Shares of the Asia-Pacific region were trading mostly in the red today, taking over the bearish baton from the American session on Thursday. The US Dollar Index (DXY) rose to 103 amid a decline in risk appetite, EURUSD and GBPUSD struggle to defend 1.07 and 1.21 levels respectively. The crypto market also collapsed. The main reason for disappointment in the risk assets markets is the renewed rise of risk-free rates and, consequently, discount rates. Despite Powell's restrained speech on Tuesday, the rest of the Fed officials added fuel to the fire, which, against the backdrop of strong labor market US data, caused a noticeable increase in US Treasury yields:

Yields jumped after the release of the shocking NFP report, however, as one can see in the chart above, investors have been digesting the implications of the report in this week as well. The sell-off in fixed-income securities has accelerated since yesterday evening, with Treasury yields across the entire maturity spectrum gaining an average of 10 basis points. 

It is also possible that markets are trying to factor in the risk of a re-acceleration of CPI in January against the backdrop of a strong US labor market, which, if materialized, could seriously set the Fed to make a series of rate hikes this year. Before the Payrolls report, the vast majority of investors were confident that the Fed would raise rates once by 25 bp in March, after which it will announce a pause. It's also worth noting that Powell, speaking this week, conceded that strong incoming data could extend the tightening cycle this year. 

The US CPI index for January will be released next Tuesday. On a monthly basis, core inflation is expected to accelerate from 0.3% in December to 0.4% in January. If market prices are considered the best collective estimate of future outcomes, then the current reaction in the major asset classes could be the expectation of a positive surprise in inflation following the surprise in NFP. If this does not happen, we can expect a rollback of expectations of a lengthening of the Fed's tightening cycle, in which case risk assets will return to the growth track, and yields will begin to gravitate again to the levels that preceded the NFP report. 

Statistics for China released today showed that inflation rose at a slower pace in January, and new yuan loans rose by 4.9 trillion in January 2023, mainly due to corporate loans. Despite the influence of seasonal factors, the growth this time was significant, 23% year on year. This may indicate that China's economic recovery in 2023 could exceed pre-pandemic levels. 

Data on the GDP of the British economy came in roughly in line with estimates, growth in the 4th quarter coincided with expectations, the pace of construction accelerated significantly, at the same time the trade balance disappointed. The Bank of England admits that February's rate hike by 50 basis points could be the last. In practice, there could be another 25-basis point rate hike if next week's data doesn't disappoint. Namely, if they point to a greater than expected persistence of inflation. The focus will be data on wages and employment, as well as core inflation.