US stocks declined as yields and the dollar gained on strong ISM Services data - Newsquawk Asia-Pac Market Open

• US stocks tumbled in the wake of solid ISM Services PMI data, where the headline was better than the most optimistic analyst forecast. The reaction was risk-off and yields climbed as traders used the familiar Fed normalisation playbook, where better-than-expected data fuelled bets for a more aggressive Fed.
• Dollar was bid amid the risk-off conditions that followed hawkish US data in which ISM Services PMI topped all analysts' expectations while employment returned into expansionary territory, prices paid remained elevated and business activity saw a notable increase. There were also comments from Fed whisperer Timiraos who warned that elevated wage pressures could lead the Fed to continue increasing rates to levels higher than investors currently expect.
• Oil prices reversed the early strength that was spurred by China reopening hopes, with pressure seen as the dollar strengthened and with risk appetite sapped after strong ISM Services data supported the view for the Fed to continue its brand of hawkish policy in an effort to put a lid on rising consumer prices.
• Looking ahead, highlights include Australian Current Account & Net Exports Contribution to GDP, Japanese Labour Cash Earnings & Household Spending, RBA Rate Decision, 30yr JGB Auction.

View the full premarket movers and news report.

Or why not try Newsquawk's squawk box free for 7 days?

LOOKING AHEAD

• Australian Current Account & Net Exports Contribution to GDP, Japanese Labour Cash Earnings & Household Spending, RBA Rate Decision, 30yr JGB Auction.
• Click here for the Week Ahead preview

US TRADE

EQUITIES

• US stocks tumbled in the wake of solid ISM Services PMI data, where the headline was better than the most optimistic analyst forecast. The reaction was risk-off and yields climbed as traders used the familiar Fed normalisation playbook, where better-than-expected data fuelled bets for a more aggressive Fed.
• SPX -1.79% at 3,999, NDX -1.73% at 11,787, DJIA -1.40% at 33,947, RUT -2.78% at 1,840
• Click here for a detailed summary.

NOTABLE HEADLINES

• WSJ's Timiraos wrote that Fed officials have signalled plans to hike by 50bps at the December gathering and that elevated wage pressures could lead them to continue increasing rates to levels higher than investors currently expect. Timiraos also noted that "Elevated wage pressures could muddy the debate over 50 v 25 in February and lead officials to pencil in more hikes next year".
• US Senate Majority Leader Schumer said he and Minority Leader McConnell just had a "productive" meeting off the Senate floor about government funding.
• EU-US document said the sides will explore coordinated actions to foster diversification and make key supply chains more resilient, while it noted preliminary progress was made by the task force on the I.R.A. and that they are committed to solving the issue constructively.
• USTR Tai said the US and EU are on track to meet a 2-year deadline for reaching a steel and aluminium deal.

DATA RECAP

• US ISM Non-Manufacturing PMI (Nov) 56.5 vs. Exp. 53.3 (Prev. 54.4)
• US S&P Global Services PMI Final (Nov) 46.2 (Prev. 46.1)
• US S&P Global Comp Final PMI (Nov) 46.4 (Prev. 46.3)
• US Factory Orders MM * (Oct) 1.0% vs. Exp. 0.7% (Prev. 0.3%)

FIXED INCOME

• Treasuries were lower with bear flattening seen after hot ISM data confirmed a resilient US economy in wake of NFP Friday.

FX

• Dollar was bid amid the risk-off conditions that followed hawkish US data in which ISM Services PMI topped all analysts' expectations while employment returned into expansionary territory, prices paid remained elevated and business activity saw a notable increase. There were also comments from Fed whisperer Timiraos who warned that elevated wage pressures could lead the Fed to continue increasing rates to levels higher than investors currently expect.
• EUR weakened against the firmer dollar and after the single currency hit resistance just shy of 1.0600.
• GBP suffered alongside underperformance in cyclical currencies and with the currency not helped by the approaching mass strike action, while the latest UK Services PMI data remained in contraction territory.
• JPY underperformed against the greenback amid the risk aversion and widening yield differentials.

COMMODITIES

• Oil prices reversed the early strength that was spurred by the China reopening hopes, with pressure seen as the dollar strengthened and with risk appetite sapped after strong ISM Services data supported the view for the Fed to continue its brand of hawkish policy in an effort to put a lid on rising consumer prices.
• Saudi Arabia cut most Official Selling Prices to Asia and North West Europe with the premium for Arab Light to Asia lowered for January to USD +3.25/bbl (-2.20 M/M), according to Bloomberg.
• Russia's Kremlin said Russia is preparing a decision and will not recognise the price cap, while it added that the price cap will destabilise the global energy market but will not affect Russia's ability to sustain the military operation in Ukraine.
• White House firmly believes the Russian oil price cap will lock in a discount on Russian oil and does not believe it will have any impact on long-term global oil prices, while it said US President Biden will continue to evaluate the market needs as appropriate regarding oil.
• An oil tanker jam has formed off Turkey after the start of the Russian oil price cap and four oil industry executives said Turkey has demanded new proof of insurance in light of the price cap, according to FT.
• US energy envoy Hochstein said the US still has enough in the SPR to respond to emergencies.
• Nigerian Petroleum Minister said they are working on meeting the OPEC oil production quote by the end of May 2023 and are *currently unable to meet the OPEC quota since oil producers have stopped injecting crude into pipelines. *
• Libya National Unity government lifted the force majeure for oil and gas explorations and invited international oil companies to resume work.

GEOPOLITICAL

• Ukrainian air force spokesperson said Russia launched a new missile attack and journalists highlighted that Kh-101 cruise missiles were spotted above the Sumy region.
• Russian Foreign Minister Lavrov said the US and NATO's policy aimed at actual confrontation with Russia is a serious threat.
• North Korea fired around 130 artillery shots off its east & west coast, while the North Korean military said the firing of artillery shells was a warning to South Korean military action, according to KCNA.

ASIA-PAC

NOTABLE HEADLINES

• China could announce 10 supplementary COVID measures as soon as Wednesday and could downgrade COVID to category B management as early as January, according to Reuters citing sources.
• Shanghai scrapped COVID testing requirements at more public venues from Tuesday, according to Bloomberg.
• Xinhua said that the most difficult period in the fight against the epidemic has now passed.

EUROPEAN TRADE

• European equity markets traded mostly lower and the STOXX Europe 600 finished down by 0.4%.

NOTABLE HEADLINES

• UK British rail workers union announced plans to strike between December 24th-27th, while the smaller TSSA said it called off strike action planned for December and is putting an offer to members in Network Rail. Furthermore, it said the offer from Rail Delivery Group was rejected, meaning industrial action in train operators remains on the cards unless progress can be made.
• ECB's Makhlouf said he anticipates the ECB will likely opt for a 50bps hike in December and anticipates further rate hikes next year, while he does not see QT starting in January but expects some changes implemented by end-Q1. Makhlouf also said he has seen some second-round effects, but not enough for him to change his decision for December and said wage growth is not causing him a lot of concern right now but cannot declare a victory too soon, while he can see scenarios where they will go beyond the interest rate of 3%.
• ECB's Villeroy said it is too soon to discuss the terminal rate and that banks need to be cautious about share buybacks, while he added there could be a pause after the planned increase in the French CCyB, not an easing.
• German Finance Minister Lindner sees no need for further joint EU debt, while he noted the target of the debate in stability and growth pact must be towards lowering debt.

DATA RECAP

• UK Services PMI FNL (Nov) 48.8 vs. Exp. 48.8 (Prev. 48.8)
• UK Composite PMI Final (Nov) 48.2 vs. Exp. 48.3 (Prev. 48.3)
• German Services PMI (Nov) 46.1 vs. Exp. 46.4 (Prev. 46.4)
• German Composite Final PMI (Nov) 46.3 vs. Exp. 46.4 (Prev. 46.4)
• EU Services Final PMI (Nov) 48.5 vs. Exp. 48.6 (Prev. 48.6)
• EU Composite Final PMI (Nov) 47.8 vs. Exp. 47.8 (Prev. 47.8)
• EU Retail Sales MM* (Oct) -1.8% vs. Exp. -1.7% (Prev. 0.4%, Rev. 0.8%)
• EU Retail Sales YY* (Oct) -2.7% vs. Exp. -2.6% (Prev. -0.6%)