(Ipek Ozkardeskaya – Swissquote Bank Ltd)
Stocks in Asia fell this Monday on news that China reported its first death in six months from Covid on Sunday, and two other deaths followed. The news obviously spurred fear that the government could make a U-turn on its decision of easing the strict Covid zero rules, and wreak havoc in Chinese markets, yet again. The Hang Seng fell more than 2% today, after a more than 26% rebound in the first two weeks of November, while the CSI index slid 1.50%.
No one can tell whether Xi Jinping would pull back from the reopening plans, which would be another disaster for Chinese stocks, and for investor confidence.
Bye Bye post-inflation rally
The US-inflation-data boosted rally faded last week, on the back of a too-strong-to-be-happy retail sales print, and a couple of hawkish comments from Federal Reserve (Fed) Presidents, including a chart from Mr. Bullard where the Fed’s terminal rate stretched up to 7%!
The S&P500 dropped 0.7% last week, Dow Jones was flat while Nasdaq gave back 1.60%.
This week, investors will focus on interest rate hikes and the US Black Friday sales. The Reserve Bank of New Zealand is expected to raise its rates by another 75bp on Wednesday, the Fed will reveal the minutes from its latest meeting a little bit later that day, and the US will find out how much and of what people will be buying this Black Friday after the Chinese Alibaba kept its 11.11 sales secret this year, and we had devastating Q3 earnings and gloomy guidance from Target last week.
The Black Friday sales will paint a clearer picture of the health of US consumers, and their wallets in this inflationary environment. Remember, good sales are good for the mood, but too good sales would fuel inflation expectations, and the Fed hawks, and may not be good for investor appetite.
For now, there is ‘hope’ that spending in the US will slow. Citi analysts for example ‘warn’ of a ‘consumer-led recession’ in 2023, and that’s exactly what the Fed tries to achieve: fight inflation by killing demand.
Even the Chinese reopening news couldn’t give a boost to the black gold. The barrel of US crude slipped below the $80 psychological level last week, below the post-pandemic ascending trend base. The short-term outlook is revised from neutral to slightly negative, with the next natural target for the bears standing at $76 per barrel, the September dip
In the FX
The US dollar kicks off the week on positive footage, on the back of a retreat in dovish Fed expectations.
A stronger US dollar will likely play against gold in the coming sessions, and we could see the price of an ounce retreat toward the 100-DMA, which stands near the $1712 level.
The EURUSD tested important technical resistance last week, just into the 1.05 level, including the long-term bearish trend top and the 200-DMA. We could see some profit-taking in the single currency and a downside correction toward the 1.0190 level, which is the minor 23.60% retracement on the 2021-2022 selloff.
The European Central Bank (ECB) will release the minutes of its latest meeting this Thursday, but there is little to look forward to in those minutes, as Christine Lagarde said clearly that there is no more forward guidance to shape expectations, and that investors must watch the data to guess what’s next for the European monetary policy. So we will be watching the flash PMI figures for November to find out if, and by how much, the economic activity in Europe slowed this month. The expectation is a faster slowdown.
Contagion news from the FTX collapse continues making headlines in cryptocurrencies. According to the latest news, FTX owes more than $3 billion to its unsecured creditors. Ten of them have claims of more than $100 million each. That means we could hear more crypto institutions get in trouble in the coming days.
Another important piece of news is, Crypto.com, Binance, and OKX suspended deposits of dollar-backed stablecoins, USDC, and Tether before last weekend. The common denominator between USDC and Tether is that they are both based on Solana’s blockchain, and Solana is under threat due to its close ties to FTX. And the fact that the two major stablecoins will no longer be available on some major exchanges also raises questions about the stability and reliability of Solana after the FTX collapse.
While Bitcoin, which has been under pressure this weekend, didn’t break major support, Solana keeps sliding to fresh post-FTX lows.
Fancy a beer?
The world’s most expensive World Cup kicked off this weekend in the middle of the Qatari desert, with a lot of unusual news, speculation, and backlash about the CO2 emissions and limited sales of alcohol, among other criticism.
Beverage companies, like Ambev and Anheuser-Busch InBev, normally see their sales boosted during World Cups.
For me, though, it’s no longer the season of fresh beer, I would rather take a mulled wine, please!