MARKET WRAPS
Watch For:
UK financial markets closed, no major corporate trading updates expected
Opening Call:
Shares in Europe may rise at Tuesday’s open amid positive sentiment from China’s plans to scrap quarantine measures for international arrivals. In Asia, stock benchmarks largely rose; Treasury yields were mixed; the dollar weakened; while oil and gold advanced.
Equities:
European shares look poised to return from the Christmas break higher on Tuesday, tracking positive sentiment in Asia after Chinese health authorities said Monday that they plan to lift Covid-19 quarantine requirements on international arrivals early next month. The move marks one of the country’s biggest steps to ease restrictions since the pandemic began even as case numbers remain high.
Stock indexes in Europe closed mixed on Friday in holiday-thinned trade, while U.S. equities tumbled.
Recent data showing consumer-price growth is slowing in the U.S. and suggesting the economy is resilient have sparked intermittent rallies. Complicating matters, a robust economy could keep inflation at high levels, encouraging the Fed to raise interest rates higher-and keep them elevated for longer-than many investors are hoping for.
"Once central banks hit pause, as they will do at some point next year as inflation falls back, that will put some more vigor back into markets, " said Susannah Streeter, senior investment and markets analyst at U.K. brokerage Hargreaves Lansdown. Until then, she added, "that merry-go-round is going to be spinning."
U.K. financial markets remain closed Tuesday.
Forex:
The dollar weakened early Tuesday amid risk-on sentiment prompted by news that China will open its borders.
From Jan. 8, China will scrap all quarantine measures for Covid-19, including requirements for inbound visitors, according to the National Health Commission.
The revision means people traveling to China from abroad will need to have only a negative Covid-19 test within 48 hours to be allowed into the country, the NHC said.
Bonds:
Treasury yields were mixed early Tuesday, after ending a holiday-shortened New York trading session higher on Friday, cementing a weekly increase following the release of the U.S. personal consumption expenditure price index, the Fed’s preferred inflation indicator, and a raft of other economic data.
The personal-consumption expenditures index rose just 0.1% in November, marking the fifth month in a row in which inflation eased after peaking at a 40-year high over the summer. The yearly rate of inflation, meanwhile, slowed to 5.5% in November from 6.1% in the prior month, based on the personal-consumption expenditures index. That’s the smallest increase since October 2021.
Slightly bearish upward revisions to PCE in October "were the biggest takeaway" from the inflation data and "set the tone for a grind higher in rates in the low liquidity preholiday session," said Ian Lyngen, rates strategist at BMO Capital Markets, in a note.
"Personal income and spending growth both slowed in November, signaling a weaker consumer heading into the end of the year," said Sam Millette, fixed income strategist for Commonwealth Financial Network.
Energy:
Oil rose early Tuesday, boosted by news that China will lift Covid-19 quarantine requirements on international arrivals early next month.
The reopening of China, the world’s second-largest consumer of oil, should help offset weaker demand in the U.S. and Europe, leading to a modest rise in global oil demand, said SPI Asset Management.
Metals:
Gold edged higher in Asia, as the precious metal remained supported by seasonal trends and central bank buying.
Apart from institutional buying, individual investors are also recalibrating their 2023 portfolios as investment confidence tapers, buying gold as part of a diversification strategy, said SPI Asset Management.
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Copper prices extended overnight gains after China scrapped international-travel quarantine requirements.
While overall sentiment is upbeat, Galaxy Futures said trading activities in the physical market remain muted amid staffing shortages across the copper supply chain due to China’s post-reopening infection surge.
The brokerage thinks "double weakness" on both demand and supply fronts may persist for another two weeks, and Galaxy Futures expects prices to consolidate at current levels in the near term.
–
Chinese iron ore futures advanced slightly, in line with broad gains for commodities after the country said it will no longer require international travelers to quarantine.
Galaxy Futures said the positive effect from Beijing’s decision to reopen the economy and support the property sector may be waning now.
The brokerage noted that traders are divided on how strongly the property industry could bounce back on the ground, which would underpin iron ore demand.
Given uncertainties over an actual demand pickup and elevated price levels, iron ore may come under profit-taking pressure.
TODAY’S TOP HEADLINES
China to Open Borders as Covid-19 Cases Rise
BEIJING-Chinese health authorities plan to lift Covid-19 quarantine requirements on international arrivals early next month, taking one of the country’s biggest steps to ease restrictions since the pandemic began even as case numbers remain high.
China has maintained among the world’s most restrictive coronavirus lockdown measures, slowing its economy significantly and sparking anger. Following waves of protests this fall, authorities abruptly abandoned the country’s stringent zero-Covid-19 strategy early this month.
Russia’s Gas Production, Exports Shrink Under Sanctions Pressure
MOSCOW-Russia’s natural-gas production will fall by 12% this year and its exports will decline by about a quarter, a high-ranking Russian official said Monday in a sign of international pressure on the country’s energy market due to sanctions over its war in Ukraine.
Russian Deputy Prime Minister Alexander Novak told Russia’s state news agency TASS that the drop in gas production compared with last year was largely due to the closure of export infrastructure. Most of Russia’s natural-gas exports have been via pipelines, primarily to Europe.
Ukrainian Drone Attack on Russian Air Base Kills Three, Moscow Says
LVIV, Ukraine-Three Russian service members were killed during a Ukrainian drone attack on a Russian military air base, Moscow said, the latest apparent demonstration of Kyiv’s ability to strike military targets inside Russia.
The strike at the Engels air base in Saratov region, a hub for Russia’s strategic bombers, is the second this month. Although small, it still offered a reminder to Moscow that even forces deep inside its territory can be hit, forcing the Kremlin to redirect resources and leaders’ attention.
Suspect in Paris Kurdish Center Killings Faces Hate-Crime Charges
PARIS-French prosecutors are pressing preliminary charges including murder as a hate crime-but not terrorism-against the suspect in Friday’s attack at a Kurdish cultural center in the French capital that killed three people and injured three others.
The suspected gunman in the attack, a 69-year-old Frenchman, also faces preliminary charges of attempted murder as a hate crime and acquiring and carrying prohibited firearms, and will be jailed pending a potential trial, said French prosecutors.
TikTok Security Dilemma Revives Push for U.S. Control
Citing security concerns over TikTok, some Biden administration officials are pushing for a sale of the Chinese-owned company’s U.S. operations to ensure Beijing can’t harness the app for espionage and political influence, according to people familiar with the situation.
The proposal for a forced sale has arisen in discussions by the Committee on Foreign Investment in the U.S., an interagency government panel that has been negotiating with TikTok for more than two years on a way to wall off the company’s data and operations from the Chinese government, the people said.
Rising Power Prices in Europe Are Making EV Ownership More Expensive
BERLIN-Rocketing electricity prices are increasing the cost of driving electric vehicles in Europe, in some cases making them more expensive to run than gas-powered models-a change that could threaten the continent’s electric transition.
Electricity prices have soared in the wake of Russia’s invasion of Ukraine, in some cases eliminating the cost advantage at the pump that EVs have enjoyed. In some cases, the cost difference between driving both types of cars 100 miles has become negligible. In others, EVs have become more expensive to fuel than equivalent gasoline-powered cars.
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Expected Major Events for Tuesday
07:00/NOR: Nov Retail Sales
08:00/CZE: Dec Business cycle survey (consumer/business confidence)
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(END) Dow Jones Newswires
December 27, 2022 00:17 ET (05:17 GMT)
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