Financial Markets Today: Quick Take – November 25, 2022 Financial Markets Today: Quick Take – November 25, 2022 Financial Markets Today: Quick Take – November 25, 2022

Financial Markets Today: Quick Take – November 25, 2022

Macro 6 minutes to read
Saxo Strategy Team

Summary:  Yesterday was rather quiet as the US was out for the Thanksgiving holiday, with only a half-session of thin trading on tap for today. Overnight, Asian sentiment was somewhat downbeat as Covid concerns continue to weigh in China. In Japan, Tokyo November inflation was reported at new multi-decade highs. In FX, the US dollar is eyeing the key 200-day moving average for the first time since slicing above that indicator all the way back in June of 2021.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)

The US 10-year yield has opened today’s trading session at a new low for the month trading around the 3.65% level. This is naturally adding tailwind for US equities with S&P 500 futures likely attempting today to break above the 200-day moving average around the 4,058 level. The index futures flirted with the moving average back in August when equities rallied on Fed pivot talk and easing inflation. There are no major earnings or macro releases scheduled for today so we expect a quiet session going into the weekend.

Hong Kong’s Hang Seng (HISX2) and China’s CSI300 (03188:xhkg)

Daily new Covid cases surged to yet another record high at 32,695, including 1,444 cases in Beijing. Beijing imposed district-level lockdowns and suspended food delivery. Alibaba (09988:xhkg), Tencent (00700:xhkg), and Meituan (03690:xhkg) lost 2% - 3%. China developers, Chinese banks, Chinese telco giants, and China Aluminum (02068:xhkg) gained. Hang Seng Index declined by 0.8% while CSI 300 climbed 0.5%.

USD hits new lows even with US markets closed for holiday yesterday

The US dollar’s losses extended on Thursday after the FOMC minutes reported late Wednesday encouraged the view that the Fed is on course to decelerate its tightening regime starting with the December meeting (and further forward, the late 2024 and beyond projections of Fed policy suggest the market believes a recession will trigger a sharp Fed easing of policy beyond the end of next year. The US dollar index is flirting with the 200-day moving average for the first time since crossing above the indicator since June of 2021, while EURUSD has made a feint at the cycle highs above 1.0450, easing back a bit overnight. Hotter than expected November Tokyo CPI data reported overnight (more below) saw USDJPY heavy overnight, trading near 138.00 before bouncing slightly. Next week looks important for incoming US data, with the October PCE inflation data up on Thursday and the November jobs report next Friday.

Crude oil (CLF3 & LCOF3)

Crude oil trades lower for a third consecutive week as demand fears, especially from an increasingly locked down China, weigh on sentiment. A G7-sponsored price-cap plan on Russian oil looks dead in the water with EU countries struggling to agree on a level, the result being either no cap or a level so high that it will not have any meaningful impact on supply. The 12-month futures spread in WTI and Brent have both weakened to the lowest backwardation since last December, reflecting a market concerned about recession and a seasonal slowdown in demand hurting the front month contracts.

Gold (XAUUSD)

Gold trades small up on the week in response to weaker US economic data and after the FOMC minutes talked about moderating the pace of interest rate hike soon. Having found support in the $1735 area a further extension will likely require further declines in the yields and the dollar or some other catalyst that sees a run to safety. A break above $1765 may signal a return to key resistance at $1788, but lack of ETF buying still makes it hard to confirm a major change in direction.

US treasuries (TLT:xnas, IEF:xnas, SHY:xnas) yields fell after the Fed minutes

The FOMC minutes late Wednesday confirmed the deceleration in the Fed’s tightening path and the market has become increasingly confident that, while the Fed may hold rates quite high next year, the path of easing policy will eventually prove quite steep, presumably on the combination of lower inflation and a recession. US 10-year yields eased to new lows below the recent low of 3.67% overnight ahead of an important period of incoming data before the December 14 FOMC meeting, with 3.50% the next technical level of note (psychological as well as a major pivot high from June).

What is going on?

Not many insights in the ECB minutes

Yesterday, the minutes of the ECB’s October meeting were released. On the key point of the monetary policy pivot, there was nothing new. According to the minutes, there had been no discussion on a potential slowdown in the pace of rate hike. This is certainly a bit too early. But many participants pointed out risks related to the recession, especially in the housing market and in the labour market. On fiscal policy, the ECB has basically reiterated its long-term view: there is a « risk that fiscal compensation packages would turn out to be bigger than warranted ». Finally, a large majority of participants considered that the best option, in the short-term, is to implement a new 75 basis point interest rate increase at the next meeting scheduled for 15 December. Only a majority expressed a different position (in favor of a 50-basis point hike). This was not a market mover, obviously.

Apple’s iPhone output at jeopardy in China

The worker unrest at Foxconn’s (Apple’s manufacturing supplier in China) Zhengzhou manufacturing plant could cut production of iPhones of up to 30% according to Reuters. This is a growing risk for Apple’s stock price as the company is moving into its best-selling month during the year.

Sweden’s Riksbank hiked 75bps, more in the pipeline

The Riksbank’s 75-bp rate hike took the policy rate to 2.50% and was larger than the 50-bp signalled at the September meeting, although markets were priced for a move of at least that magnitude. EURSEK fell after a kneejerk rally and trades this morning in the middle of the range since September. The worsening inflation outlook in Sweden, with October’s inflation at 9.3% amidst signs of wage pressures as well, suggests more rate hikes potentially remain in the pipeline. The anticipated peak rate is closer to 3% now, but the bank showed an alternate scenario where persistent inflation above 3.5% could prompt the peak rate move higher from 2.84% to 4.65%.

Japan’s Tokyo CPI above expectations again, more pressures to come

Japan’s Tokyo inflation for November rose to its highest level in 40 years, suggesting that price pressures have not peaked yet. Tokyo CPI came in at 3.8% YoY from 3.5% previously, while the ex-food was at 3.6% YoY (prev 3.4%) and ex-food and energy was at 2.5% YoY (prev 2.2%). Meanwhile, Asia LNG prices are rising again, as colder temperatures in Europe heat up the competition to secure LNG cargoes again. This suggests price pressures will likely continue, and Bank of Japan could still likely consider tweaking its yield curve control policy.

Mixed week for commodities

The Bloomberg Commodity Index is showing a small gain of 1.3% with overall support being provided by the softer dollar and lower bond yields. This despite a darkening, but temporary, Covid cloud hanging over the Chinese economy and the bond market increasingly pricing in the risk of a recession hitting some of the major economies next year. Gas prices in Europe and the US leading the gains on cold weather demand followed by coffee on short covering and silver supported by a bouncing gold price. At the bottom we find wheat, US diesel, sugar and crude oil.

What are we watching next?

An important week ahead for incoming US data

Markets have generally celebrated the downward shift in Fed tightening expectations and hopes for an eventual opening up of China’s economy, notwithstanding the ramping of the case count there. Next week will offer an interesting test for markets, including the US dollar, which trades at pivotal levels, as we have a look at the next important data macro data points out of the US, especially the Friday November jobs report. As well, we’ll have a look at the ISM Manufacturing survey for the month on Thursday. The question for the run-up into the December 14 FOMC meeting and in the month or so beyond is how long the market can continue to celebrate the Fed easing off the accelerator, when the reason it is doing so is that economic slowing and an eventual recession threaten. Normally, a recession is associated with poor market performance as profits fall and credit risks mount.

Earnings to watch

Today’s earnings focus is Meituan and Pinduoduo. Chinese earnings in Q3 have been mixed and the technology sector continues to experience headwinds from both the economy and regulation. Analysts expect Pinduoduo, which has so far navigated the environment flawlessly, to deliver revenue growth of 44% y/y and EPS of CNY 4.75 up 288% y/y.

  • Today: Meituan, Pinduoduo

Economic calendar highlights for today (times GMT)

  • US equity markets close three hours early at 1300 local time in NY. 

Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:

Apple Sportify Soundcloud Stitcher

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.