From Marc to Market:
Overview: Chinese officials denied plans to end the zero-Covid policy and after a brief wobble, risk assets have traded better. Asia Pacific equities rallied, led by Hong Kong and mainland stocks that trade in Hong Kong. Europe’s Stoxx 600 opened lower but recovered and is around 0.5% higher after the 1.8% gain before the weekend. US futures are firm. Benchmark 10-year yields are mostly 2-4 bp softer in Europe and the US. The dollar is mixed. The dollar-bloc, which led the advance before the weekend, is nursing small losses, while sterling and the Swedish krona are up 0.5-0.6%. Emerging market currencies are mostly firmer, led by a 1.3% rally in the South Korean won. The Chinese yuan is giving back around a third of its pre-weekend gains and is the weakest in the emerging market space with a little more than a 0.5% pullback.
On the back of a weaker dollar and lower rates, gold rallied 3.2% at the end of last week, its biggest single day advance this year. It is consolidating at the upper end of the pre-weekend range that extended to $1682. Oil prices rallied to their best level since late August at the end of last week and remain firm today. The initial pullback saw December WTI approach the 200-day moving average (~$90.15) and recovered and made new session highs in late European morning turnover. Cold weather in the US Northwest has lifted natgas prices. After a 7.1% gain before the weekend, it has tacked on another 8.4% today. In contrast, Europe’s benchmark is off 2.8% and is lower for the third consecutive session. Iron ore edged up after a 5.2% gain ahead of the weekend. It is the fifth advance in a row. December copper’s pre-weekend 7.56% rally has been pared. It is off 1.5% today. December wheat is giving back its 0.85% gain from the end of last week.
Asia Pacific
Market participants want to believe Beijing is about to jettison the zero-Covid policy. They seem to think that given the harm it is doing to the economy means it cannot be sustained. Yet this is projecting our values onto Xi and his faction that dominates China's Communist Party, and that may not be fair. The risk-on rally ahead of the weekend was more based on hope than actual developments. Modest tweaks are already taking place but not a wholesale change. Some of those adjustments include the acceptance of the BioNTech vaccine for foreigners in China, possibly ending punishments for airlines that bring Covid-stricken passengers, and perhaps adding more international flights. Some reports suggest that inbound travelers' quarantine may be reduced to 7-8 days from 10. Perhaps because of the totalitarian nature of the PRC regime, observers may not appreciate the tension between the central government and regional governments (similar, but different from the tension in the US between the federal government and state governments). Beijing has been critical of the excessive implementation of its zero-Covid policy. Zhengzhou officials apologized over the weekend for the stringent approach. Hohhot, in Inner Mongolia, banned the use of locks, latches, and bolts in sealing hotspots. Still, the Haizhu district in Guangzhou, in Guangdong, has ordered people to avoid leaving their homes for three days as of November 5....
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