Marketmind: Stop making sense

1:51 am Thursday, December 01st, 2022

A look at the day ahead in European and global markets from Ankur Banerjee:

With a Fed pivot coming in to view, thanks to Jerome Powell, and optimism about China’s reopening prospects, investors have rediscovered their risk appetite, pouring into equities and sending safe-haven U.S. dollar lower.

All it took was for Fed Chair Powell to suggest that the central bank could slow the pace of its interest hikes when it next meets in two weeks, without giving any new hawkish hints.

“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” Powell said.

Job done?

Perhaps not, but markets are moving ahead with an assumption we’re nearly there.

European futures indicate stocks in the region will spike higher, tracking Asian equities, which were tracking Wall Street. The dollar remains in descent mode, while U.S Treasuries are rallying.

Also helping investor sentiment were signs from China that the country was softening its stance on COVID-19 restrictions as several cities in the world’s second-largest economy lift district lockdowns even as cases rise.

The market seems to shrug off China’s factory activity, which shrank in November, and the risk that the path out of COVID controls is long and messy. Lockdowns in China along with slowing demand have weighed on factory output across Asia.

Meanwhile, the lone “dove” among major central banks, the Bank of Japan, will aim to keep interest rates ultra-low until wage growth gets a boost, board member Asahi Noguchi said in a speech to business leaders. “To promote wage growth, the BOJ needs to patiently maintain its current monetary easing.”

Key developments that could influence markets on Thursday:

Economic events: Germany Oct retail sales; Nov PMI’s globally final 

Speakers: Fed Reserve Bank of Dallas President Lorie Logan

Earnings: Dollar General, Kroger

Bond auctions: UK, Japan, Spain, France sell bonds  

(Reporting by Ankur Banerjee; Editing by Sam Holmes)