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Jasper Lawler Market Strategist, CMT
Analysis, Market Analysis | December 6, 2022

JASPER’S MARKET SQUAWK 06-12-2022

ISM print gives dollar a lift higher

The dollar index climbed 0.68% higher on rising treasury yields on Monday, contributing to a drop in US equities, commodities and currencies. Better economic ISM data supported worries that the Fed would be more hawkish than the market currently expects. A further unwinding of the gains seen following Powell’s Brookings Institute speech could be expected.

Key factors for today:

  • ISM gives dollar a boost, pushes all else down
  • Markets interpret a more hawkish Fed, again
  • Oil price cap impacts oil and gas
  • ECB officials support current hiking path

All breaks loose on Fed worries

ISM Non-Manufacturing PMIs came in better than expected on Monday, showing an improvement of 56.5 versus the 54.4 forecast. Factory orders also peaked at 1% on a 0.3% expectation, adding to optimism the US economy is doing better.

Key US indices fell more than 1.5%, with the safe-haven gold putting a top in at $1810/oz after reversing around 2.30% to a $1770/oz close. The greenback pushed everything down as markets interpreted that the upbeat print implies a more hawkish Fed going forward.

EU sends oil and natural gas plummeting

Oil lost 3.36% of the initial gains seen at the start of December on Monday, hitting bottom at $77/bbl, as OPEC+ announced it would maintain output policy and the EU ban on Russian seaborne crude. Over the weekend, the EU finally agreed to put a price cap on Russian oil. Through the Monday session, crude prices came under further pressure as the dollar gained on the ISM services data. Natural gas plunged 10.36% as the price cap kicked in.

Euro under pressure ahead of next ECB meeting

A Bloomberg report showed that markets were pricing in a 50bps hike from the ECB at its next meeting on Thursday, December 15, down from 75bps prior. This comes after slower-than-expected CPI figures of 10% versus 10.6%, which would give the shared central banks more room to moderate rate hikes. ECB officials continued to talk tough, including Makhlouf, who said that a stronger response might be necessary, and Villeroy said that hikes are “orderly”.

EUR/USD left a tail shy of $1.06 on Monday, rolling over below $1.05 for a ~1% loss. But it was primarily attributed to a stronger dollar.

Risk appetite supported by China

A rhetorical shift in China around easing its zero-Covid policy helped support risk appetite. Major cities such as Shenzhen stopped checking PCR results for some venues, with an official newspaper saying travel restrictions would likely be lifted soon. Asian stocks moved higher, with on-shore Chinese indices leading the way into Tuesday.

Movers/shakers

  • VF Corp -11% after cutting guidance for next year, citing weaker consumer demand in North America and elevated cancellations in wholesale. The CEO also resigned
  • Silvergate -9% following a downgrade from Morgan Stanley, citing ongoing stress in the crypto ecosystem, and withdrawal pressures
  • Salesforce -7% after reports that Slack unit CEO would be leaving next month; comes on the heels of co-CEO Taylor leaving last week
  • Melco +6% along with other Macau resorts on continued optimism that China was heading towards reopening
  • Tesla -6% after reports that Model Y production in Shanghai was cut by 20% for this month, based on poorer demand in the country. A Tesla spokesperson denied the report

On the docket

  • South African GDP growth
  • US and Canadian trade balance
  • Canada’s Ivey PMIs
  • Weekly API inventories report
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