Markets
This morning, Hong Kong, South Korean and Australian shares gain, amongst others, supported by headlines that China might provide additional support for its ailing property sector. Japanese equities decline on a strong yen. The positive risk sentiment arrests further USD gains (DXY 104.5). The yuan (USD/CNY 6.894) and the yen (USD/JPY 130.80) remain well bid. EUR/USD (1.0565) gains modestly.
Later today, French CPI data (expected 0.40% and 7.30% from 7.10%) probably will show slightly different dynamics from the German data. In the US, the manufacturing ISM (expected at 48.5 from 49.0) and the JOLTS job openings will bring new insights on the pace of slowdown in the US economy. Later, the Fed will publish the minutes of ‘hawkish’ December 14 Fed policy meeting. The day-to-day momentum clearly is bond-friendly. At the same time, US markets already discount quite some ‘softness’ (only a 30% chance of a 50 bps early February rate hike vs 25 bps). In this context, data showing economic resilience might slow the bond market rally. On FX markets, the dollar might remain better bid short term. It probably will take really negative US data surprises for EUR/USD to return to the 1.0735 resistance soon.
News Headlines
Chinese officials are mulling to resume some imports of Australian coal after a more than two-year ban, Bloomberg news agency reported. Beijing imposed the restrictions in late 2020 following amongst others Australia’s call for an independent investigation into the origins of the coronavirus which further damaged an already strained relationship. Australian foreign minister Penny Wong traveled to China in December for the first official visit in years in tentative signs of a thaw. By lifting the ban, China seeks to prevent any repeat of the broad power outages in 2021 and to a lesser extent in 2022 while Europe’s Russian oil restrictions could significantly increase demand/competition for coal from other key Chinese suppliers including Indonesia. The Aussie dollar soared on the news, outperforming in the G10 area. AUD/USD is testing the 0.68 big figure, up from 0.6727.
The since the midterms Republican-led US House of Representatives adjourned after Kevin McCarthy failed to secure a simple majority during the election for Speaker. He was shy 15 votes in the first round, making him the first majority party leader in a century to fail. Two subsequent rounds of voting didn’t yield a result either. Because of the ultra-thin Republican majority, the group of people voting against McCarthy have an outsized influence in the ballot. They were left disappointed after the predicted red wave during the midterms did not materialize and press for change in the party. The House cannot function without a Speaker and the process could drag on for days until McCarthy is able to garner enough support or steps aside in the race.