From Marc to Market:
Overview: The downside reversal in US stocks yesterday seemed to accelerate after the first case of the Omicron variant was found in the US. In itself, it should not be surprising, but perhaps, what was especially disheartening is that the person had been fully vaccinated. The S&P 500 traded on both sides of Tuesday's range and closed below it low, a bearish signal. The Nasdaq settled on its lows and looks equally ugly. That said, there has been no follow-through selling, and both are trading higher. The US 30-year yield recorded a marginal new 11-month low, and the 2-10 year curve flattened a little further. Apple's warning about demand rippled through its supply chain and also weighed equities. Asia Pacific markets were mixed, with Japan and Australia lower among the large bourses. South Korea's Kospi stood out. It rallied more than 1.5% after Wednesday's 2%+ advance that snapped a six-day slide. Europe's Stoxx 600 is off around 1.0%. Most sectors but energy are lower, and the information technology sector has been particularly hard hit (~-3%). The 10-year US Treasury yield is up four basis points to almost 1.44%. European yields are mostly 2-3 bp lower, and the periphery is outperforming the core. The dollar is softer against the major currencies but the yen and Norwegian krone. It has squeezed back above JPY113. The liquid and freely accessible emerging market currencies are trading higher, led by the South African rand and the Mexican peso. Turkey's President Erdogan replaced the finance minister, which has offset the positive impact of yesterday's direct intervention to support the beleaguered lira. Gold has been sold to below $1770 to its lowest level since November 3 after trading above $1800 as recently as Tuesday. It is recovering in the European morning. Oil has steadied ahead of OPEC+ decision on next month's output, but it is still at the lower end of the last couple of day's ranges. Warmer weather is said to be weighing on natural gas prices. Iron ore prices fell 3% in Singapore, while copper prices are steady after losing a little more than 2% over the past couple of sessions. The CRB Index has a four-day slide in tow coming into today, which is its longest losing streak in three months.
Asia Pacific
Regional tensions remain elevated. China has struck out at the World Tennis Association for suspending tournaments in the mainland and Hong Kong over the treatment of Peng Shuai. It has also pushed back against comments from Japan's former Prime Minister Abe over Taiwan. However, there was one positive note that may be obscured by these developments. Yesterday, both Russia and China supported the UN decision to not accept the Taliban's credentials to represent Afghanistan, at least for now.
Australia's trade surplus fell for the second consecutive month in October. At A$11.2 bln, the October surplus is still more than 70% above the October 2020 surplus and more than 2.6x the October 2019 surplus. The value of exports fell by 3.3% (seasonally adjusted), nearly twice the pace expected. Metal ores and mineral exports slumped by 23%. The drop in iron ore prices took a toll and offset the increase in the value of coal, coke, metals, and grains. Imports fell by about 3%, led by machinery and industrial equipment. Imports were also held back weaker consumption tied to the lockdown in several states.
South Korea's November CPI rose by 0.4%. The median forecast (Bloomberg survey) was for a 0.2% decline. This translated into a year-over-year rate of 3.7%, up from 3.2% in October and well above the 3.1% anticipated. The monthly rise reflected higher food and energy prices, without which the (core) CPI eased to 2.3% from 2.8%. The central bank does not meet until mid-January, and it will see the December CPI print before it. It has raised rates twice this year (August and November). The swaps market has almost two hikes discounted in the first half of next year....
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