Daily Market Outlook, January 12, 2023

  • China Inflation Surprises On The Downside, Will The US Follow Suit?

  • Overnight inflation data from China printed in line with expectations at 1.8% year over year, however, there was a downside surprise with respect to producer price inflation, which declined to -0.7% with market watchers pencilling in a -0.1%, the number confirms a third month of decline in stark contrast to the 10.3% levels seen 12 months ago.

  • Asian equities took further solace from a report in the Japanese newspaper Yomiuri which floated the idea that the Bank of Japan will further review the impact of its Yield Curve Control strategy, the central bank is believed to be favouring further actions to reduce the market distortions created by its decade-old easy monetary policy, the timing of this review caught markets off guard as most market watchers expected this announcement to be delayed until Governor Kuroda departs the BoJ in April. The combination of the Chinese data and the BoJ review announcement supported Asian equity markets overnight, which carried over from a strong close on Wall Street with the benchmark SP500 posting a solid 1.28% gain.

  • The data slate for the trading day ahead is dominated by the US inflation release this afternoon, market watchers are primed for a further retreat in headline inflation stateside, inflation is widely expected to show a sixth consecutive month of declines, the median forecast amongst economists’ is for a 6.5% headline figure, with a 5.7% core rate (excluding food and energy), the core read likely reflects the decline seen in goods price inflation which has been assisted by the recent reduction in supply chain bottleneck constraints, the fly in the ointment remains the services sector, where inflation remains stubbornly elevated driven by tight labour market conditions in the US. Today’s CPI print is a critical input into the US central bank’s considerations for its next rate move, a 0.1% move on either side of the consensus will likely decide whether the Fed raises rates by 25 or 50bps at its next meeting, the Fed fund futures market is currently pricing a circa 31bps rate move at the next meeting.

  • Markets-wise, the only game in town today will be the market’s reaction to the inflation print, an inline or slightly softer print of something closer to 6% will likely see a positive response from equity investors with the SP500 likely gaining a further 1-2% on the day, this would weigh on the greenback supporting emerging market currencies, a print sub 6% would fuel more outsized gains in markets igniting a rally of 2.5%+ in the US benchmark. The bearish thesis will gain traction on any number above 6.6%, with markets likely rapidly repricing risk sentiment, shedding 1-2% on the downside and adding support to the Dollar, any number close to or above 7% would be a significant bearish development for risk appetite, as this would provide further cover for the Fed to increase rates, placing further focus on a higher terminal rate for the current US rate cycle, on the day we could easily see the SP500 lose over 2.5% with the US Dollar making a push to reclaim the 105 handle.

Overnight News of Note

Treasuries Rally With Stocks, Hold Gain After Solid 10-Year Sale

Oil Pushes Higher For Sixth Session Ahead Of US Inflation Data

Global Stocks Becalmed Thursday Before Potential CPI Storm

BoJ To Inspect Side Effects Of Ultra-Loose Policy – Yomiuri

Japan Posts Record Current Account Surplus For November

China’s Factory Deflation Continues As Covid Outbreaks Spread

China Confident, Capable Of Keeping Prices Stable In 2023 – NDRC

China’s Household Loans May Rebound In 2023 – Securities News

Australia Extends Run Of Trade Surpluses On Metals Exports

New Zealand Sees Record-Low House Sales As Buyers Step Away

Fed’s Collins Backs Slowdown As Support Mounts For Smaller Rate Move

ECB’s De Cos Sees ‘Significant’ Rate Hikes At Coming Meetings

Global Foreign Reserves Dwindle As Countries Counter Dollar’s Rise

Yen Climbs As Traders Weigh Report On BoJ Side-Effects Check

TSMC Tops Profit Estimates, Bucking Trend As Chip Industry Cools

(Sourced from Bloomberg, Reuters and other reliable financial news outlets)

FX Options Expiration, New York Cut 10am EST

EUR/USD: 1.6000 (EU537.5M), 1.1222 (EU441.1M), 1.1573 (EU432M)

USD/CNY: 7.4000 ($1.25B), 7.6000 ($1B), 7.4960 ($500M)

AUD/USD: 0.6825 (AUD560.6M)

USD/JPY: 140.00 ($1.27B), 130.00 ($381M)

USD/CAD: 1.2900 ($1.81B), 1.3655 ($1.49B), 1.3650 ($1.38B)

USD/KRW: 1266.50 ($1.05B), 1216.50 ($1.05B), 1385.50 ($925.9M)

USD/MXN: 19.00 ($465.5M), 19.50 ($451.5M)

USD/BRL: 5.5000 ($456.4M), 5.6750 ($399.8M), 4.9000 ($350M)

(FX options data DTCC)

Technical & Trade Views

SP500 Bias: Bullish Above Bearish Below 3865

  • Primary support is 3865

  • Primary objective is 4000

  • Below 3850 opens 3830

  • 20 Day VWAP bullish, 5 Day VWAP bullish

EURUSD Bias: Bullish Above Bearish below 1.0737

  • Primary resistance is 1.0830

  • Primary objective is 1.0450

  • Above 1.0750 opens 1.0830

  • 20 Day VWAP bullish, 5 Day VWAP bullish

GBPUSD Bias: Bullish Above Bearish below 1.23

  • Primary resistance is 1.23

  • Primary objective 1.1720

  • Above 1.2330 opens 1.2440

  • 20 Day VWAP bullish, 5 Day VWAP bullish

USDJPY Bias: Bullish above Bearish Below 130.50

  • Primary support is 130.50

  • Primary objective is 137

  • Below 130 opens 129.50

  • 20 Day VWAP bearish, 5 Day VWAP bearish

AUDUSD Bias: Bullish Above Bearish below .6960

  • Primary resistance is .6960

  • Primary objective is .6650

  • Above .6970 opens .7050

  • 20 Day VWAP bullish, 5 Day VWAP bullish

BTCUSD Bias: Intraday Bullish Above Bearish below 17600

  • Primary support 17600

  • Primary objective is 18900

  • Below 17500 opens 17100

  • 20 Day VWAP bullish, 5 Day VWAP bullish