What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)
S&P 500 futures rallied 0.7% yesterday on strong economic data and more positive growth optimism tied to China’s reopening trajectory. The 4,000 level is the average level for the trading range since mid-November and thus the likely gravitational point in S&P 500 futures in the short-term. US 10-year yield remains below 3.5% and the VIX Index suggests hibernation is setting in the last couple of weeks of the year. Today’s potential market mover events for US equities are the PPI report for November and later consumer confidence survey from University of Michigan.
Hong Kong’s Hang Seng (HIZ2) and China’s CSI300 (03188:xhkg)
Hang Seng Index rallied 2% on Friday on continued recovery optimism as the country reopening from Covid containment restrictions and more supportive government policies. Premier Li Keqiang said China will strive to achieve steady growth. Defaulted Chinese property developer Sunac said it had reached agreement with creditor to restrict USD9 billions of debts, including swapping $3-4bn of debts into ordinary shares or equity-linked instruments. Reportedly another defaulted mainland developer Evergrande is meeting offshore creditors later today to discuss restructuring proposals. The Chinese authorities are reportedly considering allowing REITs to invest in long-term rental and commercial real estates. Leading mainland Chinese property developers listed in Hong Kong surged 5% -12%. A day after shortening the home isolation period for people infected with Covid-10 to five days from seven days, a Hong Kong health official said the city is considering ending its vaccine pass scheme. Hong Kong local property developers gained 1%-5%. In A-shares, the CSI300 Index rallied 0.8%
US 10-year treasury benchmark plunges through 3.50% (TLT:xnas, IEF:xnas, SHY:xnas)
US treasury yields are quiet after the 10-year benchmark broke down through the pivotal 3.50% level this week, with the 2-year yield also trading at the lower end of the recent range as the market awaits the incoming Tuesday CPI next week and the refresh of the Fed’s staff economic projections and “dot plot” forecasts of the Fed Funds rate at the December FOMC meeting next Wednesday. Next Monday sees the auction of 3-year and 10-year treasuries, with a 30-year T-bond auction up on Tuesday.
USD pushing on cycle lows in many pairs on risk sentiment reboundThe most USD-negative mix of weak US treasury yields and strong risk sentiment kept the US dollar on the defensive yesterday, as EURUSD edged back toward the cycle highs, trading as high as 1.0586 overnight versus the recent high just below 1.0600. Elsewhere, AUDUSD rebounded back toward 0.6800, erasing much of its recent sell-off even if it is still choppy within the range. It is tough to see traders emboldened to take the USD to new lows and holding them without a look at the next key event risks, and really the final major event risks of the year for the US dollar: next Tuesday’s US November CPI print and the FOMC meeting the following day.
Industrial and precious metals showing continued strength so far this month
Copper (HGH3) trades near the highest level since June while iron ore (SCOc1) traded in Singapore trades near a four-month high. Together with other industrial related metals they have received a boost from President Xi’s sudden Covid pivot towards loosening Covid-19 controls amid protests from increasingly frustrated citizens together with fresh measures to support the property sector. Precious metals led by silver, given its industrial metal link, trades up on the month supported by falling treasury yields and a weaker dollar amid worries about an incoming economic slowdown. Focus on US inflation data with PPI on tap today and CPI next week. Key resistance in gold at $1808 with support below $1765 and $1735.
Crude oil (CLF3 & LCOG3) remains stuck at the lowest level of the year.
Crude oil is heading for a weekly loss with Brent crude trading below $77 and down more than 11% on the month after spending the week trading within a wide 13-dollar range. A weakening macroeconomic outlook which has seen the US yield curve inversion extend to levels signalling an incoming recession has overshadowed the EU embargo on Russian oil and the prospect of a pickup in demand in China as lockdowns continue to ease. A disruption on the Keystone pipeline temporarily roiled the markets on Thursday giving WTI a temporary boost which sellers took advantage of. Short-term technical traders looking to squeeze existing longs remain in control as the overall level of participation continues to fall ahead of yearend.
What is going on?
US FTC will sue to stop Microsoft’s $75 billion acquisition of Activision Blizzard
The FTC saying that the combination would give Microsoft too large a footprint in the gaming industry. The offer for Activision Blizzard shares was originally 95 dollars, but shares have dipped from hitting above 85 dollars on the announcement of the intended acquisition back in January to near 75 dollars yesterday after a volatile day.
US Atlanta Median Wage Tracker rises to 8.1% YoY in November for Job SwitchersThis was a strong rebound from the 7.6% level posted in October and could suggest a reset in inflation potential going forward. The previous high for this metric in its 25-year history before the recent surge was in the late 1990’s, when it peaked near 6.5%. The overall median wage growth in November was steady at +6.4%.
Credit Suisse raises $4.3bn in capitalThe Swiss based investment and wealth bank has raised $4.3bn in capital to execute its new strategy in which the company is scaling back in investment banking activities and geographies to improve profitability. The bank says that cost cuts already done represent 80% of target for 2023.
China and Saudi Arabia upgrade relationships with top-level dialogueDuring President his visit to Saudi Arabia this week, China’s President Xi Jinping met with King Salman bin Abdulaziz Al Saul and Crown Prince Mohammed bin Salman. The two sides agreed to upgrade the relationship of the two countries with heads of state meeting every two years and moving established joint committees for trade, tech, security and other areas from vice-premier to premier level. The two countries have signed more than 30 agreements and MOUs from petrochemical, hydrogen energy, information technology, and infrastructure projects to cultural exchanges, and are planning to sign another 20.
China’s CPI softened to 1.6% Y/Y; PPI stayed at -1.3% Y/Y
China’s CPI inflation decelerated to 1.6% Y/Y in November from 2.1% Y/Y in October, in line with expectations as food inflation slowed and consumer demand was weak during lockdown. In the PPI, price increases in the raw materials sector decelerated while the price declines in mining and processing sectors slowed in November.
US earnings recap (Broadcom, Costco, and Lululemon)The US semiconductor company Broadcom delivered Q4 (ending in October) earnings and revenue in line with estimates and the Q1 revenue guidance was a bit above estimates. The company says that China has slowed down in terms of consumptions of products, but demand across the business excluding China remains strong. Broadcom shares rose 3% in extended trading. Costco Q1 revenue and earnings were in line with estimates and the US retailer said it is seeing modest improvement in inflation and a slowdown in big tick discretionary items. Costco is also seeing gains among higher income households. Costco shares were unchanged. Lululemon delivered revenue in line with estimates while adjusted earnings were a bit weaker than estimated and the Q4 revenue outlook was slightly below estimates. Lululemon shares declined 8% in extended trading.
Soybeans supported by Chinese demand; Wheat pressured by record Russian crop
Soybean futures in Chicago (ZSF3) gained more ground on Friday, trading close to their highest since mid-September, as strong demand led by top importer China underpinned the market. While soybeans were likely to post a weekly gain, wheat (ZWH3) was on track for a fifth consecutive weekly decline as export sales continued at a slow pace due to competition from a record Russian production and corn (ZCH3) was down for a second straight week with the fall being cushioned by the strength seen in soybeans. Overall the grain sector now awaits Friday’s monthly crop forecasts (WASDE) from the US Department of Agriculture.
What are we watching next?
US preliminary University of Michigan Sentiment survey is out later today
Sentiment has rebounded from the lows, according to the survey, although sentiment is still very downbeat after hitting an all-time low of 50.2 in the more than 40-year history of the survey in July. The December reading is expected at 57.0 vs. 56.8. Another focus in the survey could be on longer-term inflation expectations, which have rebounded to 3.0% for the next 5-10 years, according to the survey, close to the high of the range.
Earnings to watch
. Today’s US earnings focus is Oracle which is expected to report earnings after the US market close with revenue up 16% y/y and EPS up 23% y/y.
- Today: Oracle Corp, Li Auto
Economic calendar highlights for today (times GMT)
0930 – UK Bank of England to release inflation attitudes survey
1330 – US Nov. PPI
1500 – US preliminary University of Michigan Sentiment
1700 – World Agriculture Supply and Demand Estimates
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