Chart of the Day
One of the first major business surveys for January, the Empire State/NY Fed manufacturing survey, plummeted to its weakest since the opening stages of the pandemic. The most likely culprit is the rise in the number of people being forced to take time off with Omicron. If that fall is reflected in the other regional surveys, then the ISM nationwide surveys will follow and we’ll be talking about a very weak start to the year for the US economy. It should all be temporary if it is Omicron to blame, but this could dissuade the Fed from a surprise rate hike this month.
Macro
In Canada, housing starts fell to 236,000 annualized in December, down sharply from 304,000 the previous month and now only a bit higher than pre-covid norms after their very strong run.
Markets
Equity markets continued to weaken yesterday – there’s a big test here for the S&P 500, which is at risk of breaking down below the channel it has trended up in since the pandemic.
Both equity and bond market volatility have been increasing amid the sell-off.
10-year yields in both Canada and the US are moving in lockstep toward 2.0%.
The 30-year yield has also been climbing again and is now the strongest since 2020, while the 2-year yield continues to rise as traders price in near-term Fed hikes.
It’s the complete opposite situation in China, where the PBOC has been very gradually loosening policy.
CAD has been doing much better than the antipodean commodity currencies this year.
That naturally reflects the sharp rise in oil prices, which are now at a new high with WTI above $85 – higher gasoline prices to come then.
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