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US stocks declined with risk appetite soured by China COVID protests and hawkish Fed rhetoric - Newsquawk Asia-Pac Market Open

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Monday, Nov 28, 2022 - 09:59 PM
  • US stocks finished lower amid global equity weakness with cyclicals leading the losses as civil unrest and higher COVID cases in China marked a big step back in reopening hopes, while tech shares were also pressured and Apple declined following reports that the tech giant is set to lose 6mln iPhone Pros from the unrest at its Chinese plant.
  • Dollar was marginally firmer amid the risk-off tone and hawkish Fed commentary, while EUR failed to sustain its early outperformance and pulled back from resistance just shy of 1.0500 despite the slew of comments from ECB officials alluding to further rate increases.
  • Oil was initially lower with China COVID/protests and a surge in pre-embargo Russian supply weighing on price, although prices then recovered in US trade with desks noting OPEC cut speculation.
  • Looking ahead, highlights include Japanese Unemployment Rate, Retail Sales & 2yr JGB Auction.

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LOOKING AHEAD

  • Japanese Unemployment Rate, Retail Sales & 2yr JGB Auction.
  • Click here for the Week Ahead preview

US TRADE

EQUITIES

  • US stocks finished lower amid global equity weakness with cyclicals leading the losses as civil unrest and higher COVID cases in China marked a big step back in reopening hopes, while tech shares were also pressured and Apple declined following reports that the tech giant is set to lose 6mln iPhone Pros from the unrest at its Chinese plant.
  • SPX -1.54% at 3,963, NDX -1.43% at 11,588, DJIA -1.45% at 33,849, RUT -2.05% at 1,831.
  • Click here for a detailed summary.

NOTABLE HEADLINES

  • Fed's Bullard (voter) said the Fed needs to get rates higher to bring inflation down and that rates need to get to the bottom end of the 5-7% range. Bullard said markets are underpricing the risk that the Fed may be more aggressive and that the most important thing is for the Fed to get to a sufficiently restrictive level of rates, while he added that rates will need to be kept at a sufficiently high level all through 2023 and into 2024.
  • Fed's Brainard (voter) said during a closed BIS event in June that continued supply shocks could force central banks to respond with tighter policy to manage risks.
  • Fed's Mester (voter) said the costs of stopping tightening too early are too high, while she expects inflation to come down in 2023 and noted her risk balance will change, according to an interview with FT.
  • Fed's Williams (voter) said more work is needed to do on lowering inflation which will take time to move down and more rate hikes will help restore balance in the economy. Williams noted that how high the Fed hikes will depend on the economy and data, while he added that the Fed will need to maintain a restrictive policy for a while but could lower rates in 2024. Furthermore, Williams noted inflation risks are still to the upside and he sees a somewhat higher rate path in 2023 vs the September SEPs.
  • US President Biden is to call on Congress to act to avert a rail shutdown, according to Washington Post.
  • White House's Kirby expects the issue of EV credits in the Inflation Reduction Act to come up in talks between US President Biden and French President Macron.

FIXED INCOME

  • Treasuries were relatively flat with risk-off demand hampered by hawkish comments from Fed's Bullard.

FX

  • Dollar was marginally firmer amid the risk-off tone and hawkish Fed commentary.
  • EUR failed to sustain its early strength and pulled back from resistance just shy of 1.0500.
  • GBP suffered alongside the underperformance in activity currencies.
  • JPY held its ground against the buck with USD/JPY trickling beneath the 139.00 handle.

CRYPTO

  • Crypto Lender BlockFi is filing for bankruptcy, while platform activity continues to be paused at this time and it is estimated that assets and liabilities are up to USD 10bln, according to Cointelegraph citing a court filing.

COMMODITIES

  • Oil prices were initially lower on China's COVID/protests and a surge in pre-embargo Russian supply weighing, albeit prices then recovered in US trade with OPEC cut speculation.
  • UAE's ADNOC is reportedly to cut 5% of December's crude oil supply to some term-lifters in Asia but will provide full contractual volumes for January, according to Reuters citing sources. It was also reported that ADNOC is to invest USD 150bln over five years to boost energy output and it is to accelerate its oil production expansion capacity to 5mln BPD by 2027 (previously set by 2030), according to Energy Intel.
  • EU talks on Monday resulted in no deal on Russian price caps but they are reportedly discussing a cap as low as USD 62/bbl, according to Diplomats cited by Bloomberg. Furthermore, a diplomat stated "There is no deal. The legal texts have now been agreed, but Poland still can't agree to the price".
  • White House's Kirby does not see inordinate pressure to take more action on the Russian oil price cap, while he added that talks with the EU are going well and taking place in a robust fashion.
  • Exxon Mobil (XOM) will reportedly exit Equatorial Guinea in 2026 where it is currently producing less than 15k BPD in Equatorial Guinea, while it will decommission the Zafiro platform and permanently cut production to no more than 30k BPD, according to Reuters sources.
  • Chile's Escondida workers have accepted BHP's (BHP LN) offer and will not strike, according to the union.

GEOPOLITICAL

  • Russia’s meeting with the US on the New Start Treaty has been postponed to a later date, according to the US embassy cited by Kommersant.
  • Iran's Foreign Ministry said the country is committed to finding a diplomatic solution to its nuclear dispute with the US and European countries, but added that it is "not optimistic" the negotiations with Washington to restore the 2015 nuclear agreement will bear fruit", according to Argus.

ASIA-PAC

NOTABLE HEADLINES

  • Beijing vowed to curb rapid increase in COVID cases, according to an official. Elsewhere, Guangzhou is to resume public transportation in locked-down areas.
  • China’s policymakers urged to clarify how economic growth and zero-Covid can go hand in hand, according to SCMP.
  • China Global Times' Hu Xijin tweeted "China may walk out of the shadow of COVID-19 sooner than expected", while he added that most are no longer afraid of being infected and the current rate of severe cases is about 0.025%.
  • China Beige Book CEO Miller said the idea that protests in China will force a reopening of the economy is very unlikely, according to a CNBC interview.
  • China resumed approving listed developers' mergers, according to China's Securities Regulatory Commission. It was also reported that China is set to ease rules on developer bond state guarantees, according to Bloomberg.
  • China's Finance Ministry is to extend tariff waivers on some US goods until May 31st.
  • Hong Kong convened a meeting to safeguard national security law, according to the Hong Kong Chief Executive. Furthermore, Hong Kong is to ask Beijing to clarify its National Security Law and it was stated that national security and sovereignty are in the highest interest.

EUROPEAN TRADE

  • European equity markets were mostly lower and the STOXX Europe 600 finished down by 0.6%.

NOTABLE HEADLINES

  • ECB's Lagarde said they expect to raise rates further to the levels needed to ensure that inflation returns to the 2% medium-term target in a timely manner. Lagarde said rates are still in accommodative territory and that they still have a way to go on rate hikes, while she added that QT should be measured and predictable.
  • ECB's de Cos said QT should be gradual and predictable, while he added that hikes thus far are not sufficient to return inflation back to the target.
  • ECB's Kazimir said there is a growing risk of a recession in the Eurozone and rate hikes will continue despite unfavourable economic developments.
  • ECB's Knot said the risk of the ECB not doing enough is more pronounced and that central banks need a "protracted period" to tame prices.
  • ECB's Nagel said it is unclear when inflation would fall back to the target and that inflation in Germany will likely remain above 7% next year, while he added that monetary policy must ensure high inflation goes away as soon as possible.
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