The beginning of the week seems to have started with a continuation of the rally in risky assets, which is beginning to resemble the proverbial Santa Claus Rally. The U.S. dollar cheapened at a rate not seen in 12 years, stock market indexes and precious metals climbed.
One of the reasons for the improvement in market sentiment is cited as the loosening of Covid-related restrictions by Chinese authorities. Protests on the streets and weaker data from the local economy may have pressed policymakers so hard that they decided to make partial concessions. According to tradingeconomics, the Caixin China General Services PMI fell to 46.7 points in November 2022 from 48.4 in October, indicating the 3rd consecutive month of decline. It was also the steepest decline in the services sector since May, due to Covid's restrictive measures, which could affect demand and service activity. New orders fell the most in six months, with employment contracting at the fastest pace since the survey began in November 2005. Meanwhile, export orders began to rise again as overseas demand picked up after regulations on international travel were eased. In addition, business sentiment fell to levels seen eight months ago due to concerns about how long it will take to contain the virus and the impact of restrictions on business, according to the published data.
Source: Conotoxia MT5, USDIndex, Weekly
China eases restrictions. Risky assets may gain
China's National Health Commission reported Monday that it has identified 30014 new cases of Covid-19 in the past 24 hours, with the country seeing a drop in infections in recent days after a record high when more than 40,000 cases were seen in a single day, BBN reported. What's more, local Chinese authorities have agreed to relax some measures related to Covid-19. In Beijing and Shenzhen, a negative test will no longer be required to enter some public places, such as public transportation and supermarkets. This course of events in China may help financial markets and the global economy, as China may now be the "green island" from the standpoint of GDP growth momentum.
Source: Conotoxia MT5, VIX, Weekly
Fear in the financial markets, as measured by the VIX index (expected monthly volatility on the S&P500 index) fell last week to its lowest level since August. If the decline were to continue, the VIX could reach its lowest level since January 2022.
What are the markets waiting for?
This week may be quieter due to the fact that the Fed's interest rate decision will be published as early as December 14. It is the expectation of smaller interest rate hikes in the US that could be the second factor helping the markets climb higher today. Nevertheless, the market is also assuming that in 2023. Fed will cut rates. Information on this subject could be crucial next week.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
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