Equities and Dollar Up Ahead of FOMC Announcement

January 26, 2022

Share prices so far today have climbed 1.8% or more in Germany, France, Spain, Italy and Great Britain. Futures trading in the S&P 500, DJIA, and Nasdaq show overnight gains of 1.0 – 1.8%. Equities in Asia closed narrowly mixed with drops of 0.4% in Japan and South Korea but gains of 0.7% in China and Singapore.

The weighted DXY dollar index rose 0.2% overnight in spite of dollar declines of 0.5% against the currencies of the U.S. northern and southern neighbors. The dollar climbed 0.6% against the Turkish lira, 0.3% relative to the Australian dollar, and 0.2% versus the euro, Swissie, and yen. Sterling is unchanged.

The Ukraine hyrvnia weakened 0.4% overnight and touched a low of 28.8356, not far from its 2018 trough. An imminent Russian invasion of Ukraine is feared, and Germany has expressed reservations about a military response by NATO.

Ten-year sovereign debt yields rose overnight by three basis points in the U.K., 2 bps in the U.S. and 1 basis point in Germany.

WTI oil increased 0.7% on geopolitical tensions, and gold (down 0.4%) moved inversely with the dollar.

Australia is observing the Australia Day holiday.

The Federal Open Market Committee will release its policy statement at 14:00 EST, followed 30 minutes later by the start of Fed Chairman Powell’s press conference. No update of macroeconomic forecasts are scheduled, but investors are bracing for a verbal signal allowing for a likely federal funds rate hike after the March meeting.

A summary of the Bank of Japan’s policy Board meeting of January 17-18 projects moderate continuing economic recovery and inflation hovering around 1.5% for part of this year and observes that CPI expectations have risen somewhat as well. But the summary also warns of spreading Covid, doubts that the inflation target will be fully achieved even by early 2024, and defends the retention for now of an ultra-accommodative monetary stance that, if necessary, could be augmented.

Japanese corporate service price inflation was at 1.1% in each month of the final quarter of 2021. Japan’s leading and coincident economic indicators rose to four-month highs in November, but for a third straight month officials characterized the trend of the coincident index as “weakening.”

An early estimate of the U.S. monthly trade deficit and new U.S. home sales data will be reported shortly. U.S. mortgage applications plunged 7.1% last week. Besides the Fed, monetary policy statement are scheduled today from central banks in Canada and Chile.

French consumer confidence slipped back to a two-month low in January.

Swedish producer price inflation accelerated to another record high of 20.1% last month. PPI inflation last January had been negative 0.8%. Sweden also reported a SEK 5.5 billion trade deficit in December, the first shortfall since August. The 2021 surplus of SEK 25.1 billion was down from SEK 50.6 billion in 2020 but above the surplus of 14.6 billion kroner in 2019.

Investor sentiment toward the Swiss economy rebounded from a reading of zero in December and -10.8 in November to +9.5 this month. That still well below last May’s peak of 72.2.

Danish retail sales dropped 4.5% on month in December, but a 12-month 3.4% rise was the largest since 3.8% over the year through last August.

Retail sales in Mexico rose 0.9% on month and 5.4% on year in November.

Industrial production in Singapore grew 4.3% in December, far more than had been projected, and was 15.6% above its year-earlier level.

Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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