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Results from latest AAII Sentiment Survey show market participants are now extremely negative (bearish), the highest in 16-month. Similarly, bullish sentiment fell to an 18-month low. This widely followed measure of the mood of individual investors is an interesting contrarian indicator that suggests we may be nearing the end of the market flush. Lastly, as significant damage has occurred on the charts, markets could take some time to regain their positive trend.

Equities bounce as US Initial Jobless Claims rise to 286'000, the most since October 2021. Today's data suggest that Omicron, tight supply chains, and rising prices are likely weighing on economic activity. The rebound in US stocks highlights greater optimism among investors on the believe that maybe the Fed will not remove accommodation as early and aggressively as the markets are pricing in. 

Yields on US 10-year Treasury Note is causing havoc on markets, up 4-5bp at 1.83%, after retreating from 1.857% at one point. Investors are expecting interest rates to rise and its putting pressure on the yield curve. The rise in borrowing costs is pressuring down stocks globally this morning. The Nasdaq is lower by 1.7% and the S&P 500 by 1%. Europe's Stoxx 500 is down by 1%. As we are entering earnings season, stocks are particularly sensitive as companies resume buybacks only after earnings are out. More visibility from central banks would be welcomed by markets and possibly lower the volatility. 

China's economy expanded 1.6% on a quarterly basis in 4th quarter of 2021. However, retail sales disappointed as they increased 1.7% year on year in December, versus the 3.8% expected, and down from 3.9% growth in November. With prices stable, China's central bank, the PBOC is shifting the focus to boosting economic growth. It responded with a rate cut this morning, lowering the interest rate on around USD110.2 billion worth of 1-year medium-term lending facility loans to some financial institutions by 10bp to 2.85%. The central bank also lowered borrowing costs of 7-day repos by 10bp to 2.10%. We believe it is likely the POBC will continue to act to support its economic growth, as it attempts to manage a soft-landing for its cooling property market. China's CSI 300 closed 0.86% higher today, but it is still down 13.6% from where it was a year ago. 

The US Core CPI rose modestly, +0.6% MoM (vs 0.5% forecasted) and +5.5% YoY (vs 5.4% forecasted). Shelter, and used cars and trucks were the largest contributors, while energy prices had their first decline in December. The Dec CPI number is better than "feared”, but it is unlikely to alter Fed policy for the moment. However, the news is well perceived by markets as both the S&P 500 and the Nasdaq are moving higher.