Stocks Rally Despite Weak China Data, Jay Powell Coming Up

Investors Hope Powell Delivers After Disappointing China Data

Weaker data in China but investors are looking to a clutch of US jobs data and comments from Fed chair Jay Powell later. European stock markets trade higher at the start of Wednesday’s session. FTSE 100 up more than 0.5% to 7,560, DAX up a similar level to 14,450, CAC north of 6,700. It was a mixed bag yesterday for equity markets, with only really London making gains. US markets were also mixed with the Dow Jones flat and the S&P 500 and Nasdaq falling for a third day.

US Resurgence on the Horizon?

SPX – rolling over? Bearish MACD crossover, looking to the 50% retracement on the 100-day line at 3,924. It might be too early to call this one but with possible dollar strength coming back (see below) it could be that we see bears reassert themselves into this really important two-week period before the year-end with a bunch of big data releases and central bank meetings, including that all-important Fed call in mid-December. Dollar turning back higher? Technical indicators point to a renewed push higher for the dollar after bouncing off the 200-day line, RSI divergence, MACD crossover.

To the Skies! Inflation Still High

CPI inflation is easing in Spain and Germany, but up in France to 7.1% from 6.2% in October. ECB president Christine Lagarde said inflation has not peaked...the main thing here is probably the Fed, as it’s driving global bond yields but also the US dollar. Eurozone flash CPI inflation estimates are due up at 10am, expected to decline to 10.4% year-on-year from 10.6% in the prior month. Easing inflation pressures in the EU can pressure the euro if it lets the ECB ease back from hiking much more. We know their bias.

OPEC Digs in its Heels

OPEC – seems increasingly likely that the cartel and allies leave things unchanged, with this week’s meeting set to be a virtual one. This suggests a rollover of production quotas – no fuss, no drama, short Zoom session. High probability of production cut says GS...but would even this steady the market in the near term when there is so much uncertainty about covid in China and global recession fears? Also, as Jeff Currie from GS pointed out yesterday, it’s also a dollar shortage problem, or what you might just call a strong dollar problem. API data on Tuesday showed US crude stocks declined by a huge 7.9m barrels last week, perhaps indicating SPR releases are now done. Spot Brent hovers around $85.

In Other News...

Elsewhere it’s a busy day on tap, with ADP employment and JOLTS job openings figures ahead of Friday’s nonfarm payrolls, plus we hear from Fed chair Jay Powell. Earlier, China’s factory activity contracted more than expected in November, with the manufacturing PMI dropping to 48 as covid restrictions bit.

UK figures this morning point to more gloom – food inflation rises to 12.4%, a record high since the British Retail Consortium began collecting data. Fresh food inflation stands at 14.3%. Meanwhile the CBI reports that optimism across the services sector fell for a third straight quarter. Not much Christmas cheer for Blighty.