From Marc to Market:
Overview: The markets are unsettled. Bond yields have jumped, tech stocks are leading an equity slump, and yesterday's crude oil bounce reversed. Gold, which peaked last week near $1877, has been dumped to around $1793. The tech sell-off in the US carried into the Asia Pacific session, and Hong Kong led most markets lower. The local holiday let Japanese markets off unscathed, though the Nikkei futures are off about 0.4%. Australia and India managed to post minor gains as the MSCI Asia Pacific Index fell for the fourth time in five sessions. Europe's Stoxx 600 has slid around 1.5% today, its fourth consecutive decline, but has clawed back nearly half the gains. It is the longest retreat in two months. US futures are lower, with the NASDAQ leading the move. Near 1.64%, the US 10-year yield is at the upper end of this month's range. Last month it reached 1.70%. European bond yields are mostly 4-6 bp higher, and peripheral spreads have widened a little. The dollar is sitting in the middle of the major currencies. The dollar bloc, sterling, and the Norwegian krone, which are the risk-on, levered to growth currencies, are weaker. The euro, yen, and Swiss franc are little changed but firmer. The dollar briefly traded above JPY115.00 in Asia, without Tokyo, before being pushed back. The steady euro has taken some pressure off most of the regional currencies. The Turkish lira has been in a virtual freefall following President Erdogan's spirited defense of his efforts to drive down rates. There was around 10 lira to the dollar in the middle of November. Today, at its peak, there is about 12.48 lira to the dollar.
Asia Pacific
Over the weekend, Japan expressed willingness to cap its strategic reserves. Press reports indicated yesterday that India is amenable to coordinating a release of some of its oil stocks. South Korea may also participate. It has been under consideration for a couple of weeks, at least, in the US, and China appears willing to repeat September's release of crude from its reserves. However, it seems naive to have expected OPEC+ to simply standby. January WTI posted a bearish outside down day ahead of the weekend by trading on both sides of the previous day's range and settling below the previous session's low. Follow-through selling yesterday took it down about $1.20 from the close, but when OPEC+ announced that a coordinated release of the oil could prompt it to reconsider its own plans. It is to meet next week to review its strategy. Through yesterday's low, January WTI had retreated by nearly 11% from the October 25 higher near $83.85. A band of resistance is seen between $78 and $80.
OPEC+ had previously agreed to boost output by 400k barrels a day per month to restore pre-pandemic output levels. That said, not all the members can produce their quota, leading to a shortfall. OPEC+, the IEA, and EIA all seem to agree that supply-demand considerations shift in next year, and the market will once again be in oversupply. Moreover, OPEC+ argues that the real dislocation is not with oil as its with gas. The US imports about 2.9 mln barrels a day, India, about 4.2 mln, and Japan, about 3.1 mln barrels a day. South Korea imports around 2.5 mln barrels a day. Together it is around 12.7 mln barrels a day of imports. If together, 100 mln barrels are released, about eight days of imports would be covered. This is a high estimate. India, for example, has indicated it may release 5 mln barrels.
Australia's flash November PMI was better than expected. Manufacturing edged up to 58.5 from 58.2, while services rose to 55.0 from 51.8. This produced a 55.0 composite reading, a gain from 52.1 in October. Recall, the pandemic and lockdown led weakness in the economy in the May-August period. The composite PMI bottomed in August at 43.3. It has risen for three months but remains well off the peak in April of 58.9. Separately, New Zealand real retail sales were hit in Q3 by the social restrictions, but the drop was not quite as bad as feared. Reall retail sales fell 8.1% after a 3.3% increase in Q2. Economists (Bloomberg median) had anticipated a 10.5% pullback. The RBNZ meets the first thing tomorrow and is widely expected to hike 25 bp, to lift the cash rate to 0.75%. There is still a slight bias toward a larger move in the swaps market....
...MUCH MORE
