China eases some covid restrictions and announces support measures for property sector

• China’s President Xi announced the relaxation of some Covid restrictions over the weekend and also a 16-point plan to support the real estate sector which should increase liquidity and support for property developers. While officials made it clear that the Covid Zero policy remains in place, the quarantine period in government facilities for close contacts and arrivals into China has been reduced to five days from seven, and Covid restrictions on airlines have been eased which should allow more international flights. The changes in the rules came despite still-high new daily cases in the country. 
• UK GDP shrank by -0.2% q/q in the third quarter, a smaller contraction than the predicted -0.5%. This followed earlier Q3 upside surprises from the US and the Eurozone, but the likelihood remains that the economy will continue to contract from here as the upcoming budget (due on 17 November) will likely see considerable spending cuts and tax hikes. Chancellor of the Exchequer Jeremy Hunt reacted to the data release by warning that there was a ‘tough road ahead.’ Services were flat q/q and construction expanded by 0.6%, but a -2.3% fall in manufacturing weighed on the headline figure. On the demand side, private consumption contracted in Q3 but was offset by an increase in government spending, fixed investment and net exports. The ONS noted that the unscheduled bank holiday for Queen Elizabeth II’s funeral was a drag on September’s output which was down -0.6% m/m. The UK economy is still smaller than it was prior to the Covid-19 pandemic.
• In the US the University of Michigan consumer sentiment index unexpectedly declined in November in the preliminary reading, with both current conditions and expectations softening. Inflation expectations were unchanged at a still-high 5.1% for the next year, while medium term inflation expectations ticked up slightly to 3.0% from 2.9% in October.  Over the weekend Fed Governor Waller reiterated that the Fed will continue tightening monetary policy for several months even if the pace of rate hikes slows, pushing back against dovish expectations following last week’s better than expected inflation data.
• US midterm election results over the weekend indicate that the Democrats will retain their slim majority in the Senate, after their candidates won in Nevada and Arizona. There is still a run-off in Georgia to be held on December 6^th after neither candidate secured more than 50% of the vote. Republicans look on-track to take the majority in the House of Representatives, which may make it difficult for the current administration to deliver on some of its agenda before the 2024 presidential elections.
• The UAE approved a new tourism strategy that aims to boost tourism revenues to USD 122bn and host 40mn visitors annually by 2031. Additional investment of USD 27bn would be needed in order to achieve the targets over the next decade, according to the new plans.

No key economic data due today

Fixed Income

• US Treasury markets were closed at the end of the week for the Veterans’ Day holiday and did not trade. In European markets, bonds gave back much of their post-US CPI gains with 10yr bund yields jumping 15bps to 2.154% while gilt yields added about 7bps to 3.347% with an eye on this week’s budget to be announced in the UK.
• S&P affirmed their ‘AA-‘ rating on Israel with a stable outlook, viewing the change in government after another election as “unlikely to affect economic performance.”

FX

• The dollar extended its post-CPI losses against all peers at the end of the week with the broad DXY index closing down 4% for the week as a whole. EURUSD added almost 4% last week, with a 1.3% gain on Friday alone, to close well above parity at 1.0347. GBPUSD also had a strong week, gaining almost 4% to 1.183. USDJYP was the standout, however, falling below the 140 level at the end of the week for the first time since August. The pair closed lower by 5.3% at 138.81.
• Commodity currencies were also stronger across the board with AUDUSD leading the way with a 3.6% gain over the week for the Aussie to close at 0.6703. NZDUSD added 2.9% to close the week at 0.6104 while USDCAD dropped by 1.5% to 1.3275.

Equities

• Wall Street saw further strong gains at the end of the week as markets welcomed the lower-than-anticipated inflation print on Thursday. This led to strong w/w gains for all three benchmark indices, with the NASDAQ leading the pack with a gain of 8.1%. The Dow Jones gained 4.2% and the S&P 500 5.9%.
• The rest of the world took its cue from the bullish tone in the US, with w/w gains for most major indices. In Asia, the Nikkei added 3.9% while the Hang Seng closed 7.2% higher, buoyed by Covid-19 and support developments in China additionally. In Europe the CAC added 2.8% and the DAX 5.7%. The UK’s FTSE 100 was an outlier as its international earners were weighed down by a stronger pound, and it ended the week -0.2% lower.

Commodities

• Oil prices closed the week on a better footing but failed to unwind losses recorded earlier in the week. Brent futures settled up 2.5% on Friday at USD 95.99/b but still recorded a 2.6% loss. WTI futures also marked the end of the week with a 2.9% gain at USD 88.96/b but had a loss of 3.9% on the week.
• Saudi Arabia’s energy minister said that OPEC+ would be “cautious” in its approach to output targets at upcoming meetings. Along with a modest easing of Covid rules in China, that helped to spur the bullish sentiment in oil at the end of the week.

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