Equities saw some profit taking in last week’s post-US inflation rally, as some Federal Reserve (Fed) officials put ‘the church in the middle of the village’ as would say Swiss, reminding investors that the 7.7% inflation is still high and that the Fed would continue fighting to bring it lower.
The S&P500 couldn’t extend gains above the 4000 mark and gave back 0.89% yesterday, while Nasdaq slid about 1%. The US 2-year yield consolidated at about 4.40%, and the US dollar index slightly recovered, yet is now about 7% lower than the peak reached by end of September.
The latest depreciation in the US dollar has been good for the mood, but it may not last, as despite the decline in US CPI last week, the latest data released at the start of this week showed that after several months of sharp drops, inflation expectations in the US jumped last month for both 1 and 3-year horizons.
And another thing about inflation is
We have been cheering the news that China will be relaxing the Covid zero measures, and boost their property market. Both are great news for the world economy, and both are bad news for global inflation. Rising Chinese demand next year, will put a renewed positive pressure on energy and commodity prices. Therefore, Chinese recovery, if materializes, will be the next battle in the global inflation war.
Crude oil down
Interestingly, crude oil didn’t react strongly to the Chinese Covid easing news. The barrel of American crude dived 4% on Monday, on the news that OPEC cut its oil demand outlook and warned of uncertainties around global growth.
The latest data suggested that the Chinese industrial growth expanded below forecasts in October, as retail sales unexpectedly declined.
Back to oil, the barrel of American crude is back below its 50-DMA, and below the bottom of September – November rising triangle. Support will likely come in play into the $80/82 range.
No tears in Biden-Xi meeting
Yesterday’s meeting between Joe Biden and Xi Jinping hasn’t ended up in tears yesterday, and that, per se, is excellent news for everyone.
Both leaders criticized Russia for loose nuclear talk, which certainly helped melting the ice between the two nations. Joe Biden said a new cold war isn’t necessary. Xi said the world is big enough for everyone to prosper. Xi still warned the US that it doesn’t want to see its nose in its Taiwan matters.
But overall, the 3-hour discussion happened as if Joe Biden hadn’t forbidden the US chipmakers to sell their stuff to China to keep China in retreat for technological advance.
As a result, US-listed Chinese stocks extended gains. Nasdaq’s Golden Dragon China index advanced 0.47% yesterday, but we are far from the days when investors rushed in to take a piece of the Chinese dream… very far.