EM Market Report

China reopening vs Fed dictating markets

Thanim Islam
Thanim Islam 10 January 2023

- Markets remain choppy as risk oscillates

- Fed continues to push “higher for longer” message

- Goldman Sachs raises EU 2023 growth projections


  • The risk-on mood in markets continued following the wages and ISM services data from the US on Friday. To add to the buoyant mood, markets also focused on the China re-opening narrative as the main driver to take on risk. Beijing's acting mayor Yin Yong said in an interview that the capital has passed the Covid-19 infection peak, and that the population has built new immunity capabilities.
  • As a result, USD continued its losses over the course of the day, with gains seen on the EUR, AUD, and CNY.
  • Overnight we saw a reversal of the risk-on mood after Fed members Daly and Bostic made a case for the Fed to push interest rates higher, and hold them for a while.
  • BoE chief economist Huw Pill suggested that UK inflation may be easing on signs that the job market may be weakening. However, there is still the threat that inflation may persist should natural gas prices climb, which could well come about once a re-opened China competes for the commodity.
  • The KPMG jobs survey also alluded to a slacking of the job market with starting salaries for staff, and rates of pay for temporary workers.
  • Unemployment in Europe remains strong with the rate of unemployment at 6.5%. This will add to the continued hawkish rhetoric from the ECB, and give further reason for the EUR to be supported.
  • Inflation in Japan came in higher than expected at 4%, as did the core inflation print.


Market rates

* Daily move - against G10 rates at 17:00pm, 09.01.23

** Indicative rates - interbank rates at 17:00pm, 09.01.23

Table (2)

Data points

Table (3)


  • CAD – BoC Governor Macklem

  • EUR –  ECB Schnabel

  • GBP – Governor Bailey

  • JPY – BoJ Kuroda

  • USD – Fed Chair Powell

Our thoughts

So the tussle continues between markets focusing on the China re-opening story versus a focus on fundamentals, and the central banks' battle to fight inflation -yesterday's price action was testament to that.

Today we’ll see a host of speeches from respective central banks as mentioned above, with prime focus on Fed Chair Powell. Markets continue to price in 0.50% worth of interest rate cuts by the Fed from the third quarter onwards, and no doubt Fed Powell will continue to push back against this market expectation, and continue the message of higher interest rates for longer.

Goldman Sachs this morning has raised its 2023 growth outlook from -0.1% to 0.6%, i.e. it no longer forecasts a recession, which is another positive for the EUR.

The main focus for this week will continue to be inflation figures from the US on Thursday.

Chart of the day

Positive news flows continue to come in for the EUR at present, keeping downside pressure on the GBPEUR pair. Since the respective BoE and ECB meetings in December we have seen the interest rate differential between the two currencies narrow, giving strength to the EUR. Since then the China re-opening story is also giving a boost to the EUR, and the 2023 growth upgrade by Goldman Sachs is also adding to the supportive view on the EUR.

10012023 cotdSource: Bloomberg Finance L.P.

Have a great day.