US Open Note – Stocks extend declines, dollar maintains resilience

Market sentiment deteriorates as yields remain elevated

Wall Street’s correction continues to develop lower, with the tech-heavy Nasdaq 100 affected more, falling 4.6% yesterday.

Despite this week’s disappointing US jobless claims, which rose 286k versus an expected 220k, potentially due to surging cases of Omicron, and the correction in the US equities - in an environment of elevated yields - the market story is likely to remain the same with the Fed moving forward with removing accommodation and delivering expected interest rate hikes.

The USD/JPY pair currently at 113.84 per dollar failed to return above the 114.00 mark, and the USD/CHF pair now at 0.9125, fell around half a percent today, both together indicating that demand for havens has picked up.

The shift into havens may have caused a drop in the 10-year Treasury yield, currently at 1.84%. That said, interesting enough, gold lost some of its shine surrendering around $10 to slip to $1833/oz.

Yields continue to keep the reserve currency somewhat stable with the dollar index currently around 95.60 after recently failing to improve beyond the 96.00 level. The euro has creeped slightly up to $1.1340 on the back of modest weakness in the greenback.

UK consumers lose confidence, weak retail sales hurt the pound

The pound has slid beneath the January 18 trough of $1.3572 after UK retail sales fell 3.7% m/m in December 2021, coming in worse than the anticipated drop of 0.6% and following two-months of strong growth in retail sales. The drop in sales in December may be related to the fact the public did their holiday shopping earlier this year and the strains to movement from the omicron variant.

Moreover, UK consumer confidence in January fell to -19 from December’s figure of -15 according to the GfK survey. Concerns centre around fears of high utility bills and inflation, which is hurting households.

Sterling is standing at around $1.3565 presently.

Antipodean currencies

The kiwi at $0.6725 is on the back foot and is about to test the December 2021 low of $0.6700. However, the aussie is faring better and is flirting with the $0.7200 mark after oil stabilized and China cut rates again, trimming its standing lending facility by 10 basis points. China has stepped up its policy easing efforts after worries intensified last year on whether the economy would be able to weather the storm from weak consumer spending, virus restrictions and a property sector blip.

US oil stockpiles rise and loonie awaits retail sales

WTI oil futures have stabilized slightly north of the $84.00 per barrel mark. The black liquid fell $4.20 dollars to $82.80 per barrel in the Asian trading session from a fresh 7-year high of $87.00 per barrel. Yesterday’s crude oil inventories report out of US showed an increase of 515,000 barrels in the week ending January 14, up for the first time since November 2020 and countering the expectations of a 938,000 barrel drop.

Nonetheless, oil retains a bullish tone - not far off the $100.00 per barrel mark as per some analysts - caused by strong demand and supply constraints in the market. The rising energy prices pose a conundrum for central banks who are currently juggling inflation and economic growth.

The USD/CAD pair is holding marginally above the C$1.2500 mark, with the Canadian dollar showing some resilience even as oil took a blow yesterday.

The loonie is firm ahead of upcoming Canadian retail sales, which are due at 13:30 GMT.

At 15:00 GMT, consumer confidence in the eurozone will be released, while Treasury Secretary Yellen is due to speak at 16:30 GMT.

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