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Market Update
Global equity markets are seeing a subdued start to the week, with S&P 500 futures up about 0.2% and close to 4690, while the Stoxx 600 trades higher by about 0.1% at 487. Stronger than expected Chinese Retail Sales and Industrial Production data overnight boosted the yuan but did not have much follow through to broader Asia equity markets and thus have mostly been ignored by US and European markets. That could be because Chinese real estate investment numbers were worse than expected, which many economists saw a sign that the property sector’s liquidity crunch is going to weigh on Chinese growth in the coming months, thus taking the edge off of any optimism. Sticking with Asia session news, Japanese Q3 GDP was also weaker than expected, but this didn’t weigh on Japanese markets as it boosts the prospect of fiscal stimulus there. European markets have for now brushed off surging Covid-19 infection rates in the mainland and the news of the Netherlands and Austria announcing lockdown restriction, though this will be a theme to watch going forward, also for the euro. Negative revisions Q4 2021/Q1 2022 GDP growth forecasts could weigh on European market sentiment.
The European economic calendar is otherwise quite bare this week, though ECB speak will be worth watching. US markets, meanwhile, have a few more themes to follow including; 1) Fed nominations, with the latest report from the WSJ saying President Biden’s meeting with Fed’s Brainard went better than expected and hinting a final decision could be made this week, 2) how the numerous Fed members scheduled to speak react to recent inflation data (markets are now expecting the QE taper to be accelerated) and 3) the Biden administrations response to tanking approval ratings amid the inflationary environment, with a potential release of crude oil reserves from the SPR on the table. There are also a few US data points worth watching, including October retail sales and the NY and Phill Fed manufacturing surveys for November.
US and European bond markets are also starting the week in subdued fashion, with the US 10-year close to 1.55%, down about 3bps on the day, and the German 10-year flat around -0.26%. In FX markets, the US dollar continues to ease back modestly from last week’s surge to fresh YTD highs, but the DXY, though a tad lower on the day, remains above 95.00. The best performers are the antipodean currencies AUD and NZD, both up about 0.5% on the session after Chinese data came in mostly better than expected, though analysts also warn that the poor real estate data indicates continued growth slowdown and is likely to hurt demand for Australia’s metal exports. For now AUDUSD is above 0.7350 and NZDUSD is above 0.7050. The rest of the G10 is mostly flat, with GBPUSD up 0.2% as the UK PM plays down the prospect of further Covid-19 restrictions and ahead of BoE speak later in the day, with USDCAD down 0.2% despite further downside in oil markets, and EURUSD up 0.1%.
Turning to commodity markets; there have been a few bearish headlines that are weighing on oil prices (WTI is down more than $1.0 to under $80.00 again), including more jawboning from the US pressuring OPEC+ to increase output, coupled with further calls from Democrat lawmakers for the Biden administration to release reserves from the SPR, as well as concerns about European heading back into lockdown. European energy markets are keeping an eye on the increasingly tense geopolitical situation in Eastern Europe, as Russia amasses military forces by the Ukraine border and as migrant crisis on the Belarusian border intensifies. The EU is going to announce new sanctions on the country today, which will prompt a backlash which could include Belarus blocking gas exports to Europe that transit the country.
Day Ahead
There are a few things for traders to keep an eye on today; first up, we have the release of the US NY Fed Manufacturing survey for November, a timely insight into the health of US industry. Then GBP traders will be watching the appearance of various BoE members before the UK Parliament’s Treasury Select Committee at 1430GMT, which includes BoE Governor Bailey. Otherwise, it ought to be a fairly quiet session. During the Tuesday Asia Pacific session, focus will be on the virtual summit being held between US President Joe Biden and Chinese President Xi Jinping, which is slated to begin at 0045GMT.
