MARKET ENVELOPES

To watch:

Eurozone PPI; Germany Provisional CPI, manufacturing orders / sales; UK Official Reserves, PMI Services, Narrow money, car registrations; updates from Getlink, Ryanair, Morrisons Supermarkets, Next, Norwegian Air Shuttle

Opening call:

Large losses on Wall Street after surprisingly hawkish minutes by the FOMC will likely take European stocks deep into negative territory. In Asia, most stock markets fell, the dollar stabilized while the yen gained, and there were losses of over 1% for oil and gold. Elsewhere, the yield on 2-year Treasuries is back from an almost 2-year high.

Actions:

European stocks are expected to fall on Thursday after concerns over US interest rates hit global stock markets.

Major US stock indices fell sharply on Wednesday as investors feared the Federal Reserve might react more aggressively than expected to rising inflation. The minutes of the Fed’s policy meeting in December indicated that officials could raise short-term interest rates as early as March.

Some officials also believed the Fed should start cutting its $ 8.76 trillion portfolio of bonds and other assets relatively soon after it started raising rates, according to the minutes. Investors would see the move as another way for the Fed to tighten financial conditions to cool the economy.

“If the Fed is looking to go much faster, then this headwind is a bit stronger than what the market originally thought at the end of 2021,†said Seema Shah, chief strategist at Principal Global Investors .

“A lot of our clients are looking at the gains they’ve made and starting to ask, ‘Hey, should I take some cream off and put the money aside? “Said Emerson Ham III, a senior. in partnership with Sound View Wealth Advisors.

Actions to watch out for:

Pfizer and BioNTech will have new data on its vaccine for children under 5 in late March or early April. Companies are testing adding a third dose for everyone under 5 at least eight weeks after their second injection.

Pfizer-BioNTech added the third dose after early studies of the injections generated a weaker-than-expected immune response in children 2 to 5 years old. Those aged 6 months to 2 years met the criteria for an immune response. Pfizer and BioNTech pushed back plans to seek FDA clearance for the vaccine in young children in December.

Read Barron’s: Chip Stocks Tumbled on Fed Minutes. Intel was an exception

Forex:

The dollar remained stable in Asia after Fed minutes and optimistic ADP jobs data, while the yen strengthened as a general sense of risk aversion dominated markets regional.

IG said investors were taken by surprise by a much more hawkish tone from the FOMC account than many expected. A declining balance sheet and aggressive rate hikes indicated by the minutes may have raised concerns about some leveling off of economic momentum ahead, IG added.

USD / JPY hit a five-year high earlier this week and could rise further to 119 if the 10-year Treasury yield reaches 2% and the current correlation holds, JPMorgan said. He expects the yield to rise to 2% by the end of June.

Among the risks to the yen’s bearish scenario are comments from Japanese officials that the yen is weakening too much, JPMorgan said.

Speculation that the Czech National Bank could use the exchange rate as a means of tightening its policy by selling foreign currencies in order to strengthen the krone is likely to persist even though the central bank has said it will not take such a step. , said ING.

“It has been suggested that the CNB could start selling its foreign exchange reserves to lower the EUR / CZK and tighten monetary conditions without key rate hikes having to do all of the heavy lifting,†ING said.

The CNB will start selling some of the annual income from its foreign exchange reserves this month and the exchange rate topic playing a role in the tightening policy is unlikely to go away anytime soon.

There are fears that mass protests in Kazakhstan against rising fuel prices – which led to the resignation of the government and the president’s imposition of a state of emergency – could affect Bitcoin production.

Last year, China started cracking down on Bitcoin miners, and several have moved operations to its western neighbor, making it the second-largest Bitcoin mining country after the United States.

Canaan, The9, and TAOP all entered Kazakhstan in one form or another last year, hoping to enjoy a friendlier atmosphere in the energy-rich country, but a recent power shortage crippled the bitcoin production. Producing Bitcoin requires computers that use large amounts of electricity.

Earlier this week, Canaan struck strategic deals with several crypto mining companies for a joint mining venture in Kazakhstan.

Obligations :

The two-year Treasury yield fell on Thursday after hitting its nearly two-year high on Wednesday, following the Fed’s minutes. They also helped push the 10-year yield to its highest level since last April and these gains have continued in Asian trading.

The FOMC discussed a range of topics related to the eventual normalization of monetary policy, with almost all participants agreeing that it would likely be appropriate to initiate a balance sheet runoff at some point after the first rate hike.

Some have said relying more on balance sheet shrinkage and less on rate hikes could help limit the flattening of the Treasury yield curve as the Fed tries to move away from an accommodative policy.

Yields were already higher across the board just before the minutes were released. After their publication, the gain in the two-year rate outpaced that of the 10-year rate, leaving the curve flatter on the day at 87 basis points, while the spread between the 5 and 30 year rates narrowed. reduced to about 65 basis points. , according to Tradeweb.

Economists at JPMorgan have said the Fed will likely allow its balance sheet to start contracting in September and likely allow $ 100 billion in treasury bills and mortgages to flow out each month.

That pace is more than double the last balance sheet contraction, but more importantly, it’s slower than the $ 120 billion-per-month buying pace that dominated most of the balance sheet expansion.

Energy:

Oil prices fell more than 1% in Asia, making up all of Wednesday’s gains.

The U.S. benchmark index posted its highest level since late November after government data revealed a sixth consecutive weekly decline in domestic crude supplies, as well as an increase of more than 10 million barrels in gasoline inventories. .

“The gross print was a little less than expected, [but] we saw a telltale build in gasoline and a really big build “at the Cushing Delivery Center, Tariq Zahir, managing member of Tyche Capital Advisors, told MarketWatch.

Oil has largely ignored larger-than-expected increases in petroleum product supplies amid a “growing market consensus that the latest wave of Covid and the accompanying decline in demand will be short-lived” and Growing concerns about OPEC’s ability to meet their production targets, said Troy Vincent, senior market analyst at DTN.

OANDA said energy traders are increasingly bullish that once the Omicron wave has passed, a massive recovery in air travel will continue to support the outlook for crude demand.

Metals:

Gold futures fell 1% in Asia, extending their decline for minutes after the Fed. The OCBC has said it expects more pressure to sell gold in the future as the Fed moves on to rate normalization.

Copper prices have also fallen. However, Huatai Futures said that while expectations of higher US rates and rising treasury yields may put pressure on buying interest in commodities, copper prices are expected to remain firm with a decline. limited decline, given the limited supply and low stocks worldwide.

Iron ore prices rose 3%, extending the new year’s gains on growing hopes of better demand in 2022 as steel production resumes in China.

As Beijing imposed substantial production restrictions at the end of 2021, industry data shows the country’s major steel producers are resuming production, Huatai Futures said. The increase in steel production activity is a major positive for iron ore buying sentiment.

Nickel ore production is expected to increase solidly in 2022 and 2023 as there is less disruption in mining in Indonesia and the Philippines and high metal prices encourage producers to dig more, Fitch Solutions said. However, the increases in production will fade later to result in an average annual growth of 4% for 2021-2030, compared to 6.6% per year in 2010-2019.

“The most fragile part of the global nickel mine supply pipeline is in Indonesia, where any delay in the development of downstream nickel processing facilities could result in the production of nickel ore in the country and reduce encouraging miners to increase production, â€Fitch said.

MAJOR TITLES OF THE DAY

Fed minutes point to possible rate hike in March

At their meeting last month, Federal Reserve officials considered a quicker timetable for raising interest rates this year, potentially as early as March, amid heightened discomfort over high inflation.

Minutes from their December 14-15 meeting, released on Wednesday, showed officials believed rising inflation and a tight labor market may require a short-term rate hike “sooner or later. a faster pace than the participants had anticipated “.

Improved service activity in China in December

A private gauge of China’s services sector rebounded in late 2021 after falling in November, as supply and demand improved.

The Caixin China Service Purchasing Managers Index rose to 53.1 in December from 52.1 in November, Caixin Media Co. and research firm IHS Markit said on Thursday.

US businesses create 807,000 jobs in December, exceeding expectations

Private sector employment exploded in December as concerns over the Delta variant of Covid-19 eased and Omicron’s impact on the economy has yet to be felt, data shows from the ADP payroll provider released Wednesday.

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January 06, 2022 00:37 ET (05:37 GMT)

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