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DXY depreciated 0.3% to 104.24, near the centre of its 103.4-105 range set after the last month’s FOMC meeting. S&P 500 rose 0.8% to 3853 while Nasdaq Composite increased 0.7% to 10459. Like the DXY, S&P consolidated between 3764 and 3891 since 16 December, and Nasdaq between 10200 and 10600 since 22 December. The US Treasury 10Y yield shed 5.8 bps to 6.38% while 2Y eased 1.9 bps to 4.35%. According to the FOMC minutes, 17 of the 19 Fed officials want more rate hikes to at least 5.1% in 2023 after the 50 bps hike to 4.25-4.5% on 14 December. Minneapolis Fed President Neel Kashkari, a renowned dove, favoured 5.4% before pausing. The three Fed Presidents speaking today – Patrick Harker (Philadelphia), Raphael Bostic (Atlanta), and James Bullard (St Louis) – will push back against the market’s bets for rate cuts later this year. The market is reassessing its bet for a smaller 25 bps hike at the FOMC meeting on 1 February. It sees the possibility for the Fed to follow through with a second 50 bps hike to 4.75-5%.
The US labor market was too tight for the Fed to lower its resolve to lower inflation to its 2% target. According to the US JOLTS Survey, November’s job openings were strong at 10.46 mn vs the 10.05 mn consensus; October was revised to 10.51 mn from 10.33 mn. The ISM manufacturing PMI employment index rose from 48.4 in November to 51.4 in December, its strongest since March. Today, consensus expects the ADP Employment report to add 150k jobs in December, more than the 127k in November. Expectations were unchanged for tomorrow’s nonfarm payrolls to be firm at 200k in December from 263k in November. Next week, consensus expects US CPI inflation to slow to 6.7% YoY in December from 7.1% in November.
JPY depreciated 1.2% to 132.63 per USD.Yesterday’s close was above 131.73 on 20 December, when the Bank of Japan doubled the trading band for the 10Y JGB yield to ±0.50% around 0%. Yesterday, the BOJ conducted a fourth day of unscheduled bond purchases to cap the 10Y JGB yield at 0.50%, affirming BOJ Governor Haruhiko Kuroda’s stance that the yield range will not be expanded further. However, the market reckons Japan might exit its ultra-loose monetary policy after Kuroda’s term ends in April. GBP appreciated 0.7% to 1.2055, returning into its 1.20-1.2130 range between 23 December and 2 January. The market is wary that the UK recession may lead the Bank of England to end rate hikes before the Fed. Despite the 75 bps and 50 bps hikes in November and December, consensus expects the bank rate to peak at 4% in 2023. Not surprisingly, the diverging BOJ-BOE outlook led the GBP/JPY cross rate to depreciate from its 169 high in December to 159.89 yesterday. The near-term resistance and support levels are seen at 160 and 155, respectively though markets are probably eyeing a lower 150-155 range in the coming months.
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