Daily Kickstart (Yen, Gold Fall; Inflation, IP Data, Goldman, Yellen All On Deck)

Traders put the brakes on the flight to safety bid on Wednesday as gold and the yen were lower for the first time in eight sessions.

USDJPY options were the most active, comprising 27% of total volume – 115.00 calls went off for $250 million according to the DTCC. “With U.S. stocks rising, risk off sentiment isn’t strong enough to spark concerns about yen strength,” Akira Moroga, manager of currency products at Tokyo’s Aozora Bank told Bloomberg. Support is at 112.50.

As for shiny yellow doorstops, Melbourne-based economist Vyanne Lai (which sounds strangely like “Art Vandelay” of Seinfeld fame) notes that although gold “has surged on renewed Brexit concerns and on the lack of clarity on Trump’s policies,” the pace of Fed hikes will more important in the long-term. “The longer-term narrative is for gold to embark on a downward trend,” Bloomberg quotes Lai as saying on Wednesday.

jpy

Moving right along, Asian equities were mostly higher with the Nikkei getting a lift from the weaker yen, Shanghai moving higher on likely state intervention (plunge protection team) tied to Xi’s Davos visit, and Hong Kong shares jumping to two month highs (capital outflows from the mainland seeking safety from a weaker yuan?):

hongkong

(Bloomberg)

  • MSCI Asia Pacific up 0.3% to 140
  • Nikkei 225 up 0.4% to 18894
  • Hang Seng up 1.1% to 23098
  • Shanghai Composite up 0.1% to 3113
  • S&P/ASX 200 down 0.4% to 5679

In Europe, shares are mixed following Theresa May’s Tuesday Brexit speech. Cable was down 1% to a session low following yesterday’s monster, short-squeeze-driven rally. “Europe will also have its say when it comes to negotiating a broad and ambitious agreement as May calls it. The long- term risks of a Brexit have not fallen. As a result, we are very skeptical about yesterday’s sterling rally,” Commerzbank wrote in a note.

speech

Meanwhile, the final reading on German inflation confirms a 1.7% rise in December. So you know, consider that against 10Y bund yields and ask yourself if this is sustainable:

inflation

(Bloomberg)

As for the US, we’ll get earnings from Goldman and Citi along with inflation data due at 8:30 and IP data as well a short while later. Yellen speaks at 3 in San Francisco. Here’s a full schedule:

  • 7am: MBA Mortgage Applications, Jan. 13 (prior 5.8%)
  • 8:30am: CPI MoM, Dec., est. 0.3% (prior 0.2%)
  • 8:30am: Real Avg Weekly Earnings YoY, Dec., (prior 0.5%)
  • 8:55am: Redbook weekly sales
  • 9am: Fed’s Kaplan Speaks in Dallas
  • 9:15am: Industrial Production MoM, Dec., est. 0.6% (prior -0.4%)
  • 10am: NAHB Housing Market Index, Jan., est. 69 (prior 70)
  • 11am: Fed’s Kashkari Speaks on Economy in Minneapolis
  • 3pm: Fed’s Yellen Speaks in San Francisco
  • 4pm: Total Net TIC Flows, Nov. (prior $18.8b)
  • 4:30pm: API weekly oil inventories

“December industrial production is expected to edge higher due to an uptick in manufacturing hours and utilities output last month [and] while this should result in a modest increase in the capacity utilization rate, the ongoing weakness in capacity utilization indicates that there might be significantly more slack in the economy than is currently implied by today’s 4.7% unemployment rate,” Deutsche Bank’s Joseph LaVorgna (everyone’s favorite) said in a note, adding that “although this level is much lower than the long-term average unemployment rate of 5.8%, the present capacity utilization rate (75.0%) is depressed relative to its long-term average (80.4%).”

Futs are flat. Here’s the rest of the overnight wrap:

  • S&P 500 futures up 0.1% to 2265
  • US 10-yr yield up 2bps to 2.35%
  • Dollar Index up 0.24% to 100.57
  • WTI Crude futures down 1.5% to $51.70
  • Brent Futures down 1.5% to $54.66
  • Gold spot down 0.2% to $1,215
  • Silver spot down 0.3% to $17.15

Happy trading.

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