Overnight Market Wrap: 7 November 2022

Overnight Market Wrap: 7 November 2022

Key Points:

  • Positive lead from S&P 500 rally loses its luster at Asia open
  • US Stock Futures, Oil Fall on China’s Covid Zero

Investor appetite soured, sending US equity futures and commodities lower after China affirmed its Covid-Zero policy stance. The dollar advanced against major currencies on its appeal as a haven asset. 

The Australian and New Zealand dollars were the largest decliners among Group-of-10 currencies given their sensitivity to the outlook for Chinese economic growth. The offshore yuan weakened.

Contracts for the S&P 500 and Nasdaq 100 fell, as did European stock futures, after the shares on Wall Street snapped a four-day slide on Friday. Equities opened higher in Japan, South Korea and Australia, though the gains were more modest than futures had suggested earlier.

Oil slumped around 2%, leading falls in commodities on the prospect of weaker demand from China. Sentiment was further hurt by Apple Inc. projecting lower shipments of its newest iPhones than previously expected amid the impact of China lockdowns on operations at a supplier’s factory.

Expectations for a buoyant start to week were quashed on Saturday when Chinese officials vowed to remain “unswervingly” strict in Beijing’s approach to stamping out the coronavirus. The nation’s stocks had rallied aggressively on Friday on bets for an easing of virus curbs.

The jolt from China comes on top of headwinds from Federal Reserve interest-rate hikes. US data Friday — showing strong hiring and wage increases along with higher unemployment — offered a mixed picture for Fed officials debating how long to extend their campaign to curb elevated inflation.

Fed fund futures are leaning toward pricing a 50-basis-point hike in December, with the peak around 5.1% next year.

Wall Street’s fear gauge is well below the panic levels seen during the pandemic or the 2008 crisis, but volatility is very much a feature of 2022.

The advance in the dollar Monday follows its biggest drop since March 2020 on Friday in Bloomberg’s gauge of the currency. Treasuries were little changed in Asia after the two-year yield, which are more sensitive to imminent policy moves, reversed course and came down on Friday.

“Over the next three to four months, dollar will continue to keep moving higher,” Mahjabeen Zaman, head of FX research at Australia & New Zealand Banking Group Ltd., said on Bloomberg Television. “That’s really consistent with the recent FOMC Fed meeting we had where they said they’re going to slow the pace but push on peak rates.”

Markets will watch the latest US inflation reading on Thursday after the core consumer price index rose more than forecast to a 40-year high in September. Even if prices begin to moderate, the CPI is far above the Fed’s comfort zone.


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