Monday, November 28, 2022

Daily Market Overview

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•  Chinese mass protests over President Xi Jingping’s zero Covid-policy dominate today’s headlines. The rare civil unrest was triggered by a deadly apartment fire where pandemic control barriers etc hampered civil services to extinguish the fire while residents in the region were already for three months in isolation. Another issue is related to unpaid workers at the biggest iPhone assembly plant. The unrest and protests are feared to add to China’s economic woes. Regional bourses lost up to 1.5% this morning with European stock markets ceding up to 1%. USD/CNY significantly weakened from last week’s close at 7.165 to 7.2050. This year’s CNY low stands at 7.3275 (weakest since 2007). The Chinese growth fears pulled oil prices significantly lower today, with Brent crude sliding from around $84/b to currently $81.5/b, breaking below the September low. US bond yields (Asian dealings ) and German yields (at the open) lost quite some bps initially, but managed to overturn that move. US yield changes currently range between -3 bps (30-yr) and +1 bps (5-yr). German yield differences compared with Friday’s close vary between – 0.5 bps (2-yr) and +2.0 bps (10-yr). The German 10-yr yield again attempts to reconquer the 2% mark. The dollar initially followed the textbook reaction, profiting somewhat from the risk-off context, but that move didn’t last long. From the start of the European bell it went from below 1.04 just below 1.05. Resistance stands at 1.0479/1.0516 (recent high/50% retracement on Feb/Sep EUR/USD decline). The trade-weighted dollar in a similar move fell below 106 with DXY testing the mid-November low at 105.34.Even USD/JPY tested 137.68 support. Sterling finally threw the towel following an intense test of EUR/GBP 0.8559/67 support. The pair followed EUR/USD’s leap higher and is currently changing hands near 0.8660.
• Today’s eco calendar only contained second tier eco data. We retain hawkish comments from ECB Knot who finds the underlying inflation trends worrisome while adding that inflation forecasts are entirely tilted to the upside. ECB President Lagarde wouldn’t go as far as saying inflation has peaked, stressing the central bank will hike rates as long and much as needed. From tomorrow on it’s all hands on deck with US consumers confidence, ADP employment change, manufacturing ISM, US payrolls and a speech by Fed chair Powell. In Europe, we’ll get national EMU inflation numbers from tomorrow on, which will evolve to the overall EMU figure on Wednesday.
News Headlines

•  The monthly UK retail sales as measured by the CBI index deteriorated sharply in November. The headline balance for the retail sector dropped from 18 in October to -19 this month. The orders placed subindex dropped from -1 to -32, the lowest level since March of last year. Sales for the time of the year also eased from 20 to 3. At the same time, the level of stocks compared to expected sales continue to rise. British retailers also don’t expect an improvement in the near future as the expectations balance also nosedived from -9 to -21, as did orders (-38).
•          IFO export expectations improved in November to plus 0.4 points, up from minus 4.6 points in October, the German IFO institute reported today. The rise was mainly driven by the automotive industry again expecting exports to grow. Manufacturers of machinery and equipment and companies in the electrical industry expect hardly any further improvement from international business. On the negative side, beverage producers, the furniture industry, and the chemical industry are expecting declining sales. Ifo added that the export environment remains especially difficult for energy-intensive industries.
•  According to Reuters reporting based on a document seen by the press agency, the EU commission is preparing a draft proposal that requires market participants in the European Union to have an active account with a minimum of activity at a clearing house in the EU. According to the draft the measures are aimed at safeguarding financial stability by ending “excessive exposures” to “a few” non-EU clearers. The draft with other detailed measure, for example on commodity derivatives markets, is said to be published on December 7. At the end of the procedure final approval is needed from the European Parliament and EU members states.

Graphs & Table

Yuan weakens north of USD/CNY 7.20 as investors grow uncertain on impact op new lockdowns on Chinese growth.

German 10-y returns to 2% despite global risk-off

Brent oil drops to lowest level since January as markets ponder global/Chinese demand

EUR/GBP rebounds off key 0.8560 support area.

Note: All times and dates are CET. More reports are available at which you may sign up to.

This document has been prepared by the KBC Economics Markets desk and has not been produced by the Research department. The desk consists of Mathias Van der Jeugt, Peter Wuyts and Mathias Janssens, analists at KBC Bank N.V., which is regulated by the Financial Services and Markets Authority (FSMA). Read the full disclaimer.

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