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Futures Flat As China Injects Fresh Monetary Stimulus

Futures Flat As China Injects Fresh Monetary Stimulus

US equities were set to end the Thanksgiving week higher, propelled by expectations that the Fed will ease off on its pace of monetary tightening following Wednesday’s dovish minutes while an 25bps RRR cut out of China sparked hope that Beijing will stimulate the world’s 2nd largest economy.

S&P 500 were higher by 0.1%, trading at 4038 after rising just shy of 4,050 overnight after the underlying gauge gained 1.6% this week. Nasdaq 100 futures dipped 0.1%, amid much lighter than usual trading volumes in a week shortened by the Thanksgiving holiday on Thursday. The US stock market will close early today.

As noted earlier, China’s central bank on Friday cut the amount of cash lenders must hold in reserve for the second time this year, an escalation of support for an economy racked by surging Covid cases and a continued property downturn.

“How effective that will prove to be when cities are seeing restrictions and effective lockdowns reimposed is hard to say,” said Craig Erlam, senior market analyst at Oanda. “But combined with other measures to boost the property market and ease Covid curbs, the cut could be supportive over the medium term when growth remains highly uncertain.”

In premarket trading, Activision Blizzard fell after a report that the US Federal Trade Commission is likely to file an antitrust lawsuit to block Microsoft’s deal to buy the video-game maker. Apple shares dipped after a report that production of iPhones in November could fall by at least 30% at Foxconn Technology Group’s Zhengzhou plant amid worker protests. Energy companies gained with the price of Brent crude rising as the European Union considers a higher-than-expected price cap on Russian crude. Brent trades above $86/barrel, though is on track for a slight loss this week amid worries over its demand outlook as Covid infections rise in China. Exxon +0.9%, Petroleo Brasileiro ADRs +2.7%, Schlumberger +1.2% in US premarket trading. Here are some other notable premarket movers:

Coupa Software shares are up 3.2% in premarket trading on Friday, as analysts digested a Bloomberg News report that Vista Equity Partners is exploring an acquisition of the expense management software company. Firms wrote that the report points to greater private equity appetite for deals.
Manchester United shares jump 7.9% in premarket trading after Saudi Arabia’s sports minister Prince Abdulaziz bin Turki Al-Faisal told BBC Sport that its government would support private sector bids for the team, as well as Liverpool football club.
Activision Blizzard shares fall 3.4% in US premarket trading on a media report that the US Federal Trade Commission is likely to file an antitrust lawsuit to block Microsoft’s $69b deal to buy the video-game maker.
Apple shares fall 0.8% in US premarket trading on a report that production of iPhones could fall by at least 30% in November at Foxconn’s Zhengzhou plant where worker protests have disrupted operations.
US-listed Chinese stocks fall in premarket trading and are set for their first weekly decline in four weeks, with surging Covid cases and increasing curbs across the country hurting optimism that the country will reopen soon

Fed minutes published on Wednesday showed that officials concluded the central bank should soon moderate the pace of interest-rate hikes to mitigate overtightening risks. That pushed the VIX Index to its lowest close in more than three months that day, and was last seen about to drop below 20 – the last time VIX was a teenager was during the bear market rally in August. Investors will now closely monitor economic data ahead of the final Fed decision of 2022 to assess the impact of previous rate hikes, and for clues whether the Fed will hike 50 or 75 in December.

“The Fed needs to continue to hike rates reasonably to the 5% to 5.25% levels, so there are still some rate hikes to come, so markets are a little bit optimistic right now,” said Stephane Monier, chief investment officer at Banque Lombard Odier & Cie SA. He expects to see a small US recession in 2023, but it will be “nothing to compare to the crisis of 2008 and 2009.”

Meanwhile, Barclays Plc strategists led by Emmanuel Cau said the rally in equities is mainly due to short covering by macro hedge funds and CTAs, warning against extrapolating the move into the new year.

European energy stocks were higher too, helping to keep the Stoxx 600 Index on course for a sixth week of gains, the longest winning streak in a year. Credit Suisse Group AG fell to a fresh record low in the wake of massive outflows the bank reported this week. The Stoxx 50 was little changed after China’s latest effort to stimulate its economy, while volume on the Stoxx 600 was 38% below 100-day average. FTSE 100 outperforms peers, adding 0.3%, CAC 40 is flat but underperforms peers. Besides energy, health care and construction were the strongest performing sectors. Here are the biggest European movers:

Truecaller rose as much as 8.4% after Citi upgraded its rating on the caller ID software maker to buy from neutral, citing “significant upside” after recent declines and noting good 3Q results.
Elia Group shares jumped as much as 4.8% after the transmission system operator boosted its financial outlook for 2022.
Rockwool gained as much as 4.4%. 3Q results should mark a trough for margins for the Danish insulation supplier, Handelsbanken wrote while upgrading its short-term rating to hold from sell.
Intrum fell as much as 18% after the Swedish debt collection group said it needs to make negative adjustments of SEK4.3 billion in its jointly-owned Italian SPV, according to a statement.
Fielmann shares fell as much as 6.3% after Berenberg said margin recovery is still not in sight for the eyewear retailer.
Man Group fell as much as 5.7%, before paring the decline, after UBS cut its rating to neutral from buy. The market is underestimating the effect of an upcoming pension fund de-risking process on the firm’s liquid total and absolute return products, the bank says.
Credit Suisse shares dropped as much as 2.3%, to a new record low, after Vontobel cut its price target, saying the Swiss lender “urgently” needs to halt net outflows in its core wealth management business

JPMorgan quantitative strategist Khuram Chaudhry said the recent rebound in European equities driven by expectations of peaking inflation and bond yields is nothing but a bear market rally and that investors are “jumping the gun.” He forecasts euro-area equities will eventually recover “later in 2023.”

Asian stocks declined, with Chinese technology shares retreating amid concerns about growing mainland Covid cases.  The MSCI Asia Pacific Index lost as much as 0.5%, on course to snap a three-day advance, with Tencent and Alibaba the biggest drivers of losses. The measure was still poised for its fourth weekly gain, the longest such streak since August. Trading volumes were thinner than usual in some markets following the US Thanksgiving holiday. Benchmarks in Hong Kong were among the biggest decliners, with the Hang Seng Tech Index closing down more than 2% before Meituan’s earnings release. Virus cases surged in Chinese cities including the capital Beijing, testing authorities’ resolve to ease their strict Covid Zero policy. Hopes for reopening had fueled a recent equity rally after a four-month selloff. “We think the Chinese markets are going through a volatile bottoming process,” Eli Lee, chief investment strategist at Bank of Singapore, said in an interview with Bloomberg TV. “The capitulation that we saw in late October likely is the worst we’ll see. So I think investors should be gradually adding exposure to Hong Kong and China.” Malaysia’s benchmark dropped, paring Thursday’s surge after Anwar Ibrahim was appointed prime minister. Stocks also fell Friday in Singapore, Thailand and Indonesia, while Vietnam’s key share gauge rose more than 2%.  

Australian stocks gained for a fourth day to close the week at May-highs: The S&P/ASX 200 index rose 0.3% to close at 7,259.50, its highest since May 30, boosted by banks and consumer discretionary stocks. The benchmark gained 1.5% for the week.  Nanosonics, which rallied after an upgrade at JPMorgan, was the top performer. Meanwhile, shares of lithium-related companies were the worst performers on the benchmark after news that battery electric vehicle registrations in China fell 20.9% in October from a month earlier.   In New Zealand, the S&P/NZX 50 index rose 0.5% to 11,382.56

In FX, the Bloomberg Dollar Spot Index rose for the first day in four as the greenback advanced against all of its Group-of-10 peers. Treasuries were steady to a tad lower.

Antipodean currencies and the yen were the worst performers. New Zealand’s consumer confidence index fell to 80.7 in November from 85.4 in October, according to ANZ Bank
The yen dropped alongside Japanese bonds after data show faster-than-expected inflation in Tokyo. Tokyo consumer prices excluding fresh food rose 3.6% y/y this month, the most since 1982 and faster than the 3.5% increase estimated by economists in a Bloomberg survey. The yen heads for a weekly gain
The euro pared a decline to trade around $1.04. Bunds and Italian bonds fell, led by the belly, and paring some of the recent gains. Money markets added slightly to ECB tightening wagers ECB’s Chief Economist Philip Lane said long-term inflation expectations appear well anchored
The pound retreated, but was still near a three-month high against the dollar. Gilt outperformed bunds

In rates, Treasuries were modestly weaker Friday, led by the belly where rates are near their cheapest levels of the day into early US session. The 10-year rate is up around 4bp at ~3.73%. Bunds and gilts yields trade heavier and the selloff in European debt helped reverse early gains in Treasuries during the London session. US trading session is expected to be quiet after Thanksgiving holiday with an early close recommended for Friday at 2pm ET. The move in Treasury 10-year yields lags increase in comparable bund yields, which are more than 9bp higher on the day. Front-end of the Treasuries curve is steady, steepening 2s10s spread by ~2.4bp on the day. Peripheral spreads are mixed to Germany.

In commodities, oil rebounded throughout the European morning, with WTI crude close to $80 a barrel as the European Union weighed a higher-than-expected price cap on flows of Russian crude and slowdown concerns threaten the outlook for energy demand. The rise occurred despite a modest revival in the DXY’s fortunes to back above 106.00 and further China COVID woes. EU talks on the oil price cap look like they will resume later today, via WSJ’s Norman. Spot gold and silver have succumbed to the mentioned USD upside, with the yellow metal probing USD 1750/oz to the downside while metals are incrementally firmer given China stimulus.

Looking to the day ahead now, and data releases include the GfK consumer confidence reading from Germany, as well as consumer confidence releases from France and Italy. Otherwise, we’ll hear from the ECB’s Muller and Visco.

Market Snapshot

S&P 500 futures up 0.2% to 4,040.50
STOXX Europe 600 down 0.1% to 440.36
MXAP down 0.4% to 154.28
MXAPJ down 0.2% to 494.58
Nikkei down 0.4% to 28,283.03
Topix little changed at 2,018.00
Hang Seng Index down 0.5% to 17,573.58
Shanghai Composite up 0.4% to 3,101.69
Sensex little changed at 62,287.70
Australia S&P/ASX 200 up 0.2% to 7,259.48
Kospi down 0.1% to 2,437.86
German 10Y yield up 3.7% to 1.92%
Euro down 0.2% at $1.0387
Brent Futures up 1.5% to $86.64/bbl
Gold spot down 0.3% to $1,749.68
U.S. Dollar Index down 0.19% to 105.88

Top Overnight News from Bloomberg

ECB Governing Council member Madis Muller warned that the main risk in the battle with record inflation is halting increases in interest rates too early
Beijing’s streets are deserted and grocery delivery services are running out of capacity as rising Covid cases trigger lockdown-like restrictions across swathes of the Chinese capital
German Chancellor Olaf Scholz doesn’t want to start a new transatlantic trade war and he’s worried France’s Emmanuel Macron may be stoking one
Germany’s economy proved more resilient in the third quarter than initially reported, growing 0.4% on strong consumer spending. An initial reading of 0.3% already had been a positive surprise, defying the country’s struggles with surging energy costs and uncertainty stoked by Russia’s war in Ukraine
Sweden’s household lending grew last month at the slowest pace in a decade as interest rates are soaring and the Nordic nation’s home prices are in their worst slump since the 1990s

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mixed with price action mostly rangebound amid the lack of any significant news catalysts to spur markets and the absence of a lead from Wall St due to the Thanksgiving holiday. ASX 200 gained with the index lifted by strength in the consumer-related and defensive sectors but with upside limited by losses in the commodity-related industries. Nikkei 225 was lacklustre amid pressure in bonds and as participants digested firmer-than-expected Tokyo inflation data in which Core CPI rose to its highest in four decades. Hang Seng and Shanghai Comp were mixed with underperformance in Hong Kong after the  government extended social distancing measures through to December 14th, while the mainland bourse was kept afloat despite the deteriorating COVID situation with sentiment helped by ongoing hopes of monetary policy easing.

Top Asian News

China RRR cut for all banks is seen as likely, according to China Securities Journal. Subsequently, PBoC cuts banks Reserve Requirement Ratio (RRR) by 25bp, to keep liquidity ample. Effective from December 5th. Will strengthen the implementation of prudent policy. Focus on supporting the real economy and preventing flood-like stimulus. To release circa. CNY 500bln in long-term liquidity.
UK Cabinet Office instructed central government departments to stop installing Chinese-made surveillance systems in sensitive sites due to security risks, according to FT.
Beijing City reports 1,119 (prev. 863) COVID infections on November 24th as of 3pm, according to a health official; Guangzhou, China will not be put into lockdown, according to an official; the coming week will be key for COVID control; Nanjing City, China is to conduct mass COVID testing for five days from November 26th

European bourses are little changed but experienced a very modest negative bias initially, Euro Stoxx 50 Unch, in limited holiday-sapped trade. Stateside, futures are similar to European peers in terms of both the direction and magnitude of trade thus far, ES
+0.2. UK Black Friday volume of payment transactions have thus far been consistent with 2021, via Barclaycard Payments.

Top European News

Spanish windfall tax on banks and large energy companies cleared the first hurdle, according to Reuters.
ECB’s Lane says following a meeting-by-meeting approach to setting monetary policy will help ensure that our decisions are responsive to the evolving forward-looking assessments of the medium-term inflation outlook
ECB insider says they see no realistic scenario where we reduce the balance sheet by much next year, via Econostream.


DXY lifted to a 106.20 peak at best, with much of the action occurring prior to the PBoC RRR cut.
A cut which has applied further modest pressure to the Yuan, though it was already sensitive to the latest COVID controls/cases.
Antipodeans are towards the bottom of the pile despite domestic data in a paring of the week’s RBNZ induced upside.
At the other end of the spectrum, the EUR is the incremental outperformer though has made little ground above Unch. and is currently pivoting 1.04

Fixed Income

Core benchmarks have slipped throughout the morning, with Bunds moving below yesterday’s trough though retain the 141.00 handle.
EGBs were seemingly unaffected by ECB’s Lane who reaffirmed a meeting-by-meeting approach to policy.
USTs in-fitting directionally but with magnitudes less pronounced given the shortened session for Thanksgiving.


WTI and Brent Jan’23 have exhibited grinding upside throughout the European morning, upside that has occurred despite a modest revival in the DXY’s fortunes to back above 106.00 and further China COVID woes.
Saudi and Iraqi Energy Ministers stressed the importance of working within the OPEC+ framework and reiterated further measures to ensure stability of the oil market if necessary, according to a statement.
EU talks on the oil price cap look like they will resume later today, via WSJ’s Norman.
German Energy Regulator says he will consider gas storage levels to be critical if they are sub-40% on February 1st, currently all indicators are stable re. gas supply.
Spot and have succumbed to the mentioned USD upside, with the yellow metal probing USD 1750/oz gold silver to the downside while metals are incrementally firmer given China stimulus

US Event Calendar

Nothing scheduled

DB’s Jim Reid concludes the overnight wrap

The day after Thanksgiving always seems to mark the start of the home stretch towards Xmas in markets and even more today given it’s now only exactly a month away. If you can make it through today without getting a single Black Friday never-to-be-repeated sales offer then congratulations. Already this morning I’ve been offered on email a new bargain TV, cheap golf balls, knockdown outdoor winter clothing, 50% off panto tickets (I wouldn’t go if you paid me), and a big discount off an indoor golf simulator. I must admit the last of these held my interest for a bit longer than the others! On a more serious note, watch out for the usual Black Friday estimated US retail sales figures that will come out over the weekend. S&P have predicted that this year will see the first real adjusted fall in sales since 2009.

Unsurprisingly, it’s been a pretty subdued 24 hours for markets, with much lower volumes than usual due to the US holiday. Nevertheless, there were fresh signs elsewhere that risk appetite was continuing to grow among investors, aided by some positive data releases and further signals that central banks might not end up hiking as aggressively as feared. That was evident across multiple asset classes, and yesterday saw the STOXX 600 (+0.46%) advance to a 3-month high, yields on 10yr bunds (-7.9bps) fall to a 2-month low, whilst the dollar index (-0.23%) weakened to a 3-month low this morning as the risk premium buoying the greenback unwound yet further.

This more constructive tone was supported by more positive data releases from Europe that built on the upside data surprises of late. In particular, the release of the Ifo’s business climate indicator from Germany surprised on the upside with an 86.3 reading (vs. 85.0 expected), as did the expectations component at 80.0 (vs. 77.0 expected). That marks the second consecutive monthly improvement for both measures, and comes on the heels of the better-than-expected numbers from the flash PMIs and consumer confidence in recent days. Admittedly, none of these numbers are great in absolute terms, but given some of the fears for the European economy this winter after the Russian gas cut-off, they’re a lot better than many had expected until fairly recently.

Yesterday also saw the release of the latest ECB account from their October meeting. In their recap (link here), our European economists write that the accounts push back on an overly dovish interpretation to the October meeting, which is also supported by recent data outturns, along with public comments from Governing Council members. The minutes did say that “a few members expressed a preference for increasing the key ECB interest rates by 50 basis points” at the last meeting, but ultimately “a 75 basis points increase was judged to be an appropriate response in view of the protracted period of excessively high inflation and the risk that this might add to medium-term price pressures”. As a reminder, our economists expect the ECB to slow the pace of hikes to 50bps in December, following the 75bps pace in September and October, but it’s a close call.

European sovereign bonds rallied strongly against this backdrop, having also got a lift from the release of the Fed minutes the previous evening as well. Yields on 10yr bunds came down by -7.9bps to 1.84%, marking their lowest level in 2 months, just as yields on 10yr OATs (-9.4bps) and BTPs (-13.9bps) also fell. Those moves occurred in spite of remarks from ECB Executive Board member Schnabel, who said that “incoming data so far suggest that the room for slowing down the pace of interest rate adjustments remains limited”. Indeed the front end in Europe didn’t rally as much meaning a deeper inversion for the German curve. Given the debate between 50bps and 75bps, the flash CPI reading for November out on Wednesday will be particularly important.

Equities rallied alongside bonds yesterday, and the STOXX 600 (+0.46%) hit a 3-month high after every sector group except tech moved higher on the day. The DAX (+0.78%) was a particular outperformer, hitting a 5-month high, and the CAC 40 (+0.42%) hit a 7-month high. Meanwhile in the US, markets were closed given the Thanksgiving holiday, but futures were open and remained in positive territory throughout the day, pointing to further gains for the S&P 500 from its 2-month high in the previous session. As we type this morning, contracts tied to the S&P 500 and the NASDAQ 100 are +0.25% and +0.44% higher, respectively. Meanwhile, yields on the 10yr UST (-3.69 bps) have dipped to 3.66% in Asia trading after resuming trading with the 2yr yield slipping (-5.15 bps) to a one week low of 4.43%. A rare recent (albeit small) steepening.

Asian equity markets are struggling to end the week on a positive note as ongoing concerns over China’s daily Covid cases is hurting. They reported a record number of 31,987 new infections for Thursday surpassing Wednesday’s record of 29,754 cases thus increasing pressure on Beijing’s zero-tolerance approach to the virus as the outbreak worsens. The country is persistently registering high caseloads despite authorities implementing several restrictions across its major cities.

As I type, the Hang Seng (-0.86%) is leading losses with the Nikkei (-0.30%) and the KOSPI (-0.12%) also trading in negative territory. Bucking the trend this morning are ironically Chinese stocks with the Shanghai Composite (+0.39%) and the CSI (+0.45%) trading up.

Elsewhere in Asia, early morning data showed that core consumer prices in Japan’s capital rose +3.6% y/y in November (v/s +3.5% expected & October’s +3.4%), its fastest annual pace in 40 years driven mostly by electricity bills and food prices with a weak yen pushing the cost of imports higher. Overall Tokyo CPI inflation rose +3.8% y/y in November, up from last month’s +3.5% and also at its fastest pace in 40 years. With the city’s inflation staying above the BOJ’s 2% target for the 6th straight month, the data is signalling broadening inflationary pressure.

Back to yesterday and here in the UK, gilts noticeably underperformed after a couple of BoE officials made some hawkish remarks on policy, with the 10yr yield up by +2.3bps on the day. First, Deputy Governor Ramsden said that he was “materially less confident” that unemployment would rise as fast as the Monetary Policy Report forecasts by end-2023, which would suggest that inflationary pressures would therefore be stronger. Furthermore, he pointed out that most of the fiscal tightening measures in last week’s Autumn Statement didn’t come into effect until April 2025, so would have little effect on inflation over the MPC’s three-year forecast horizon. Then we heard from Catherine Mann, who’s also one of the more hawkish MPC members, who said that “it is more costly to get inflation down once medium-term inflation expectations have become out of control”. Sterling continued to advance against that backdrop, surpassing the $1.21 mark in trading yesterday for the first time since August.

Staying on central banks, Sweden’s Riksbank delivered a 75bps hike as expected, taking the policy rate up to a post-2008 high of 2.5%. In their forecast, they showed further rises in the policy rate at the start of 2023 that took it to just beneath 3%, and their statement said that the risk that “current high inflation will become entrenched is still substantial”. The Swedish Krona ended the day up +0.4% against the US Dollar, although this was aided in part by dollar weakness.

To the day ahead now, and data releases include the GfK consumer confidence reading from Germany, as well as consumer confidence releases from France and Italy. Otherwise, we’ll hear from the ECB’s Muller and Visco.

Tyler Durden
Fri, 11/25/2022 – 08:25

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