IG Morning Call

[MongiIG]

Market sentiment has been looking a little more unstable as we head towards the weekend, with this week’s UK inflation and budget providing a shift in focus after last week’s US CPI-led rally. The Asian session was largely downbeat, following a similarly negative session in the US and Europe, with the DAX providing the only gainer yesterday. Overnight data has seen UK Gfk consumer confidence beat estimates in rising to -44. Similarly, an outperformance on the retail sales figure brought a monthly figure of 0.6%, in turn raising the yearly comparative to -6.1%. Looking ahead, a lack of data today does shift the focus onto central bankers, with Lagarde (ECB), Nagel (Bundesbank), Mann (BoE), and Haskel (FOMC) all speaking.

 

[MongiIG]

The week begins with markets in a cautious frame of mind following the news that Covid outbreaks in China had resulted in several areas imposing curfews to control outbreaks. The reports pushed down indices in Asia, while oil prices also slipped. Futures in Europe and the US have also weakened, following on from a better end to last week on Friday. Reports over the weekend suggesting the UK government was looking at developing a closer Swiss-style relationship with the EU have prompted alarm in Brexiteer circles. With the week truncated by Thanksgiving in the US, we may see some reluctance to push this risk rally further in the short term. 

 

[MongiIG]

European markets face two days of indecision now that the US has gone off for their Thanksgiving holiday. Stocks managed to push higher yesterday evening on Wall Street, as investors latched on to hints in the Fed minutes that policymakers were looking at slowing the pace of rate hikes. The Fed still thinks that the risk of a recession is finely balanced, but with more rate hikes on the cards it still seems sensible to expect 2023 to feature more economic pain. China's Covid cases have hit a record high, which casts doubt on hopes that this economy will go through a full-blown reopening soon, and another tough winter seems to lie ahead. Oil prices have continued to fall, reflecting ongoing recession fears. Today is a quiet day for most markets, with just the German IFO index on the agenda for the day. 

 

[MongiIG]

In a quiet session in Asia, Australian stocks were able to move higher, but other indices declined, as a rise in China's Covid cases to another record high dented sentiment. This pushes hopes of a full reopening of the Chinese economy even further away. Thin liquidity across the board meant that moves were fairly limited, and that is unlikely to change much today, given that the US is on a half day. With the last full week of November trading drawing to a close, investors will be asking whether equities can find fresh reasons to continue their recent recovery, aware that the Fed is still committed to raising rates well into next year, while watching an oil price that remains firmly under pressure and seems to point towards a recession in 2023.

 

[MongiIG]

Protests in China unnerved markets, which are not used to seeing such widespread unrest in that country, prompting losses for stocks and oil. Fears about Chinese growth have eased as hopes of a loosening of lockdown measures rise, but the sight of demonstrations in major Chinese cities has provoked fears of a crackdown that will inevitably feed through to the economy. In bond markets recession fears are on the rise again, as long-dated Treasury yields continue to fall even though further Fed rate rises are expected. Oil prices hit a one-year low overnight, falling below their September low as China growth fears hit commodity prices. The week begins with little on the calendar, but at least volume should return now that US traders are fully back from their Thanksgiving holiday. 

 

[MongiIG]

Stocks and oil prices staged a turnaround in Asia overnight, following reports that China would provide fresh support to the property sector, while hopes of an earlier loosening of Covid restrictions in response to public unrest added to the positive tone of the session. This allowed markets in Asia to shrug off the more negative tone seen in the US. Oil prices rebounded from the one-year low hit in Monday's session, as reports hit the wires suggesting OPEC was looking at a production cut to help lift prices. The dollar was also boosted after Richmond Fed president said that more tightening was needed to deal with persistent US inflation. Risk assets have recovered in the US and Europe, having dropped back yesterday, though nervousness persists ahead of a speech by Powell on Wednesday.

 

[MongiIG]

Markets reversed course from earlier losses overnight and stock indices pushed higher, despite weaker China PMI data. The November PMI survey showed that activity contracted faster than expected but hints that China would speed up the pace of vaccinations for the elderly gave new life to the hopes that this economy will reopen earlier than expected. Attention now turns to today's speech from Jerome Powell (6.30pm), while also keeping an eye on the ADP employment report this afternoon. Powell is once again expected to remind markets that more rate rises are coming, even with the recent slowing in inflation measures in the US, which could torpedo any risk rally for the end of the month. Even the slightest hint of dovishness might be seized on by investors, so the Fed chairman is likely to tread very carefully.

 

[MongiIG]

Markets have cheered Powell's speech to the rafters, and risk assets have begun December in strong form. The US central bank chief opened the door to a slowing of the pace of rate hikes, even as he cautioned that the fight against inflation was not over. This is not the pivot that many have been expecting all year, since the process of hiking rates goes on, but it looks to be enough to give stocks and commodities the opening they were looking for, at least in the short term. The dollar has fallen back, and European futures are pointing to gains as investors begin the run to year-end. 

 

[MongiIG]

Asian markets were weaker overnight, as the rally cooled in anticipation of today's non-farms payroll report. However, indices in the region are still up for the week, with most of the gains having come in the wake of Powell's speech on Wednesday. US and European futures are on the back foot, if only modestly, as attention turns to today's jobs data, the latest piece of the puzzle to be slotted in. An easing of China's Covid restrictions is still expected in coming days, according to reports from Reuters, a development likely to support risk assets in the short term. 

 

[MongiIG]

Asian markets rose as China eased some Covid measures, helping to offset the strong payrolls report on Friday that dented hopes of a sustained cooling of the Fed's tightening policy. While China has not yet moved away officially from its zero-Covid policy, there has been a relaxation of some measures as local officials look to mitigate the economic impacts of lockdowns while managing the expected surge in Omicron cases. Friday's job report showed that the US continued to create a large number of new roles, while also indicating that pay was rising at a faster-than-expected rate. This gave the dollar a boost in the aftermath of the report, but the greenback has continued to lose ground overnight.

 

[MongiIG]

Asian markets fell overnight, following the lead set by the US, where a stronger ISM services PMI fuelled fears of more aggressive Fed rate hikes. Tech stocks fell across the region, but in some cases such as the Nikkei the losses were offset by increases for banks and insurance firms on the rise in US Treasury yields. Following on from Friday's job data, the ISM figure suggests that even if the Fed stays away from more 75bps hikes, the strength of the US economy will allow it to push on with more 50bps for an extended period of time. The RBA raised rates by another 25bps to 3.1%, but more hikes are likely with inflation running at 6.9%. US futures are little-changed so far, but European markets are expected to suffer losses on the open. 

 

[MongiIG]

Investors have failed to be moved by news that China will ease a host of Covid restrictions, including the use of quarantine centres and the need for a negative PCR test to travel. Markets are fretting about US growth, with warnings from US banks about a recession next year putting traders into a risk-off frame of mind. Scepticism also surrounds China's ability to ease policy as winter takes hold and cases rise, suggesting a long road ahead before curbs are fully lifted. India's central bank increased interest rates by 35bps to 6.25%, and the Bank of Canada is expected to follow with a 50bps rise this afternoon. Weakening growth expectations in the US have caused stocks to lose ground, while oil has given back its gains for the year, and the dollar is once again moving higher. 

 

[MongiIG]

While the Hang Seng managed to rally over 2.5%, other markets in Asia were more mixed, as fears about a US recession continued to overshadow equity markets. The rally from the October lows in risk assets has found itself running out of news to drive it higher, and good US economic data over the last week has been viewed as giving the Fed reason to keep hiking rates, rather than contemplate a pivot in policy. Thus stocks have lost ground in recent sessions, and China's first steps towards reopening its economy have done little to improve sentiment. At present stocks are following the usual December pattern, with the seasonal rally only due to start in the second half of the month. Given the reasons for caution this year, it could be a fairly lacklustre rebound.

 

[MongiIG]

Stocks in Asia pushed higher again as attention shifts to today's US producer price inflation (PPI) data. The Hang Seng, which is up nearly 6% for the week, led the way higher, while other Chinese indices also posted gains on hopes that Beijing would continue to look at ways of scaling back Covid restrictions. Today's US PPI is likely to set the tone going into the weekend, with economists expecting an acceleration in the pace of factory-gate inflation. Futures are looking stronger across Europe and the US, while oil prices remain under pressure, having fallen sharply for most of the week. 

 

[MongiIG]

A downbeat start to the week in Asia looks to be influencing sentiment in Europe, with indices expected to open in the red as we kick off a crucial week for the markets. Coming off the back of a week that saw sharp gains across China-related stocks, the Hang Seng has been a major underperformer overnight, losing over 2% as scientists warn that the plan to remove Covid restrictions will lead to a sharp spike in cases as a result. In the West, inflation and interest rates look set to dominate, starting with tomorrows US CPI figure. This morning has seen a host of UK data, with the Rightmove HPI signalling further house price contraction (-2.1%), October GDP coming in above expectations (0.5%), and manufacturing production having a particularly good October (0.7%). Looking ahead, keep an eye out for the NIESR UK GDP estimate figure.

 

[MongiIG]

Overnight in Asia stocks put in a mixed performance, with small gains and losses prevailing across the region, as investors hunkered down ahead of US inflation data today and the Fed rate decision tomorrow. The Nikkei and ASX200 both edged up, while the CSI300 dropped back slightly. US inflation figures are expected to cool on the headline front, while core CPI is forecast to slow slightly for the annual figure. The Fed is still expected to raise rates by 50bps tomorrow, and it would require a major change in inflation data to alter that expectation. European and US futures are reflecting the same nervousness seen in Asian markets, although oil prices continue to stage a short-term rebound. UK employment data showed a rise in October's unemployment rate to 3.7%, while November's claimant count jumped sharply. 

 

[MongiIG]

Stocks remain firmly underwhelmed by yesterday's Fed decision, with the cautious GDP projections and hawkish CPI forecasts weighing heavily. The Fed warned that higher interest rates would persist for a while, while also cutting its GDP forecast for next year and assuming that inflation would be higher by the end of 2023 than previously thought. Indices across Asia moved lower, and rising Covid infections and poor data meant that the Hang Seng was one of the worst-affected, down 1.1%. Futures point towards a lower open in Europe, where markets must contend with two central bank decisions, from the Bank of England and the European Central Bank. Both are expected to raise rates further, and further gloomy commentary from these policymakers would put yet more pressure on equities and risk appetite generally.

 

[OfentseIG]

Equities in Asia took their cue from the losses in Europe and the US yesterday and fell for a second session overnight. In the wake of the US rate hike on Wednesday, with warning of more to come, rate hikes in the UK and eurozone, and in a host of other countries, underlined the point that the tightening of policy by central banks still has some way to run in 2023. The Nikkei was down 1.9%, while the MSCI ex-Japan index fell 0.8%, putting it down 2.3% for the week. Meanwhile, Japan's manufacturing activity contracted at its fastest pace for two years in December, strengthening the case for a recession next year as global data continued to weaken. The major events for the year are essentially behind us now, with a relatively quiet two-week period ahead, but today's flash PMIs from Europe and the US will provide one final round of useful data. 

[MongiIG]

Asian markets kicked off the week in cautious fashion, carrying on the theme from last week where rate hikes and concerns about economic growth caused the equity rally to stall and then go into reverse. The Stoxx 600 and the FTSE 100 suffered their worst weeks in months, falling 3.3% and 1.3% respectively, and the Dow dropped back from an eight-month high near 35,000. Overall this isn't the kind of year-end move most investors were expecting. While there is still scope for a rally into Christmas, this looks to be a fleeting bout of optimism, as worries about falling earnings and a recession in 2023 continue to stalk markets. 

 

[MongiIG]

Stock markets in Asia have calmed following yesterday's Bank of Japan news, with losses slowing in most indices, though the Nikkei continued to fall. But while indices do seem to be trying to put in at least a small bounce ahead of Christmas, it could be a short-lived recovery. The calendar continues to thin out ahead of Christmas, and it will only be a short time before earnings season begins in the US, with the potential for further declines if corporate results come in weaker than expected. US and European futures are holding up well this morning however, with the Dow back above 33,000. Canadian CPI and US existing home sales, along with weekly crude inventories, are the notable events on today's calendar. 

 

[MongiIG]

Markets seem to have discovered some bullishness as the year winds down, with Asian indices rising after a better performance in the US yesterday. This is not quite the pre-Christmas bounce that many had hoped for, but it helps to put stocks on a slightly better footing as the final full week of trading heads towards its close. The drop in the dollar continues, giving space for a bounce in gold prices, while oil continues to recover from its one-year lows. US weekly jobless claims, a final revision to US Q3 GDP and the Chicago Fed index are the only real events of note today. 

 

[OfentseIG]

2022's Santa Rally has lasted barely one day, with Thursday's session seeing a reversal that put indices on the back foot once again. Revised US GDP data and low unemployment claims got the blame, and the usual pre-Christmas decline in liquidity amplified the move. Asian markets reflected the Grinch-like atmosphere, dropping back across the region, and while US and European futures are slightly higher, it is only small relief for yesterday's losses. It seems unlikely that next week's shortened and light trading will bring any significant change from the prevailing cautious sentiment. 

Please note: this is the last Morning Call of 2022. The Morning Call will resume on 3 January 2023. 

[OfentseIG]

Early Morning Call: Yen climbs after more BoJ intervention
Going into the last day of the year, the Bank of Japan has intervened again leading to more gains for JPY. IGTV's Jeremy Naylor also looks a the worst performing FTSE250 stock.

 

[OfentseIG]

It has been a mixed start to the year for global stock markets. A slight drop in the latest Caixin manufacturing figures echoed the weakness seen in the December factory activity numbers for China over the weekend, but indices there were able to shrug off initial losses. Continued loosening of Covid restrictions comes just as the country looks towards its Lunar New Year holiday, when plenty of domestic travel is expected to take place, thus opening up the possibility of a major spread of the virus. Meanwhile European futures steadied after regional German inflation showed a notable slowdown in price growth, providing hope of further recovery for indices after a tough few weeks in which the bounce from the October lows has slowed notably. It is a quiet start to the year for most markets, but German CPI means that the new year will begin very much in the way that 2022 finished, namely worrying about inflation and growth.

[OfentseIG]

Investors are only days into the new year and already Fed minutes are on the calendar, another less-than-happy reminder of 2022 and its dismal market performance. While yesterday's German inflation figures provided a boost to European markets with its sign of weakening price growth, today's minutes are likely to reaffirm the hawkish view prevailing at the Fed. Asian markets had another good session overnight, though a strengthening yen is still weighing on Japanese indices, but with a busy three days of data ahead some of the optimism in markets may begin to wane. Today's calendar is dominated by the ISM PMI from the US and then Fed minutes, acting as a warm-up for the next two days of jobs data. 

[OfentseIG]

Investors shrugged off a hawkish set of Fed minutes last night, having come to terms with the idea that one or two more hikes this year will mark the end of the tightening process, to be followed in 2024 by a wave of cuts. Asian stocks have had yet another good session, continuing the theme of ex-US indices making progress in 2023, and while the Caixin services PMI remained in contraction territory, it did rise by more than expected. While Covid infections continue to surge, markets appear willing to play a long game here, withstanding the rise in infections in expectation that these will subside as winter turns to spring. Today marks the beginning of a focus on the US employment picture, with initial claims and the ADP report, before tomorrow's big NFP number. 

[OfentseIG]

Asian stock markets rose again on Friday, but the bullishness was held in check by the presence of the monthly US non-farms figure on the schedule for the day. The private-sector ADP report yesterday pointed to sharp gains in employment, and if the payrolls report follows suit then this could cause further short-term strength in the US dollar and even some potential changes in market expectations for Fed action this year. Stock markets remain optimistic that China's reopening will provide good news further down the line, and even Samsung was able to move up despite announcing a fall in profits of over two-thirds for Q4 as demand dried up. Such news should be considered crucial as we move towards US earnings season, which begins next week. Aside from payrolls data, we have the UK construction PMI, eurozone CPI, Canadian employment figures and the US ISM non-manufacturing PMI on the calendar for today.

[MongiIG]

Stocks begin the week on the front foot, with gains in Asia and European futures pointing higher. The reopening continues apace in China as air travel resumes without the limitations that have hampered movement over the last three years. Meanwhile, Friday's payroll figures in the US provided just the right blend of payroll gains without excessively strong wage growth, prompting a surge in stock markets and some hope that the Fed may begin to think about pausing its hiking process earlier than expected. But with US CPI on the calendar and an appearance by Jerome Powell on Tuesday markets cannot become too complacent. While it is a quiet start to the week overall, Q4 earnings season begins in the US on Friday, while Christmas trading updates will come through thick and fast in the UK too. 

 

[MongiIG]

Comments from Fed officials about needing to push US rates above 5% and then hold them there resulted in a cautious turn in the US session last night, which carried over into the Asian session. This tempered the optimism seen on Monday after China lifted air travel restrictions, and with a Powell speech also the only major event on today's calendar sentiment may well remain cautious. Powell's speech is likely to set the tone for the middle of the week ahead of Thursday's US inflation reading. Japanese CPI exceeded the 2% for the seventh month in a row, while core inflation for Tokyo hit a 40-year high. Recession concerns appeared to hit oil prices, while European futures turned slightly lower. 

 

[MongiIG]

Asian stocks sat just below 7-month highs in overnight trading, as investors now hunker down to see what today's US CPI reading will bring. US markets put in a good session, with the Dow closing in on 34,000 once again, and if we see a weakening in inflation growth then stocks could see further gains as expectations for the Fed's next rate decision are tilted further towards a 25bps rise instead of the previously-expected 50bps. Investors in the UK will continue to digest the storm of trading updates, with Tesco, ASOS, Persimmon, Marks & Spencer and others all issuing updates this morning.