Global Market Quick Take: Asia – January 16, 2025

Key points:

• Macro: US Dec Core CPI came in slightly weaker at 0.2% m/m vs 0.3%
• Equities: US banks dominate earnings, taking S&P 500 higher by 1.8%
• FX: USD weakens post-CPI; JPY up 1.3% as BOJ hints at rate hike.
• Commodities: Oil climbed more than 2% as softer US CPI
• Fixed income: 10-year yield saw its steepest daily decrease since August.

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Disclaimer: Past performance does not indicate future performance.

Macro:

• In December, US headline CPI was in line with expectations, with the month-on-month figure at 0.4% but core CPI m/m came in slightly weaker at 0.2% vs 0.3% est. Year on year figures were 2.9% (headline) as expected (previously 2.7%), and 3.2% (core) vs 3.3% est. Traders are now increasing their bets on rate cuts, with 40 basis points of easing now priced in through the end of the year, returning to levels seen before the non-farm payroll data.
• Australia's employment rose by 56,326 in December (est. +15k), jobless rate up to 4% (est. 4%) from 3.9% in November. Full-time employment fell by 23,711, part-time employment surged by 80,037. Participation rate increased to 67.1% (est. 67%) from 67.0%.
• Canada has drafted a list targeting $105 billion worth of US products in response to potential tariffs imposed by the Trump administration on Canadian goods.
• UK CPI came in at 2.5% y/y, weaker than the expected 2.6% while the core figure printed 3.2% vs 3.4% est.

Equities: 

• US - On Wednesday, the three major US stock indices experienced their largest daily gains in over two months, fueled by strong bank earnings and lower-than-expected core inflation data. The S&P 500 rose 1.8%, the Dow Jones increased by 703 points (1.6%), and the Nasdaq 100 surged 2.4%.
• JP Morgan (+2%), Wells Fargo (+6.6%), Citi (+7.4%) and Goldman (+6.1%) reported stronger than expected earnings in their 2^nd most profitable year ever. JP Morgan is the first bank in US history to reach $50b annual profit.
• Earning for this week: Taiwan Semiconductor, Morgan Stanley, Bank of America

FX:

• Dollar Index fell to 108.7 following US CPI data, extending its drop from a two-year high of 110. Inflation data met expectations, sparking speculation of a Fed rate cut.
• JPY strengthened 1.3% against USD to 155.95. Governor Ueda noted positive wage outlooks, and Deputy Himino hinted at a rate hike next week. Swaps traders see a 73% chance of a Jan. 24 hike. Nomura expects a BOJ hike unless major surprises occur. Yen buying increased post-CPI.
• GBP strengthened against the USD and EUR despite a softer UK CPI report. GBPUSD rose to 1.2231. The currency showed resilience due to its sensitivity to long-term borrowing costs. BoE's Taylor suggested up to 150bps rate cuts, with 56bps easing expected by year-end.
• EUR weakened slightly, dropping below 1.03 after reaching 1.0354 post-US CPI highs, ahead of the ECB Minutes release. Germany's first two-year economic contraction since the early 2000s elicited little market reaction.
• AUD was a top G10 performer, rising above 0.6214 ahead of employment data, which is expected to show 15k new jobs.

Commodities:

• WTI crude oil rose 3% to $79.9 on US inflation data. EIA reported a larger inventory drop. IEA noted uncertainties from US sanctions on Russian oil. OPEC kept steady demand growth forecasts, unaffected by Middle East ceasefire news. Brent crude oil rose 2.5% to above $82.
• Silver rose 2.6% to $30.3 per ounce, nearing a one-month high, as softer US inflation fuelled expectations of less restrictive Fed policy.

Fixed income:

• Treasuries gained significantly, hitting session highs due to a lower-than-expected rise in December's core CPI. This trend continued, with mid-curve yields improving by 15 basis points. Fed-dated OIS shifted to a dovish outlook, projecting a 25 basis point rate cut by July. Treasury options activity remained high, focusing on a larger bond market rally. Yields dropped by 10 to 15 basis points, with mid-curve gains enhancing the 2s5s30s butterfly spread to about -26 basis points from -16 basis points.

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