Presidents Biden and Xi agree to cooperate on key global issues

• With little in the way of key economic data released yesterday, the focus was squarely on the meeting between Presidents Xi and Biden on the sidelines of the G20 summit.  The two leaders agreed to resume cooperation on climate and food security and both criticized Russia for its nuclear threats. A draft statement for the summit has been reportedly agreed but still needs to be approved by all countries.
• Federal Reserve Vice Chair Lael Brainard expects the pace of rate hikes to slow “soon” to allow for the lagged impact of rate hikes to impact the real economy, but stressed that there is still “additional work to do on raising rates”.  Brainard reiterated that the Fed would remain data dependent when she spoke to Bloomberg yesterday. The market expects another 50bp rate hike from the Fed in December.   
• Japan’s economy contracted -1.2% q/q annualized in Q3, against forecasts for a 1.2% gain. Q2 GDP was revised higher however to 4.6% q/q annualized from 3.5% in the first reading. Private consumption slowed as did business spending, although both were in growth territory. Net exports were the main drag on growth in Q3, although housing investment fell last quarter as well.
• In China, industrial production and retail sales came in lower than forecast in October, with retail sales declining -0.5% y/y last month. Year-to-date retail sales were up just 0.6% while industrial production was up 4.0%. Activity was hampered by the resurgence in Covid-19 cases in the country, which led to renewed lockdowns and restrictions on movement. The property sector remained under pressure with property investment down -8.8% y/y in the first 10 months of the year, worse than expected, and residential property sales down by -28% y/y over the same period.  The government yesterday announced a “refinement” in Covid-19 quarantine rules and additional support for the property sector.

Today's Economic Data and Events

• 11:00 UK ILO unemployment rate (Sep) forecast 3.5% prev 3.5%
• 14:00 GE ZEW Survey forecast (Nov) -51.0 prev -59.2
• 14:00 Eurozone Q3 GDP (flash estimate) forecast 2.1% y/y
• 17:30 US Empire Manufacturing (Nov) forecast -6.0 prev -9.1
• 17:30 US PPI (Oct) forecast 0.4% m/m and 8.3% y/y

Fixed Income

• US Treasuries opened the week on a softer footing, adjusting to Fed officials’ commentary that hikes are still going to be forthcoming, even if they will be smaller. Yields on the 2yr UST closed the day up nearly 6bps at 4.3888% while the 10yr yield closed at 3.8536%, up 4bps. Lael Brainerd, vice chair of the Fed said it is “probably appropriate soon to move to a slower pace” of hikes, likely setting markets up for a 50bps hike in December.
• European bonds closed relatively quietly at the start of the week with few material catalysts to move markets one way or the other. Bund yield settled lower by 1.5bps at 2.139% while gilt yields were marginally higher, trading up less than 1bps at 3.354%.
• It was a relatively positive day in emerging market bonds with a broad USD-denominated index adding 1% overnight. Markets didn’t quite move risk on but there were few data points to push against.

FX

• Currency markets moved tentatively toward the dollar overnight although gains were tempered by Fed officials seeming to endorse a smaller hike at the December FOMC. EURUSD dropped by 0.19% to 1.0327 while GBPUSD saw a more pronounced declined to 1.1756, down 0.63%. USDJPY also moved more sharply against the yen, adding 0.78% to 138.89.
• Commodity currencies also took a beating as oil prices came off heavily. USDCAD added 0.3% to 1.3314 while AUDUSD managed to keep relatively flat at 0.6702 and NZDUSD fell by 0.13% to 0.6096.

Equities

• The Hang Seng added a further 1.7% on Monday, following on from the bullish end to last week, as positive news around Chinese Covid-19 restrictions and government support for the property sector buoyed sentiment. Elsewhere in Asia some of last week’s optimism waned however, as comments from Fed officials dampened the post-CPI exuberance in equity markets. The Nikkei closed down -1.1% and the Kospi -0.3%.
• Europe also saw further gains as the CAC, DAX and FTSE 100 added 0.2%, 0.6% and 0.9% respectively. However, pushback from Fed officials weighed on US equity markets later in the day and all three major benchmarks lost ground – the NASDAQ was the biggest loser as it dropped -1.1%.
• Locally, the ADX lost -0.1% and the DFM -0.4%.

Commodities

• Oil prices fell overnight as markets swung back to worrying about demand conditions. Brent futures fell nearly 3% to USD 93.14/b while WTI was down 3.5% at USD 85.87/b. OPEC lowered its demand estimates for the final quarter of 2022 as economic momentum slows and China maintains its Covid-zero policy. The producers’ alliance does still expect an improvement in 2023, however, which combined with a cautious stance on production could mean tighter markets in the coming months.

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