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November CPI inflation report is due from China. Markets tempering earlier China re-opening optimism
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Macro outlook
- Global Markets: It’s turning out to be a slightly more positive end to the week for US stocks, though nothing to get too excited about. The S&P500 rose 0.75% while the NASDAQ gained 1.13%, but there doesn’t appear to have been any strong catalyst for the moves, which can probably just be put down to re-positioning after several sessions of losses. Chinese stocks were broadly unchanged, as early optimism over the apparent re-opening moves has been tempered by rising Covid cases and scepticism about the ease with which this will be achieved. Equity futures are not indicating any strong conviction for the US open today, and it probably doesn’t help that Treasury yields have begun to head back higher again, as we indicated yesterday was probable as the falls until then looked overdone. 2Y US Treasury yields rose 5.2bp and the 10Y rose 6.5bp, but it still yields only 3.48%. With markets still not fully pricing in a 5.0% peak fed funds rate (4.94% for May 23 contract), there is probably a little further upside once this becomes more certain, for which we may need next week’s FOMC press conference for affirmation. The slight rise in bond yields hasn’t helped the USD much, and EURUSD is up to 1.0556, while the AUD has risen to 0.678, Cable is 1.2234, while the JPY isn’t much changed at 136.59. Asian FX hasn’t done a lot in the last 24 hours with the exception of the THB, which is up 0.76% to 34.833 following a solid rise in tourist arrivals. Other gains were modest (KRW 0.28%, VND 0.2%) and there were also some small losses, (TWD 0.13%, MYR 0.10%). There could be some catch-up with the G-10 today.
- G-7 Macro: A slight rise in the US weekly continuing jobless claims figures yesterday seems a questionable basis for running with the headline that the “US job market cools” though this is what a well-known financial broadsheet is doing today. The initial claims figures were little changed at 230,000 and bang in line with expectations. Continued claims rose 62,000 to 1,671,000. Today’s G-7 calendar is packed, with PPI inflation data (expected to fall from 8.0% to 7.2% for November), as well as the University of Michigan sentiment and inflation expectations figures, which have been “bigged-up” as potentially market moving, and who knows? If Treasury yields can rise or fall 10bp with seemingly no macro input, I suppose we shouldn’t rule out there being an improbable swing when there is one.
- China: Loan data could be released any day between today and 15 Dec. We expect more than a doubling of aggregate finance and new yuan loans in November compared to October. This will mainly come from around CNY1.2 trillion in loans to real estate developers near the end of November. There could be more financing from other channels for developers in December. CPI data today should continue to show mild inflation in November while PPI could show a slight yearly contraction from lower commodity prices in general, indicating weak economic activity in November.
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What to look out for: China inflation plus US producer prices and the Michigan sentiment report
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China CPI inflation (9 December)
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US PPI inflation (9 December)
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US University of Michigan sentiment (9 December)
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