Daily Market Outlook, January 12, 2022

Overnight Headlines

Asian equity markets are up strongly this morning. That is despite reports that two Chinese cities are now in lockdown reflecting concerns about a sharp rise in Covid cases. Chinese consumer price and producer price inflation both rose by less than expected in December. That fuelled speculation that China will further loosen monetary policy to boost growth. In contrast several US Federal Reserve policymakers, including Fed Chair Powell, warned yesterday of the risk of a significant tightening in monetary policy.
Today’s US CPI report for December is likely to be the most closely watched data release of the week given concerns about rising inflation. Expect the headline measure to rise to 7.0% from 6.8%, the first print with a seven handle for nearly forty years (the last time was June 1982). The ‘core’ measure (excluding food and energy) is forecast to rise to 5.4% from 4.9%, would be above 5% for the first time since the early 1990s. Such an outcome is unlikely to dampen speculation that the Federal Reserve is set to raise interest rates several times this year.

Also in the US, the Fed will publish its Beige Book. This is the summary of anecdotal reports from businesses regularly released before the Fed’s monetary policy meetings. Evidence of disruptions to economic activity from Omicron will of course be of interest. However, the primary focus is likely to be on signs of inflationary pressures. In particular the extent to which firms are facing labour recruitment difficulties, whether they are raising wages in response to this and the indications of how much of any cost increase will be passed through into prices.

In the Eurozone, the consensus expectation is that industrial production will have risen by 0.2% in November. Already released data for some of the larger member countries has been mixed with France and Germany both recording modest decline. However, an outsize rise of 4.5% for Spain points to some upside risk to the forecast. Whatever the outcome it may be regarded as old news by markets as it covers the period before concerns about the Omicron Covid variant started to emerge.

The BoE’s Cunliffe is supposed to talk about crypto finance and so may not touch on near-term economic developments including the outlook for interest rates. Fed policymaker Kashkari is also scheduled to speak. He is typically regarded as one of the most dovish members of the monetary policy setting committee but has recently said that he might support some interest rate rises this year.

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

EUR/USD: 1.1285 (366M), 1.1300-10 (3.06BLN)

1.1330-35 (778M), 1.1400 (929M), 1.1425 (836M)

1.1520-30 (1.3BLN)

USD/JPY: 113.45-50 (1.11BLN), 113.64-75 (572M), 114.00 (205M)

114.95-00 (592M), 115.50 (638M), 115.79-80 (320M), 115.95-05 (1.365BLN)

116.30-35 (543M)

GBP/USD: 1.3595-00 (950M), 1.3700 (280M)

EUR/GBP 0.8495-00 (1.1BLN). EUR/CHF 1.0450 (428M)

AUD/USD: 0.6995-0.7010 (587M), 0.7180-90 (639M)

NZD/USD: 0.7020 (627M), 0.7050 (674M)

USD/ZAR: 15.30 (200M), 15.60-65 (455M), 15.97-16.00 (440M)

EUR/SEK: 10.15 (397M), 10.1800 (393M)

USD/CAD: 1.2680-90 (1.15BLN), 1.2705-15 (360M)

1.2750-60 (1.3BLN), 1.2790-00 (1.94BLN), 1.2840 (860M)

EURUSD Bias: Bearish below 1.15 Bullish above

GBPUSD Bias: Bearish below 1.36 Bullish above.

USDJPY Bias: Bullish above 114.50 Bearish below

USD/JPY in stasis in Asia, 115.23-40 EBS, quiet ahead of US CPI
US yields remain in focus, holding below Monday highs, Tsy 10s @1.735%
Japan-US rate differential remains relatively wide however
Option expiries continue to contain action today, for the remainder of the week?
114.95-115.00 $596 mln, 115.50 $638 mln, more at these strikes tomorrow
Good Japanese importer bids from ahead of 115.00, stops mixed in below
JPY crosses better bid with risk, Nikkei +1.9% @28,748
EUR/JPY 131.00-20 EBS, GBP/JPY 157.01-39, AUD/JPY 82.99-83.23
Firm yields abroad in view too, carries and some fresh portfolio moves

AUDUSD Bias: Bearish below 0.7250 Bullish above