Jan 8th Morning Update
Asians Stocks Slump Ovenight along with Crude Oil
The New Year began with market challenges, with risk assets fluctuating and bonds losing ground. Last week’s data releases, including the December payrolls report and services ISM in the US, showed mixed signals, contributing to volatility in rates.
Asian Equity Markets Under Pressure: Overnight spotlight was on the Asian equity markets, particularly China and Hong Kong, where we witnessed significant weakness. The CSI 300 benchmark notably fell 1.3% on Monday, marking its lowest close since February 2019. This downturn is primarily driven by disappointing manufacturing data, escalating trade tensions with Europe, the fallout from the Zhongzhi Enterprise Group bankruptcy, and recent regulatory changes. These factors have cumulatively led to a 4% year-to-date decline in the CSI 300, categorizing it as one of the worst performers among major global equity indexes.
US Indices Mixed: In the United States, market reactions have been varied. The S&P and NASDAQ indices managed to recover from overnight losses, demonstrating resilience in the face of global headwinds. In contrast, the Dow Jones index is trading lower, largely impacted by recent developments at Boeing.
Commodity Markets: WTI crude is trading approximately 5% lower, reflecting the growth concerns despite geopolitical tensions, notably in the Red Sea. Concurrently, gold prices have declined by 1%, despite these rising tensions.
Treasury Bond Market Gains Post-Selloff: In the bond market, U.S. Treasuries are seeing modest gains following last week's selloff. However, the upcoming week is poised for potential volatility with a series of Federal Reserve speakers scheduled to address the market, coupled with Treasury auctions for 3, 10, and 30-year bonds.
Fiscal and Monetary Policy Update: A significant development in the policy arena is the agreement on a $1.6 trillion federal spending deal, effectively reducing the risk of an imminent government shutdown. Furthermore, Dallas Fed President Lorie Logan's suggestion of a potential slowdown in the pace of quantitative tightening aligns with the sentiments expressed in the recent FOMC minutes.
Looking Ahead: The focus for the coming week is squarely on the US CPI data due Thursday, which is anticipated to mirror the core CPI's modest year-over-year increase. Other crucial data on the horizon include Friday's PPI, consumer credit, the NY Fed 1yr inflation expectations survey, and the international trade balance, all of which are poised to provide further insights into the evolving economic landscape.
Stay tuned as we continue to monitor these developments and their implications for the global markets.