reignite USD upside in the near term.In terms of numbers, the market is looking for headline inflation of 0.4%, down from the prior month’s 0.8% reading with core inflation expected to be unchanged at 0.5%.The annual inflation rate, meanwhile, is expected to rise to 7%, which will mark its highest level since June 1982. If this reading is confirmed, USD upside should prevail. However, if wee see these forecasts undershot, we are likely to see some USD unwinding in the short-term.Where to Trade US CPI?Bullish USD Scenario - Silver (XAGUSD)Silver prices are currently moving within a corrective bullish channel within the broader bear channel which has framed the longer-term downtrend. With price currently holding around the support region between 21.4525 – 22.3205, a solid USD up move from today’s data would likely refocus the market on the longer-term bear trend. Look for a break below 22.3205 to target 21.4525 and 19.56 thereafter.Bearish USD Scenario – EURUSDIf we see USD trade lower from any data miss today, EURUSD looks set for at least a short term move higher. Price has been holding in a basing pattern for almost two months now. While 1.1377 continues to hold as resistance todays data could well fuel a break higher here, targeting 1.1527 initially.

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USD Lower Despite Hawkish Powell Comments

USD Still LifelessThe US Dollar remains largely subdued today despite a broadly hawkish set of comments from Fed chairman Powell yesterday. Powell was testifying at the senate confirmation hearing for his Fed chairman re-nomination yesterday and provided plenty of insight into the Fed’s outlook and policy plans for the year ahead. On the back of a mixed set of jobs numbers last week, the Dollar was trading in a lifeless manner heading into the comments and seems to be in no better state now as traders instead focus on today’s CPI release. However, there were many important takeaways from Powell’s testimony. Let’s quickly recap.Powell Warns Over Threat from InflationThe main crux of Powell’s comments yesterday centred on inflation. The Fed chairman warned that inflation posed a “severe threat” to the economy and the to the labour market. With that in mind, Powell noted that the era of pandemic stimulus in the US was now finished, explaining that the economy neither “needs or wants” these “highly accommodative” policies to continue.Long Expansion NeededCommenting on the jobs market specifically, Powell noted that “High inflation is a severe threat to achieving maximum employment and to achieve the long expansion that could give us that.” The Fed chair went on to say that “To get the very strong labour market we want with high participation; it is going to take a long expansion. To get a long expansion, we are going to need price stability.”Market Focused on March Rate HikeLooking ahead, Powell advised senators that the Fed is prepared to take more aggressive policy action than currently projected, if necessary, in order to achieve this price stability. While no specific mention was made regarding timing the market is widely expecting the Fed to commence lift-off in March, with Powell’s comments yesterday giving no reason to shift this view.Faster "Run Off" ProcessBeyond rate hikes alone, Powell commented on the Fed’s plans with regards to managing its balance sheet. This has become a key area of focus for markets and on this note, Powell was hawkish once again saying that the “run off” process would likely happen “sooner and faster” than it did following the previous easing cycle.CPI Up NextOn the whole, Powell’s comments were decidedly hawkish, so the downturn in USD is a little disappointing. Most likely, the move is simply a function of how built up the USD position is currently. Powell’s comments were hawkish, yes, but given that he stopped short of signalling a lift of date (didn’t confirm March) there technically wasn’t any new information here. With that in mind, the market remains focus on today’s CPI release which has the potential to be the main catalyst this week.Technical ViewsUSDJPYThe correction in USDJPY from the recent 116.07 highs has seen the market trading back into the support region around 115.45. While this area holds, the focus is on further upside and a continuation towards the 117.02 level. However, with indicators turning lower here, risks of a deeper correction are growing. Should price break below the current level, 114.70 is the next support to note, a break of which paves the way for a run down towards the 112.72 level.

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Bitcoin’s new year is off to a bad start – what does the rest of 2022 hold?

Bitcoin has had its worst-ever start to a year. But it remains the “future of money”, says Dominic Frisby. Here, he looks at what might come next for the bitcoin price.

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Investment Bank Outlook 12-01-2022

CitiEuropean OpenThe US CPI ahead seems to be reducing risk appetite in a dull session, with DXY flat and treasuries firmer in a tight range. Chinese CPI and PPI missed in today’s print, while USDCNH dipped on the announcement, on the back of a return in spot selling interest. Comments from BoJ’s Kuroda did not surprise markets, with JPY holding steady. NOK gained 0.36% as it continued to grind higher.Looking forward, the US CPI at 13:30 GMT is the main print markets are looking forward to. However, we also note that the US Federal Reserve Beige Book will be out at 19:00 GMT. Focus will also be directed to any headlines from the NATO-Russia talks today, with a presser expected around 12:30 GMT according to the official schedule. EUR will look forward to Eurozone IP at 10:00 GMT, while CZK will see CPI at 08:00 GMT. India will see IP and CPI at 12:00 GMT and RUB will sight a WoW CPI at 16:00 GMT, although there may be some noise due to the recent holidays.USD highlightsUSD was flat across the session, as we saw some 2y UST yields were up by 1 bp, while 5y and 10y yields were down 1bp, as we look forward to the US CPI. Our trader Hideyuki Liu notes the following below:–Treasuries have traded firmer in a tight range today, with intermediates leading the outperformance. The market found relief in no new hawkish surprise from Powell's testimony to the Senate. As such, all assets have found some relief at least for now. Desk flows have seen RM buying in intermediates, while hedge-related selling was seen in long-end.Key Takeaways from Powell–Labor markets: Powell highlighted the importance of managing risks to the labor market that have been particularly derived from inflation.–Balance sheet: Powell did not detail the timing of balance sheet run off but suggested it will happen probably later this year. Powell said, "Sooner and faster that much is clear" and that the balance sheet is “far above where it needs to be.”–Lift-off: There was no explicit pushback against market expectations of a March hike.NY session price action saw DXY down however, despite Powell’s comments. US Treasury yields were relatively unchanged as well. Meanwhile, equities rebounded to end the NY session positive. We saw a 1.4% rally in the tech-heavy Nasdaq index (15153 at NY close), while S&P 500 rallied as much as 1% from the lows of the day. S&P closed +0.9% at 4713.Looking forward, we will see two input for Fed watchers:–CPI YoY at 13:30 GMT for December. The market forecasts a print of 7.1% vs 6.8% prior. Citi Economics expects a strong 0.44%MoM reading, with more upside than downside risk. Outside of a potential bounce in airfares and further increases in used car prices, we are particularly interested in the extent to which price rises are becoming more dispersed across services categories as we noted the more broad based increase in wages costs across sectors in the December jobs report.–We will also look to the US Federal Reserve Beige Book at 19:00 GMT for additional insights on the economy, although we do not expect it to move markets.

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Market Update – January 12 – Not as hawkish as priced in

Fed Powell, Mester and George, along with a 3-year auction added to the action in the markets.This saw yields pick up, and equities retreat. Commodities also caught a boost and oil touched pre-Omicron highs in Asia.

Powell confirmed the shift to normalization and stressed the Fed will fight inflation aggressively, but also indicated liquidity would not be pulled back anytime soon –

“FOMC would use its tool to ensure price pressures would not become entrenched, and would act aggressively if necessary.”.Fed Chair Powell said inflation could last into mid-2022 , while the Committee has not made any decisions on the timing of raising rates and allowing the balance sheet to shrink. He promising more clarity on that is coming soon.

• USD (USDIndex 95.50) – 6 weeks lows on less hawkish Powell than expected, while data indicate more room for policy easing in China. –China CPI inflation slowed to 1.5% y/y in December from 2.3% y/y.
• Treasury yields are richer, with US Yields 10-yr closed at 1.745% and though the 2-year was only fractionally lower 0.895%, it has managed to hold below the 0.90% level since March 2, 2020.
• Equities – drop in rates, saw yields up and  helped underpin Wall Street where the USA100 outperformed with a 1.4% gain for the day, its best since December 21. The USA500 rallied 0.92%, and the USA30 was up 0.5%. JPN225 rose about 2%. Equities moved higher in Japan and Australia, with tech leading the rise once again.
• BoJ’s Kuroda: “Japan’s inflation is set to accelerate gradually, and the Japanese economy is picking up as a trend.“
• Boeing and Salesforce.com led the USA30, while Illumina topped the USA500, up 14% after giving better 2022 revenue guidance. The energy sector rallied 3%, while utilities were down 1%.
• USOil – up at 81.06 & UKOIL at 83.98
• Gold -spiked to $1823.
• BTC steady close to at $40,000 support.
• FX markets – EURUSD at 1.1360, USDJPY steady at 115.30, Cable at 2-month high at 1.3645. – UK overcoming a wave of COVID-19 cases led by the Omicron& priced in a nearly 80% chance of BoE rate hike in February.

European Open: The GER30 future is up 0.3%, the UK100 future 0.6%, as markets remain in full risk on mood ahead of key US inflation data. Fed Chairman Powell yesterday seemed to provide some reassurance by sticking to the script. That will likely bring the German 10-year rate closer to lifting out of negative territory, as the ECB is still tries to reassure consumers that it is still committed to keeping inflation at bay, while at the same time trying to keep spreads in. A difficult balancing act that will get harder on coming months.

Today – The December CPI headlines today. The market is braced for another strong report with a 7-handle.

Biggest FX Mover @ (09:30 GMT) USDCAD (-0.10%) Pullback to 1.4268 extending to November’s low area. Fast MAs keep sliding lower, MACD signal line & histogram turned below 0 line. RSI 38 and sloping lower, Stochastics entered OS area.

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Andria Pichidi

Market Analyst

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Dollar Down, Investors Await U.S. Inflation Data

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Dollar swoons as Powell soothes policy fears; CPI test looms

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Costa Rica hydro plant gets new lease on life from crypto mining

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The booming jobs market points to inflation lasting for longer

It’s a good time to be looking for a job, with plenty of vacancies and wages rising. But higher wagers are driving inflation up – and it’s not just a temporary thing. John Stepek explains what it means for your money.

from Moneyweek RSS Feed https://moneyweek.com/economy/604318/booming-jobs-market-wage-inflation
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Market Spotlight: USDCHF Approaching Target

Fed Fuels Dollar RallyThe USDCHF breakout idea issued ahead of the FOMC meeting minutes is now close to reaching its initial target at .9288. With the minutes confirming that the Fed is well and truly in hawkish mode, the market is primed towards further USD upside, especially against currencies linked to central banks still stuck in easing mode. Given the SNB’s commitment to maintaining an easing presence in the market, there is plenty of scope for USDCHF to run higher near term should USD data continue to encourage bulls. Indeed, even last week’s mixed US jobs report hasn’t weakened upside sentiment in the pair.Keep An Eye OnTomorrow’s US CPI reading will be crucial for this trade. A strong print today will keep the market firmly focused on a March rate hike from the Fed, driving USDCHF higher. With the retail market around 60% short the pair, there is plenty of room for the current rally to continue if today’s data satisfies. Above .9288, .9356 is the bigger target.

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The IndeX Files 11-01-2022

Markets Under Pressure As Traders Await US CPIAnother dreary start to the week for benchmark global equities indices. The leading indices tracked here were all seen in the red yesterday as Fed tightening expectations continues to weigh on sentiment. While we did see a rebound off the lows yesterday, most notably in the S&P, the overall tone remains bearish with traders still widely anticipating that the Fed will lift rates as early as March, once tapering is complete.Interestingly, we aren’t seeing a great deal of USD upside here. One argument is that Friday’s mixed jobs report failed to provide a catalyst for a further rally. Another argument is that the market’s USD long position is already well-build up, creating a higher benchmark for further increases. Either way, there is plenty of potential for further USD and equity market volatility today with the US CPI reading for December due.A strong reading today will no doubt bolster USD bullishness, further dampening the near term outlook for equities. On the other hand, if today’s data undershoots forecasts, on the back of Friday’s jobs report, this might suggest the market has become too hawkish in its Fed forecasts, likely causing some USD unwind near term and allowing equities to rebound.Technical ViewsDAXYesterday’s sell off in the DAX saw the market trading down to test the support region at 15743.01, along with the rising trend line. With both MACD and RSI bullish, while price holds above this zone, the focus is on a further push higher with bulls looking for a break of the current 16292.21 highs. To the downside, a break lower here will put the focus on 15473.83 next.S&P 500The move lower yesterday saw the S&P briefly piercing below the rising channel lows before rebounding to close back above it on the day. With a long tail on yesterday’s candle suggesting plenty of demand into those lows, the current move is still deemed corrective for now. Bulls will need to see price quickly back above the 4744 level, however, to avoid a deeper test of the 4475.25 level next.FTSEFor now, the FTSE is holding in a block of consolidation between the 7444.3 level support and resistance at the 7558.7 level, with channel top there also. In light of the recent breakout above the 7362.6 level, and with both MACD and RSI bullish, the focus is on a further break higher and a continuation towards the 7691.6 level next.NIKKEIThe latest test of the contracting triangle top saw the NIKKEI turned lower once again. Price is now sitting just below the 28356.6 level, in the middle of the structure. While below here, and with MACD and RSI bearish, the market is vulnerable to a push down towards the 27422.9 level next.

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