Stocks lack direction ahead of next week’s central bank showdown – Daily Market Brief, December 8, 2022

The DAX is set to rise 0.05% on the open, and the S&P500 futures are flat as investors continue weighing up US recession risks and China’s reopening news. However, caution dominates ahead of next week’s central bank decisions.

·         US jobless claims data is due to rise to 230k

·         Oil steadies after falling to a 2022 low as demand worries grow

·         USD/CAD rises above 1.3650 despite BoC’s 50 bps rate hike

Stocks in Europe and on Wall Street finished the day lower yesterday, dragged southwards by recession fears, which overshadowed any optimism surrounding the reopening of the Chinese economy.

The S&P500 fell for the fifth straight session, whilst the DAX booked a third consecutive day of losses. Today markets are drifting, lacking clear direction as investors look ahead to the central bank bonanza next week. Trade is likely to remain choppy, with few prepared to take on big positions ahead of interest rate decisions from the Federal Reserve, the ECB, and the BoE in the coming week.

The market reaction has been muted to news that China was moving towards an end to its zero Covid strategies. This is probably because it will be a drawn-out process, and there are also doubts over what might happen should infection rates continue to rise, and hospitalizations jump. Under these circumstances, Beijing may decide to return to stricter Covid measures, particularly given the low vaccination rates in the country.

While the Hang Seng rose firmly higher, the DAX is set to rise 0.05% and the FTSE 0.1% on the open.

Jobless claims

Today investors continue running over US recession fears and re-opening in China. The economic calendar is relatively quiet, with just US jobless claims in focus. The US labour market has been resilient even as the economic outlook has deteriorated. Still, there are signs that weakness is seeping into the job market. US initial jobless claims are expected to rise to 230k, up from 225k. Continuing claims are expected to be 1.6 million. This data point is unlikely to inject much volatility into the market. S&P500 futures trade flat at the time of writing.

Oil

Oil is edging modestly higher after three days of declines. The oil prices fell to support at $71.75, its lowest level in 2022, before attempting a mild rebound. China relaxing Covid restrictions is bullish for oil. However, this is being offset by US recession fears and oil inventory data which showed a large build in petroleum products, overshadowing a draw in crude oil stockpiles. Crude oil inventories dropped by 5.187 million barrels, much larger than the 3.305 million barrels forecast. However, oil distillate stockpiles rose by 6.159 million barrels, well ahead of the 2.208 million barrels forecast. The data sent oil sharply lower to $71.75, a level that was last seen in December 2021.

USD/CAD

The steep decline in the price of oil this week has been dragging on the Canadian dollar. The loonie is one of the worst-performing major currencies this week as it tracks oil prices lower. The CAD failed to find support from the BoC even after it raised interest rates by 50 basis points, taking the overnight rate to 4.25%. The central bank adopted a more dovish tone, suggesting that rate hikes could be paused at this level. USD/CAD trades +0.5% at 1.3650 at the time of writing.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

Sources: Bloomberg, CNBC, Reuters 

Original article provided by Trading Writers

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