MARKET WRAPS
Watch For:
Eurozone retail trade, meeting of eurozone finance ministers; services PMI data for eurozone, Germany, UK, France, Italy; UK monthly car registration figures, official reserves; trading update from Ryanair
Opening Call:
Shares appear poised for slight gains at the start of the week after China took steps to ease its Covid restrictions. Stock benchmarks and commodities rose in Asia, while the dollar softened and Treasury yields gained.
Equities:
Stock futures point to a slightly higher open on Monday amid improved sentiment, after local authorities across China pared back some of their strictest Covid-19 control measures.
European shares closed mixed last Friday following an unexpectedly strong U.S. jobs report for November.
The resilience of the jobs data prompted investors to price out the prospect of an imminent sharp slowdown in the Federal Reserve's interest-rate rise cycle, CMC Markets said.
"Friday's stronger-than-expected jobs report gives the Federal Reserve more reasons to continue raising interest rates and maintain tighter monetary policy for longer, at least until the labor market begins to weaken, which is a signal that the market does not want to hear right now," said Robert Schein, chief investment officer at Blanke Schein Wealth Management.
But some market strategists see a silver lining.
"The report is a positive development for the economy and helps support the case that the Fed may be able to achieve a soft landing in the economy, an outcome that's contrary to predictions made by some of the nation's largest banks in recent months," said Peter Essele, head of portfolio management at Commonwealth Financial Network.
"The labor market remaining hot continues to justify what the Fed is doing," said Nicole Webb, financial advisor at Wealth Enhancement Group. "I don't think it changes course from the 50 basis-point expectation in December," she said, "but we've really started to question how high the terminal rate has to get to, to have the demand destruction that brings inflation down to 2%."
Forex:
The dollar weakened on a return of risk appetite amid the easing of Covid restrictions in China.
However, ANZ has one eye on next week's FOMC meeting, noting the Fed may lift its terminal rate projection above 5% even if it opts for a smaller 50bp rise in the fed-funds rate.
"If that occurs, the question we're pondering is: how will the USD fare?" said ANZ.
"We may be shaping up for an epic battle between the 'recessionists' and the 'rate-watchers', all of which portends USD volatility."
Bonds:
Treasury yields rose in Asia, after the policy-sensitive 2-year Treasury yield advanced Friday but finished the week lower. A hotter-than-expected U.S. jobs report for November prompted traders to push up the likelihood of a 5% or higher fed-funds rate by March.
"While the Fed may slow down its rate increases from the 0.75% per meeting pace to 0.50% per meeting pace, it may also place pressure on them to extend those rate increases further into 2023," said Jason Pride, chief investment officer of private wealth at Glenmede.
"Such a path to higher rates for longer should put a damper on both fixed income and equity markets."
Read: Robust U.S. jobs market adds to worry over how much higher interest rates need to go
Energy:
Crude oil futures rose early Monday after China loosened some of its Covid curbs.
However, traders could remain on edge after the European Union and Group of Seven nations imposed a price cap of $60/bbl on Russian oil, which is set to take effect this week, ANZ said.
European sanctions on Russian oil also kick in this week, while OPEC+ has made the decision to keep its output steady, which raises uncertainty on oil supply and demand in coming months, ANZ added.
Metals:
Gold prices rose in Asia, reversing a previous pullback after a "shockingly hot" nonfarm payroll report, said Oanda.
The unexpectedly strong jobs report spurred the dollar to rise, and traders began to raise expectations of future hikes from the Fed, added Oanda. The pullback in gold prices was unwarranted, as inflation is steadily declining, which should mean the Fed will slow the pace of its rate hikes.
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Copper prices advanced, extending a recent rally amid rising hopes for the easing of pandemic curbs in China.
ANZ said many investors are betting on expectations of sharply higher copper demand from the world's second-largest economy.
But ANZ warned of "signs of weakness in the physical market," and "ample supply" that has pushed down prices for some copper contracts and port inventories.
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Iron-ore prices should be buoyed by seasonal supply challenges over the next few months, Jefferies said following recent gains in the steelmaking commodity.
The benchmark price of iron ore is up by 35% since the start of November, underpinned by Beijing's plans to stabilize China's property market and ease some Covid restrictions.
"Seasonal supply constraints should also help over the next 2-3 months," Jefferies said, referring to the severe storms that can occur in Australia and Brazil around the turn of the year.
Meanwhile, Yongan Futures thinks the upbeat sentiment will remain strong for some time, as traders seek to position for an expected demand rebound into the spring of 2023.
But Yongan cautioned that investors should monitor the momentum for steel production, which has been under pressure due to weak profitability.
TODAY'S TOP HEADLINES
OPEC+ Keeps Oil Curbs Despite Russia Price Cap
OPEC+ said Sunday it would lock in current production levels, a pause that suggests the word's leading oil producers are uncertain about the direction of crude prices with a price cap on Russia's petroleum exports set to take effect.
The decision on Sunday allows the Organization of the Petroleum Exporting Countries and a group of producers led by Russia-collectively known as OPEC+-to take more time to assess the market impact of an EU and Group of Seven price cap, which is intended to crimp Russia's revenue for the Ukraine war. It locks in a 2 million-barrels-a-day production cut decided in October.
Dow Shines as Higher Rates Squeeze Nasdaq's Tech Stocks
The Dow is beating the broader market to a degree not seen in nearly a century.
The Dow Jones Industrial Average is down 5.3% this year, which isn't normally a cause for celebration. But that performance looks downright golden compared with the broad S&P 500, which is off 15%, and the tech-heavy Nasdaq Composite, which has dropped 27%.
China Loosens Covid Restrictions as Public Anger Simmers
HONG KONG-Local authorities across China are paring back some of their strictest Covid-19 control measures, just days after public anger spilled over into rare protests against a zero-tolerance approach that has kept the country largely isolated for three years.
In recent days, officials in major cities-including Beijing and other areas where protests broke out a week ago-said they were lifting some curbs on residents' movements, such as by ending mandatory Covid testing for people who want to use public transport or enter parks and other public spaces.
Business-Software Companies Say Customers Are Pulling Back Amid Economic Concerns
Business-software companies say customers are being more cautious with their spending in response to a challenging economy, adding to the tech industry's list of concerns.
Customers for companies such as Salesforce Inc., Okta Inc. and CrowdStrike Holdings Inc. are taking longer to sign deals, and in some cases slowing their hiring plans as they try to protect their bottom lines, the software providers reported this past week. That trend has created a cloudy outlook for many in the once-booming business-software sector, which benefited from years of demand as customers looked to use the products to trim costs and maintain their businesses during the pandemic.
Economists Think They Can See Recession Coming-for a Change
If the economy shrinks next year, no one should be surprised. We're facing the most widely forecast recession in history-and investors don't seem to care.
Recession in Europe and the U.K. is already the average of economic predictions, while the U.S. average forecast for next year is growth of a miserly 0.2%, according to Consensus Economics, the third lowest since 1989.
Must Inflation Be Brought Down All the Way to 2%?
"Why must inflation be around 2%?" is a question that obsessed central bankers back when inflation was stubbornly below their favorite target. It makes more sense to ask it now.
This past week, a string of data has suggested that inflation is finally on a downward trend. The U.S. personal-consumption expenditures price index excluding food and energy-the Federal Reserve's preferred measure of inflation-recorded its second-smallest monthly increase for the year, even as consumer spending jumped and job growth continued. Meanwhile, eurozone inflation receded to 10% in November, suggesting that October's 10.6% was the peak.
Why You Can't Find Wegovy, the Weight-Loss Drug
Novo Nordisk A/S flubbed the launch of its buzzy new weight-loss drug Wegovy, missing out on hundreds of millions of dollars in sales and squandering a head start before a rival could begin selling a competing product.
Wegovy is among a new class of drugs that health regulators have approved to cut the weight of people who are obese, a goal long sought by doctors and patients. Their weight-dropping potential became a viral sensation on social media. Elon Musk tweeted about Wegovy in October. And a related drug for diabetes, Ozempic, is a hot topic in Hollywood among celebrities seeking to stay thin, according to doctors.
Iran Disbands Morality Police, Considers Changing Hijab Laws, Official Says
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12-05-22 0022ET
