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US stocks were subdued as higher yields offset China reopening optimism - Newsquawk Asia-Pac Market Open

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Tuesday, Nov 29, 2022 - 10:02 PM
  • US stocks were subdued with the declines led by tech as yields rose throughout the US session which offset the risk-on conditions stemming from hopes around China loosening COVID controls.
  • Dollar pared early weakness amid a marginally higher yield environment and the subdued mood in stocks with many also positioning for a hawkish speech from Fed Chair Powell on Wednesday, while EUR/USD traded slightly lower after pulling back from resistance near the 1.0400 handle and with softer than expected German and Spanish inflation data giving credence to hopes that the ECB would prefer a smaller 50bps rate hike in December rather than a larger 75bps move.
  • Oil prices were supported with early strength amid increasing expectations that Chinese officials will move away from COVID zero policies soon, while OPEC+ expected to keep output levels flat at Sunday’s virtual meeting, although it was also suggested that they could consider a further cut.
  • Looking ahead, highlights include Japanese & South Korean Industrial Production, Australian Monthly CPI, Building Approvals & Construction Work (Q3), New Zealand Business Confidence, Chinese Official PMIs, Supply from Australia.

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LOOKING AHEAD

  • Japanese & South Korean Industrial Production, Australian Monthly CPI, Building Approvals & Construction Work (Q3), New Zealand Business Confidence, Chinese Official PMIs, Supply from Australia.
  • Click here for the Week Ahead preview

US TRADE

EQUITIES

  • US stocks were subdued with the declines led by tech as yields rose throughout the US session which offset the risk-on conditions stemming from hopes around China loosening COVID controls.
  • SPX -0.17% at 3,957, NDX -0.73% at 11,503, DJIA flat at 33,850, RUT +0.31% at 1,836.
  • Click here for a detailed summary.

NOTABLE HEADLINES

  • Fed Discount Rate Minutes stated 9 of 12 Fed bank boards sought a 75bps discount rate hike in November, while Kansas, Philadelphia and New York Fed boards wanted a 50bps increase.
  • US Senate Democrat leader Schumer said the congressional leaders’ meeting was productive and many issues were discussed including funding the government.
  • US Senator McCarthy (R) said he would support "a common sense continuing resolution and fix this come January", according to Fox's Pergram.

DATA RECAP

  • US Consumer Confidence * (Nov) 100.2 vs. Exp. 100.0 (Prev. 102.5, Rev. 102.2)
  • US CaseShiller 20 MM SA (Sep) -1.2% vs. Exp. -1.2% (Prev. -1.3%)
  • US CaseShiller 20 YY (Sep) 10.4% vs. Exp. 10.8% (Prev. 13.1%)

FIXED INCOME

  • Treasuries were lower after a busy corporate debt pipeline, including Amazon's (AMZN) USD 8bln five-part offering, offset the EGB-led bid on softer European inflation data.

FX

  • Dollar pared early weakness amid a marginally higher yield environment and the subdued mood in stocks with many also positioning for a hawkish speech from Fed Chair Powell on Wednesday.
  • EUR traded slightly lower after pulling back from resistance near the 1.0400 handle and with softer than expected German and Spanish inflation data giving credence to hopes that the ECB would prefer a smaller 50bps rate hike in December rather than a larger 75bps move.
  • GBP pared early advances and failed to hold on to the 1.2000 status, while there were comments from BoE Governor Bailey that the Gilt market is not back to normal and wants to observe what happens because of current Gilt sales before deciding on the scale of the 2023 programme.
  • JPY was firmer against the greenback but with USD/JPY off its lows after support held at 138.00.
  • SNB's Schlegel said inflation is still too high and sees risks in the real estate sector, while he added that Swiss banks are sufficiently capitalised and he sees price stability returning in 2024.

COMMODITIES

  • Oil prices were supported with early strength amid increasing expectations that Chinese officials will move away from COVID zero policies soon, while there was plenty of OPEC+ related commentary with the group expected to keep output levels flat at the Sunday meeting after shifting the meeting to a virtual gathering, although it was also suggested that they could consider a further cut.
  • US Private Energy Inventory Data (bbls): Crude -7.9mln (exp. -2.8mln), Gasoline +2.9mln (exp. +1.7mln), Distillate +4.0mln (exp. +1.5mln), Cushing -0.2mln.
  • OPEC+ moved its December 4th meeting to a virtual gathering, according to delegates, while it was separately reported that OPEC+ is likely to stick with the existing oil output policy at December 4th meeting but could consider a further oil output cut, according to Reuters sources.
  • OPEC+ is likely to keep output levels flat at the Sunday meeting, according to WSJ citing delegates.
  • Iraq plans to raise oil exports in H2 of 2023 by 250k BPD to reach 3.6mln BPD, while OPEC+ plans to cut production by 2mln BPD this month, according to the state news agency citing a SOMO official.
  • Nigeria's Oil Minister said oil production has improved to around 1.3mln BPD from less than 1mln BPD and hopes to meet OPEC quota by May of 2023, while he expects Nigeria to deliver 60k BPD by December-end from the refurbished Port-Harcourt refinery and expects to end imports of petroleum products from around Q3 2023.
  • IEA's Birol expects there may be a loss of 2mln BPD of Russian oil by the end of Q1 2023 and urges OPEC+ to consider the fragile global economy.
  • EU Energy Chief Simson said the EU remains divided on the gas price cap and that the EU gas price cap 14-day trigger may be "extremely long".
  • US Energy Envoy Hochstein said he expects gasoline prices to continue to fall in the US and said he is looking for a "consistent" USD 70/bbl oil price to fill the SPR, according to a Bloomberg TV interview.
  • Norway's oil licensing round will not proceed during the current 2025-ending parliamentary session, according to NRK and NTB citing sources.
  • Venezuela Oil Minister said they will sign contracts to boost JV oil output soon following a meeting with a Chevron (CVX) executive.

GEOPOLITICAL

  • NATO Foreign Ministers statement said it remains steadfast in support and commitment to Ukraine.
  • Russia's Medvedev said if NATO supplies Ukrainians with patriot missile systems and NATO personnel, they would become a legitimate target of Russian armed forces.
  • Russian Foreign Minister spokeswoman said Russia cancelled START Treaty talks with the US due to the dire state of bilateral relations, while the Russian Foreign Ministry expects the US to create conditions for holding new START Treaty talks in 2023.
  • China is on track to possess 1.5k nuclear warheads by 2035 vs current 400, which would still be beneath US and Russian holdings, according to a new Pentagon report cited by Nikkei.

ASIA-PAC

NOTABLE HEADLINES

  • China's Health Official said people's complaints are about the extra COVID-19 measures and the one size fits all approach, not the measures themselves, while they urged the handling of 'reasonable' requests on COVID from individuals and said they must keep avoiding excessive COVID curbs. Furthermore, a CDC Official said they will promptly and effectively solve difficult problems reported by the masses and said they will continue to fine-tune policy to reduce the impact on the economy and society when asked if protests will prompt them to reconsider zero-COVID policy.
  • China's Guangdong province is to allow close contacts of COVID cases (who fulfil certain conditions) to quarantine at home, according to official media. Elsewhere, the city of Zhengzhou, where the key Apple (AAPL) iPhone plant is located, loosened COVID controls, according to Bloomberg.
  • China's ambassador to Britain was summoned to the Foreign Office following the police "beating" of a BBC journalist in Shanghai, according to the Evening Standard.
  • IMF's Georgieva said they may have to revise China's economic growth forecast lower.

EUROPEAN TRADE

  • European equity markets were mixed and the STOXX Europe 600 finished down by 0.1%.

NOTABLE HEADLINES

  • BoE Governor Bailey said the Gilt market is not back to normal and wants to observe what happens because of current Gilt sales before deciding on the scale of the 2023 programme. Bailey noted that when the emergency Gilt purchase programme was launched as they were within an hour of a "severe problem" in the Gilt market and expectation is there will be more to do on rates, while he reiterated there is substantial upside risks to the inflation outlook and the shock to real incomes is pushing the UK into a recession.
  • BoE's Mann said once inflation expectations have been managed, the bank rate can come off a future peak and said the FX rate is an important ingredient for UK inflation.
  • ECB's de Cos said core inflation is likely to start easing in spring and can't anticipate how much rates will need to rise by.
  • ECB's Schnabel said projections are pointing to a sharp decline in inflation but noted a history of projection errors, while she said wage growth has picked up significantly in light of sharply declining real wages and inflation expectations remain broadly anchored but said there are risks of de-anchoring.

DATA RECAP

  • EU Services Sentiment * (Nov) 2.3 vs. Exp. 2.0 (Prev. 1.8, Rev. 2.1)
  • EU Economic Sentiment * (Nov) 93.7 vs. Exp. 93.5 (Prev. 92.5, Rev. 92.7)
  • EU Consumer Confidence Final * (Nov) -23.9 vs. Exp. -23.9 (Prev. -23.9)
  • EU Economic Sentiment * (Nov) 93.7 vs. Exp. 93.5 (Prev. 92.5)
  • German CPI Prelim YY * (Nov) 10.0% vs. Exp. 10.4% (Prev. 10.4%)
  • Spanish HICP Flash YY (Nov) 6.6% vs. Exp. 7.5% (Prev. 7.3%)
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