Headlines

* Asian stocks rally on hopes China protests quelled, faster re-opening

* Oil rebounds as speculation OPEC+ will cut production intensifies

* EU discusses Russian oil price cap as low as $62 as talks slow

* US dollar steadies above recent lows as China Covid worries linger

FX: USD softened but kept the 106 handle as risk appetite improved. This erased some of yesterday’s advances which were driven by haven flows and hawkish Fed rhetoric. US Treasury yields were muted and tracked sideways. The 10-year Treasury yield continues to hover around the recent lows at 3.67%.

EUR/USD popped north to a new cycle high at 1.0496 before an aggressive intraday pullback. Prices closed back below the 200-day SMA at 1.0368. GBP/USD fell for a second day, dipping below 1.20. The major reclaimed that level this morning.  USD/JPY made a fresh three-month low at 137.49 before closing at 138.92.

AUD/USD is better bid today on improved risk appetite. Prices are trading around July support at 0.6681 and the 100-day SMA at 0.6685. Gold is oscillating between $1740 and $1760 waiting for a breakout catalyst.

Stocks: US equities finished lower amid global equity weakness and profit taking. The benchmark S&P 500 led stocks down with losses of 1.54%. The Dow and Nasdaq dropped 1.45% and 1.43%. Apple declined following reports that the tech giant is set to lose 6 million iPhone Pros from production due to the unrest at its Chinese plant. Asian stocks were mostly positive on the China re-opening hopes. The Hang Seng outperformed with developers gaining after China approved listed developers’ mergers and the easing of developer state guarantees. US equity futures are in the green. European equity futures are positive after the cash market closed down -0.6% yesterday.

Market Thoughts – More Fedspeak, more China Covid issues

We wrote late last week that “It could be a chaotic few months with the path around China’s response still uncertain” referring to the zero-Covid policy. We’ve certainly seen that this week with risk assets selling off and the dollar finding a bid as protests in Shanghai especially grabbed the headlines. But offshore Chinese stocks have bounced strongly on hopes that the country may move closer to a full re-opening. Press briefings from authorities today mentioned increased vaccinations. Protests also died down. Again, it looks like being messy path towards a change in policy and re-opening.

There were also more Fed speakers on the wires ahead of Chair Powell’s speech tomorrow. Perennial hawk Bullard noted markets are underpricing the risk the Fed may be more aggressive. Mester stated that the costs of stopping tightening too early are too high. There was a slightly softer tone from Williams who said more work is needed to lower inflation. The blackout period starts soon ahead of the FOMC meeting in mid-December. With a few key data points between Powell’s appearance and that meeting, the Chair could look to pre-empt any counterproductive easing in financial conditions that might result from further downside misses.

Chart of the Day – USD/JPY trying to go lower

USD/JPY is now over 10% off its high near 152 in late October. The yen has been benefitting from lower global yields and oil prices. This week we will find out whether Japanese authorities sold FX in November. They sold a combined $70bn in September and October. So, in some senses this intervention can be seen to be exceptionally well-timed. The 10-year Treasury yield is a key driver of this major and has been tracking sideways in recent sessions. Powell’s speech and this week’s top tier data may see more volatility soon.

Technically, the pair dipped to a fresh three-month low yesterday before buyers stepped in. Support sits at a Fib level at 137.24. The 200-day SMA is 134.18 while resistance above is the 100-day SMA at 141.19.