This Week In Markets: 10th - 14th January 2022 (US yields, US CPI, Bitcoin, Bank earnings)

Okay, very good morning. Hope you had a good weekend. You'll be pleased to know my voice is now back to normal, and it's coming up to 9 PM London time, so just wanted to get you up to speed ahead of the, the week ahead. And plenty to talk about, and as you can see here, gonna really kick off the conversation with a bit of a recap of, of last week. Of course, we saw things like hawkish FOMC minutes. We also saw the non-farm payrolls report come out on Friday, and although the headline figure was a disappointment, much lower than expected, we did see the wage number go up to 4.7%, way above expectations of 4.2%, and the unemployment rate also dropped to 3.9%. Expectations were for 4.1%. So further fueled that US yield movement we'd seen really dominate proceedings last week, and that's what we're looking at here. We closed at 1.766% in the US 10-year yield. And that, as you can see, puts us just above the peak of where we were in around March time of 2021. And we're kind of gunning down for around the 2% yield level of which we were trading back in around the kind of November-December time, really Q4 of 2019. So this being then prior to the actual pandemic and it commencing. Of course, a lot of rationale here being now the fact that markets have moved quite aggressively pricing and subsequent timing around the sequence as well of the Federal Reserve's normalization of policy. So not only now are we expecting tapering process to conclude by March, we're also talking about the idea then that we might see rate liftoff and also the shrinking of the balance sheet. And as you can see here, in terms of US interest rates implied positioning in short-end rates in the US, from the different colors is basically as we've moved through, through time and the curve has got more steeper, steeper to signify that more aggressive rate hikes to come for this year and actually pricing in very much so now that anticipation of March. And there's been lots of big major institutions coming out calling now for that March hike and penciling that in for the timeline. So that's really going to be quite a key thing to look out for this week. Of course, last week we saw in the equity space broad weakness overall, but underperformance in those growth stocks which are more sensitive to high-yield movement. So quite an interesting sector plays that were playing out. So those that are more cyclical benefiting generally, the decreases being less severe than that of what we were seeing in, say, tech names overall. And we'll be continuing to monitoring that quite, quite closely. And as far as crypto land is concerned as well, These are, of course, live prices trading through the weekend. And after coming under quite significant pressure from last week, we are seeing a bit of a bounce to kick off the, the new week. Bitcoin now trading back up about 4% at 42, coming up to $42,500. And that pretty much replicated across the board. So Ethereum's up just over 5%, XRP up 4%, Solana up about the same margin as well. Cardano, Cardano up around 4% as well. So decent gains seen there at the moment. We'll see how sustained that can be. Otherwise, in terms of the news and a few things to get you up to speed on, starting with the COVID picture, I would say overall the general assessment has been now that the market's kind of moved on from generally Omicron and its impact, even though the case rates have been sky high as we've been seeing at record levels in everywhere in mainland Europe, the UK, and the US. And pretty similar, we can expect from this week the market largely brushing that aside. And I don't really see that being any impediment to the continuation of some of the moves that we've seen in yields of late. Now, London, according to The Weeknd, may well be past the peak of the Omicron wave. According to Kevin Fenton, who's London's regional director for public health, he spoke earlier today. That's pretty much in fitting with some of the data that we have been seeing of late in terms of case numbers. London, of course, was the UK epicenter of the Omicron variant. Other parts of the country case rates are still moving higher at this point in time, but that is somewhat lagging of London, and London now moving lower. And also those on ventilators, even though being hospitalizations are moving slightly higher, has remained very low. And thus then we're not expecting any new types of restrictions to come in from the UK. So all fairly positive, you would say, in that regard and in fitting with what Prime Minister Boris Johnson said in the middle of last week about no new restrictions forthcoming. Now, COVID-19 hospitalizations in the US— some headlines you might have clocked— are poised to hit a new record high according to a tally by Reuters by potentially Friday this week. Surpassing the record set in January of last year. Deaths, a lagging indicator though, remain fairly steady at about 1,400 a day, well below last year's peak. So the latter fact, I think, likely to keep markets relatively calm on the matter at the moment, despite some of the rising numbers on the, on the top level. Otherwise, elsewhere, on Brexit, Foreign Secretary Liz Truss, who you can see down the bottom here, she said at the weekend she would not accept a deal which means goods from Britain being checked as they enter Northern Ireland. The protocol is part of the Brexit deal, of course, that prevents a hard Irish border by keeping Northern Ireland inside the EU's single market for goods. She's repeated the UK's willingness to trigger Article 16, the mechanism of the protocol. Article 16 sets out the process for taking unilateral safeguard measures if either the UK or the EU concludes that the deal is leading to serious practical problems or causing diversion of trade. Um, it's a very serious threat, but it's one I feel that is not credible. And I think really two reasons for this, uh, really strategic posturing to fire a signal of intent. She's only just coming in to now lead the negotiations after Frost stepped down, unhappy with some of the handling of the pandemic rules in Britain and a lack of progress with the EU on Brexit. So she needs to really make a stance to just kick off the new round of negotiations. So it's unsurprising to be taking quite a severe stance at this point in time. And of course, timing is key. And her comments do come ahead of 2 days of talks with her EU counterpart, which is going to happen this week. And she is also meeting with Northern Ireland political and business leaders this week as well. So, so again, supportive of that degree about them getting a fair deal and Northern Ireland still being inclusive of that, of being tied to Westminster and so forth. So lots of assertive comments, zero impact as far as markets are concerned. And the risk, I would say, of Article 16 being triggered doesn't move because of what she said. Again, it's just purely political optics at this point. Otherwise, other things I'm interested in this week— US earnings kick off on Friday. There are some other earnings in between, but really the unofficial commencement is when the big banks report, which is on Friday. As you can see here, JPM, BAML, Goldman Sachs, and Morgan Stanley will all be coming out. Now, what can we expect here? Well, the biggest banks are set to report record profits— this is for 2021— thanks to bumper investment banking fees and also lower-than-expected losses on loans during the pandemic. I don't really think that any of these are particularly going to move the needle, so to speak, because I'd say that the record profit figure, I think, is pretty much baked in and very much expected at this point in time. All right. The other thing then to talk about is this, and just having a quick look at the calendar for the week ahead. Um, yeah, after a sharp jump in bond yields, still that's going to be very much something that if you're an equity trader or looking at the equity performance, as much as there's individual isolated, uh, single stock news flow definitely the yield movement might well dictate and definitely give clues towards any disparity and imbalance between the different three major indices in the US, between that of the S&P, Dow, and Nasdaq, as we continue to monitor the tech space quite, quite closely. The other things looking out for is reports on December retail sales and US industrial production will come out on Friday. For the former, so retail sales, analysts at the Dutch bank ING note that the figure may be close to flat with falling auto sales dragging the headline number down. However, they do note that that is supply related due to lack of cars to purchase rather than weakness in demand. So perhaps not to read too much into the one-time weaker number that we'll, we'll see in that December print. Otherwise, Fed Chair Jerome Powell testifies on Tuesday. That's before the Senate Banking Committee, and this is in regards to his nomination for his second term at the Fed chair. So typically we don't really see too much in the way of much interest in these comments. It's more just a formality, if you like. And similar will happen 2 days later with Fed Governor Brainard. She appears with the same panel at the confirmation hearing on her elevation to the vice chair position. And again, they won't let anything slip. They're not really going to say anything too new, I would say. Are the politicians really going to challenge them too much on the recent rate pricing? Probably not, because politicians have a different agenda. So as much as I'd keep an ear and an eye out on those, those speeches during the week, I don't think they're going to be particularly— probably too shocking. The big thing, of course, for the week is US CPI. That is going to be the main release that the markets were looking out for. That comes out on Wednesday, particularly in the context with the focus on yields and Fed timing on their rate hike. And the reason why is because the year-on-year is expected to come in at 7% through December and climbed 0.4% on the month earlier. That's if it comes out within line with expectations. And of course, the inflation surge underscores largely then why US officials are preparing for a quicker normalization in monetary policy than previously anticipated. The jobs data, of course, that we saw Although weak on the headline, as I said, overall adds to the case and evidence of a tighter labor market and therefore gives the Fed the ability with this very high inflation print that they've got to act sooner or later. So hence the reason why we've seen what's materialized over the last couple of sessions. Other Fed speakers coming out this week: Mester, George, Evans, and Bullard all on the docket. And then moving away from the States, from China midweek, you get their latest price data. So inflation metrics could offer more evidence that inflationary pressure may have peaked there, at least for the time being, while trade figures in China are also coming out at the end of the week and are set to show new annual export record as Beijing sticks to that COVID-19 zero tolerance strategy that keeps its factories open, though, taking advantage of some of the recovering global demand seen elsewhere at this point in time. And then elsewhere, finally on Friday, a highlight coming out of the UK— monthly GDP and industrial data for November is going to be released, probably showing the fourth consecutive increase. Analysts suggest that growth figures, the GDP numbers, supported by a decent month for UK retail and a bounce back in hospitality after a weak October. And not forgetting as well that this would also start to see the contribution of the new vaccine booster program starting to come into play as well. So that is it for the week ahead. So again, really the main highlight is going to be US CPI on Wednesday. Definitely yield watching once again. A couple of bank earnings kick off then at the end of the week, the reporting season. And then you've got some Chinese metrics coming as well in the mid part of the week in inflation and also trade data. As well to look out for. So that's your wrap. Good luck for the week ahead. Remember, no daily macro briefings for me anymore, but of course you can get my daily note every morning at the European, um, open if you follow my Twitter handle here. You can just go to theamplifyme.com/market-maker for the daily newsletter as well from myself. But otherwise, take care, stay safe, have a good week head. Mm-hmm.