GGMA Morning Brief: Copper & AUDUSD rally on China hopes, Fed keeps rates unchanged, Bessent touts a strong dollar, Polls indicate Japan’s Takaichi set to increase majority, BOJ balance sheet keeps shrinking, ECB speak / US jobless claims & trade balance / Japan labour market & Tokyo CPI in focus
Good morning,
I hope all is well.
Here are the main overnight news and market movers:
Markets: Copper & AUDUSD rally on China hopes
Equities: U.S. equity futures are marginally higher, with Micro E-mini S&P 500 futures up 0.17% at 7,019. However, international markets are under pressure: DAX futures are down 0.17%, and Nikkei 225 futures are off 0.73%. Bitcoin is also weaker, down 1.13% to $88,152.
Fixed Income: Bond markets are relatively calm. 10-Year T-Note futures are fractionally lower (-0.06%), while Euro-Bund futures are down 0.08%. Japanese government bond futures are essentially flat (+0.02%).
Currencies: The U.S. Dollar Index is softer, down 0.26% to 96.08. The greenback is weaker across the board—down against the Swiss franc (-0.23%), euro (-0.27%), yen (-0.21%), and notably the Australian dollar (-0.58%).
Commodities: Metals are surging across the board. Gold is up 2.82% at $5,568/oz; silver is gaining 2.19% and has reached an all-time high; and copper is the standout performer at +6.51%. Copper and the Australian Dollar rallied on news that China changed its “three red lines” policy. The move signals how dramatically Chinese authorities have changed their position on the real estate sector, once a major growth driver and now a long-term burden for the economy, according to Bloomberg. Energy is also bid, with crude oil up 1.72% to $64.30 and natural gas rising 2.76%.
Volatility: The VIX is down 0.86%, suggesting U.S. equity investors are relatively sanguine. However, European volatility (VSTOXX) is elevated at +3.53%, indicating regional nervousness.
Fed keeps rates unchanged as chance for another Powell cut narrows
Jerome Powell has two opportunities left to change interest rates before his term as Federal Reserve chair ends, but may not do so. The Federal Open Market Committee voted 10-2 to keep rates steady, removing language about job market risks. Powell expressed cautious optimism, noting improvements in the US outlook and a stabilising job market, according to Bloomberg. “We’re not trying to articulate a test for when to next cut…What we’re saying is we’re well positioned,” Powell said at a news conference. “We still have some tension between employment and inflation, but it’s less than it was,” Powell added.
Here is what has changed in the statement compared to the previous one:
Source: CNBC
Here is the implied expected path for the Fed Funds rate.
Bessent touts a strong dollar after Trump brushed off its drop
Treasury Secretary Scott Bessent touted a strong-dollar policy on Wednesday, offering the greenback support a day after comments by President Donald Trump had sent the US currency tumbling. “The US always has a strong dollar policy,” Bessent said in an interview on CNBC. “But a strong dollar policy means setting the right fundamentals,” he said. “If we have sound policies, the money will flow in.” Bessent also said the US is “absolutely not” intervening in the currency market to sell the dollar against the yen. Asked whether the US might take such a step, he said that “we don’t comment other than to say we have a strong dollar policy.” (YF)
Trump and Schumer move toward a possible deal to avert a shutdown
The New York Times reports that the US president and the top Senate Democrat were discussing an agreement to separate homeland security funding from a broader spending package and to negotiate new limits on immigration agents.
Polls indicate Japan’s Takaichi set to increase majority
Japanese Prime Minister Sanae Takaichi's Liberal Democratic Party is expected to gain more seats in the snap election and could secure a solo majority in the lower house. Just three months after becoming premier, Takaichi has put her job on the line with the national vote, calling on voters to back her proactive fiscal policy, a temporary sales tax cut and a more robust stance on defense and foreigners. Polls indicate the LDP may win over 233 seats, while its coalition with the Japan Innovation Party is projected to achieve a majority. The newly formed Centrist Reform Alliance is unlikely to see significant gains, according to Bloomberg.
BOJ balance sheet keeps shrinking
The Bank of Japan's commercial paper holdings have fallen to ¥29.9 billion as of January 20 and may soon reach zero, reflecting Governor Kazuo Ueda's move to end past monetary easing. The BOJ’s balance sheet is now ¥677.6 trillion, down 11% from its summer 2024 peak, with long-term government bonds making up most of its assets, Bloomberg reports.
BoC Holds Rate: Threat to Fed independence adds to uncertainty
The Bank of Canada on Wednesday held its policy rate at 2.25%, as widely expected, and Governor Tiff Macklem said a high level of trade uncertainty made it difficult to predict when and how rates might change next. Macklem said the threat of the US Federal Reserve losing its independence contributed to uncertainty. In a quarterly monetary policy report, Canada's central bank maintained its forecast for modest growth in 2026 and 2027 and said inflation would hover around the 2% target. (RTRS)
Today’s Macro Roadmap: ECB speak / US jobless claims & trade balance / Japan labour market & Tokyo CPI
In the US, jobless claims are expected to increase slightly. Residual seasonality may have depressed the series, according to some analysts, but it should begin to increase now.
Advance data on merchandise trade are also due and have not been released since the government shutdown, leaving a narrower view of international trade flows than usual, according to Wells Fargo. Since Liberation Day, imports have generally remained weak, but with the recent surge in retail sales, a recovery could be on the horizon. However, it's still unclear when this rebound will occur, as many businesses are postponing orders until they have greater certainty about tariffs. Wells Fargo expects the trade deficit to narrow slightly to $23 billion in November. Looking beyond monthly fluctuations, the ongoing reduction in the trade deficit is largely a correction after it widened significantly at the start of 2025. The full impact on trade patterns and global supply chains in this higher tariff landscape remains uncertain. Pay attention to the Supreme Court’s ruling on tariffs imposed under IEEPA, as it could be significant.
In Japan, analysts expect the January Tokyo CPI to continue its decelerating trend, reflecting a gradual slowdown in food inflation and a decline in energy inflation, driven by government subsidies. The series is highly correlated with the Nationwide CPI measure.
Labour market data is also due in Japan. Economists expect a stable unemployment rate. I would watch the job openings-to-applicants ratio, as it often leads the unemployment rate.
Good luck today!