MNI US OPEN - French, German PMIs Diverge

NEWS

US/CHINA (MNI): US-China Trade War to Get “Much Worse” - Pettis

The US-China trade war will “inevitably return” given Beijing’s failure to address the nation’s high savings rate and low consumption that has constrained demand for US goods, with Washington expected to refocus on the trade deficit as the threat posed by Covid and inflation passes, Peking University economics professor Michael Pettis told MNI.

CHINA (MNI): Beijing and Shanghai Tighten Covid Rules

Beijing and Shanghai city tightened measures to curb the spread of Covid-19. Beijing will require a negative Covid-19 test result within 48 hours to enter public places such as shopping malls and government buildings, or before taking buses and subways starting from November 24, compared to the previous requirement of 72 hours, according to the municipal government's briefing.

CHINA (BBG): IMF Says China Needs to Adjust Covid Policy, Support Property

China needs to keep recalibrating its Covid Zero strategy and bolster confidence in the property market in order to spur economic growth next year, the IMF said. The government will need to boost the pace of vaccinations and maintain them at a high level, the IMF said in a statement Wednesday after staff met virtually with Chinese officials as part of their annual Article IV discussions. To support the property market, China will need to do more to help developers complete unfinished projects.

RIKSBANK (MNI): A 75BP Hike Expected As Cycle Peak Nears

The Riksbank is widely expected to hike by 75-basis-points on Thursday after its November meeting, following its 100bps increase in September, but hefty declines in property prices and the Swedish central bank's own research showing high household sensitivity to interest rates suggest it will signal the end of the tightening cycle is near.

GERMANY (BBG): Scholz Pledges to End Germany’s Over-Reliance on China, Russia

Chancellor Olaf Scholz doubled down on his government’s promise to end Germany’s “one-sided dependence” on Russia and China for energy and trade, part of a sweeping rethink of the nation’s commercial ties triggered by the war on Ukraine.

NEW ZEALAND (MNI): Another 125bp Coming; Brace for Recession

The Reserve Bank of New Zealand's 75bp hike will help condemn the economy to a recession next year, with the central bank warning of another 125bps in tightening after revealing it had considered an even heftier 100bp increase at Wednesday's meeting.

Bucking the gathering trend among central banks towards a slower pace of hikes, the RBNZ ramped up its tightening campaign by lifting the Official Cash Rate for a ninth consecutive meeting to 4.25%, the highest level since early 2009, and raised its forecast for the OCR to peak at 5.5%. The 75bp hike was in line with market expectations.

DATA

EUROZONE FLASH NOV COMP PMI 47.8 (FCST 47.0); OCT 47.3 (MNI)
EUROZONE FLASH NOV MANUF PMI 47.3 (FCST 46.0); OCT 46.4 (MNI)
EUROZONE FLASH NOV SERVICES PMI 48.6 (FCST 48.0); OCT 48.6 (MNI)

UK NOV FLASH MANUF PMI 46.2 (FCST 45.8); OCT 46.2 (MNI)
UK NOV FLASH SERVICES PMI 48.8 (FCST 48.0); OCT 48.8 (MNI)

GERMANY NOV FLASH COMP PMI 46.4 (FCST 44.9); OCT 45.1 (MNI)
GERMANY NOV FLASH MANUF PMI 46.7 (FCST 45.0); OCT 45.1 (MNI)
GERMANY NOV FLASH SERVICES PMI 46.4 (FCST 46.2); OCT 46.5 (MNI)

FRANCE NOV FLASH MANUF PMI 49.1 (FCST 47.0); OCT 47.2 (MNI)
FRANCE NOV FLASH SERVICE PMI 49.4 (FCST 50.6); OCT 51.7 (MNI)

FX SUMMARY: Hawkish OCR Track Puts NZD Above Most Others in G10

• G10 currencies trade largely subdued early Wednesday, with EUR/USD strength over Asia-Pac hours resulting in a 1.0348 print before prices faded across Europe. PMI data across Europe has been mixed, with French data weaker, but German figures coming out ahead of forecast.
• Equities continue to provide a generally risk-on backdrop, with the e-mini S&P and EuroStoxx future both holding inside short-term uptrend. JPY is offered, with modest European hours USD strength pressing USD/JPY against 141.50 resistance.
• NZD is among the strongest performers in G10, with NZD/USD approaching clustered resistance layered between 0.6200 - 0.6206 following the RBNZ decision. The bank raised rates by 75bps, alongside expectations, and hiked the OCR track markedly, putting the new peak rate at approximately 5.50% for next year - implied a further 125bps of rate hikes this cycle.
• NOK, SEK and NZD are the firmest in G10, while JPY and CAD are at the bottom of the pile.
• Focus turns to the raft of US data, with releases clustered to the Wednesday session to accommodate for Thursday's Thanksgiving holiday. Prelim October durable goods data, weekly jobless claims, new home sales and the prelim November PMI cross.
• Final Michigan sentiment data will be watched for any markdown for inflation expectations, with the survey data now including the lower-than-expected October CPI release. Fed minutes also cross, with markets watching for any indications of a step-down in the pace of rate rises at the December meeting.

BOND SUMMARY: Bunds Underperforming As European PMIs Mostly Beat

Global core FI is weaker early Wednesday, ahead of a heavy data slate in the pre-holiday US session.

• Bunds are underperforming global peers. Across the US, German and UK cash curves, underperformance is in the short end, with mixed moves further along.
• European PMIs were mostly been above expected (French Services PMI a notable miss to the downside), with price pressures still easing. German 2s10s continued flattening to cycle lows following the data release.
• Gilts weakened slightly following a UK Supreme Court ruling against another Scottish independence referendum.
• A heavy US data schedule ahead of Thanksgiving's closure includes durable goods orders alongside jobless claims; flash PMIs; and UMich prelim sentiment alongside new home sales.
• Nov FOMC minutes are released at 1400ET (previews here and here).

• Dec US 10-Yr futures (TY) down 2/32 at 112-17.5 (L: 112-12 / H: 112-21.5)
• Dec Bund futures (RX) down 7 ticks at 140.32 (L: 139.77 / H: 140.59)
• Dec Gilt futures (G) up 37 ticks at 107.08 (L: 106.51 / H: 107.32)
• Dec BTP futures (IK) up 25 ticks at 119.12 (L: 118.31 / H: 119.42)

EQUITIES: Eurostoxx Futures Print Fresh 9-Month High

A bullish EUROSTOXX 50 futures outlook remains intact and the contract traded higher Tuesday. This maintains the recovery that started in early October and marks an extension of the bullish price sequence of higher highs and higher lows. The recent break of resistance at 3810.00, Aug 17 high, strengthened the case for bulls. The focus is on 3961.20, a Fibonacci retracement. Initial firm support lies at 3697.00, the Nov 10 low. The S&P E-Minis outlook remains bullish. Recent consolidation in the daily chart appears to be a bull flag formation - a continuation pattern. This reinforces a bull theme. Furthermore, recent gains resulted in a break of 3928.00, Nov 1 high, establishing a positive price sequence of higher highs and higher lows. The focus is on 4100.00 next. Initial firm support lies at 3865.69, the 50-day EMA.

• In China the SHANGHAI closed higher by 7.964 pts or +0.26% at 3096.907 and the HANG SENG ended 99.4 pts higher or +0.57% at 17523.81.
• Across Europe, Germany's DAX trades lower by 16 pts or -0.11% at 14385.81, FTSE 100 higher by 40.51 pts or +0.54% at 7486.95, CAC 40 up 1.46 pts or +0.02% at 6647.83 and Euro Stoxx 50 up 3.63 pts or +0.09% at 3928.63.
• Dow Jones mini up 21 pts or +0.06% at 34143, S&P 500 mini up 3.5 pts or +0.09% at 4013, NASDAQ mini up 5 pts or +0.04% at 11752.5.

COMMODITIES: Gold Holds Close to Weekly Low, Remains in Corrective Cycle

WTI futures sold off sharply Monday before retracing its losses. A bearish theme remains in place following recent weakness and an extension of the reversal from $92.53, Nov 7 high. Support at $80.49, Oct 18 low and a bear trigger, was cleared last Friday. $79.11, 76.4% of the Sep 28 - Nov 7 bull phase has also been cleared. Attention is on $74.96, the Sep 28 low and the next key support. Initial firm resistance is seen at $85.21, the 50-day EMA. Short-term trend conditions in Gold remain bullish, however for now, the yellow metal remains in a corrective cycle. Initial firm support is seen at $1702.3, the Nov 9 low. Recent gains resulted in the break of $1729.5, the Oct 4 high. This has strengthened a bullish theme and signals scope for $1800.0 and a key resistance at $1807.9, Aug 10 high. The bull trigger is at $1786.5, the Nov 15 high.

• WTI Crude up $0.63 or +0.78% at $81.89
• Natural Gas up $0.48 or +7.08% at $7.281
• Gold spot down $2.59 or -0.15% at $1739.87
• Copper up $1.25 or +0.35% at $362.85
• Silver up $0.06 or +0.3% at $21.1606
• Platinum up $2.75 or +0.28% at $999.24