Headlines

* Equities fall on risk aversion, with 2023 and China reopening in focus

* Dollar continues to consolidate in another narrow range trading session

* Asian shares slip as Covid surge in China makes investors uneasy

FX: USD again traded in thin conditions. The DXY remains below the mid-August low at 104.63. The cycle low sits at 103.44. US Treasury yields advanced higher for a fourth day. The 10-year yield made a new high at 3.89%. The 50-day SMA is at 3.80%, while 3.90% is a Fib level.

EUR/USD continued to trade in a tight range. It hasn’t managed to close above the pandemic low at 1.0636 since mid-December. GBP/USD remains below its 200-day SMA at 1.2048. USD/JPY is reversing yesterday’s gains and back below 134. AUD again popped higher before closing nears its lows.

Gold is consolidating below $1820. The new cycle high is at $1833.

Stocks: US equities finished over 1% lower as fears over China covid infections resurfaced. The benchmark S&P closed1.2% down. The tech-laden Nasdaq ended off 1.35% as Apple dropped over 3%. Apple volatility continues to move sharply higher which is not a good sign for the overall market. The key level is $125. The Dow closed in negative territory, lower by 1.1%.

Asian stocksweakened with the broadest index of Asia-Pacific excluding Japan equities down 0.58%. The Hang Seng is down 0.79% as unsettled investors cast doubt over chances of a swift recovery in the world’s second largest economy after the relaxation of stringent Covid curbs. US equity futures are mildly positive. European equities are lower to start off the penultimate day of trading in 2022.

Chart of the Day – S&P 500 takes out near-term technical level

As much as we are aware of thin holiday volumes, markets can still trade on technical levels. The more than 1% fall in the benchmark S&P 500 index yesterday took out the 50% Fib level of the October rally at 3796. The area around this level has acted as support over the past week or so. But yesterday’s close below might now mean that sellers are in charge.

There is the semblance of a double top pattern around 4100. Prices were capped at the falling trendline and the 200-day SMA. The measure move of the double top means a downside target around 3760. Below here is the November low at 3698. The Fed pivot is key for stocks next year. In the meantime, festive markets are focusing on the China story and rising Treasury bond yields.