There continued to be hesitancy in global market sentiment. Wall Street started off 2022 on a sour note, though the second week was less painful. Nasdaq 100 futures were little changed. This is as Dow Jones and S&P 500 futures declined about 0.8% and 0.3% respectively. European and Asia-Pacific benchmark stock indices did not fare any better.
Global monetary policy tightening continues to be the theme, with the 10-year Treasury yield back to early 2020 highs. However, markets seemed a bit too optimistic in estimating hawkish Federal Reserve policy bets following a mostly in-line CPI report showing the most aggressive inflation in 40 years.
The US Dollar pulled back across the board, further decoupling itself from rising government bond yields. Some of the best-performing G10 currencies against the Greenback were the Japanese Yen, British Pound and Canadian Dollar. The latter received a boost from rising crude oil prices, with WTI back to October peaks.
A key economic event risk to start off the week will be Chinese fourth-quarter GDP figures. Further information will be revealed into how a fragile property market and government crackdowns on the technology and education sectors have been impacting growth. The latest trade figures for December revealed a sharp slowdown in Chinese imports.
For Yen traders, the Bank of Japan’s interest rate decision is due. All eyes will be on how the central bank will adjust its view on inflation. Those trading the Euro ought to keep an eye out for the ECB account of December’s policy meeting. Canada will release its latest CPI report as Australia drops labor market data.