DAX holds below 15000 with China Covid & PMI data in focus – Daily Market Brief, December 5, 2022

The DAX is treading water below a key psychological level as China eases more Covid restrictions and as investors look ahead to composite PMI data.

·         EUR/USD rises for a fourth straight day ahead of PMI data

·         US ISM services PMI is expected to rise to 55.5, up from 54.4, USD is falling

·         Oil rises on China reopening hopes & after OPEC+ keeps production stable

Stocks on Wall Street ended mixed on Friday, and European bourses slipped from weekly highs following the stronger-than-expected US nonfarm payroll. The data showed 263,000 jobs were added in November, well ahead of the 200,000 forecast, and wages jumped to 5.1%.

The US labour market continues to show resilience despite high inflation and the Federal Reserve tightening monetary policy rapidly. The data raises some questions about the extent to which the Federal Reserve can slow the pace of interest rate hikes, a move that Federal Reserve chair Jerome Powell had supported earlier in the week. Still, the pullback in equities was modest. US equities are pointing to a slightly softer start to trade on Monday.

Stocks in Europe are pointing to a mixed open, with the DAX hovering just below the key 15000 level and the FTSE around a 6-month high, above 7500. However, the risk-on mood is more evident in the FX market, where the USD is falling, breaking below 104.00, and riskier currencies are extending gains.

China Covid

Optimism surrounding China is helping to fuel the risk-on mood today. More Chinese cities relaxed Covid restrictions and testing measures raising hope that the world’s second-largest economy was scaling back its zero-Covid policies as it heads towards re-opening. A wave of public demonstrations and protests, along with slowing economic growth, appears to be forcing the government’s hand.

Data from China showed that business activity contracted for a third straight month in November. The Caixin services PMI was 46.5, down from 48.4 in October, and defied expectations of a rise to 48.8.

The Hang Seng rallied 4% across the session.

Eurozone PMI & retail sales

Looking ahead, services and composite PMI data is expected from the eurozone and is expected to confirm the contraction of activity to 47.8 in November. This is the final reading and so there is often less market moving than the preliminary print.

In addition to PMI data from the eurozone, retail sales will also be in focus and are expected to fall 0.6% in October after rising 0.4% in September. Weaker sales could highlight the squeeze on households amid high energy bills, elevated inflation, and rising interest rates.

EUR/USD continues to rise for a 4th straight day, building on gains of 1.3% from last week. EUR/USD trades 0.3% higher at 1.0575 at the time of writing.

US ISM services

In the US session, ISM services PMI could be a key catalyst for trading. Expectations are for the PMI to rise to 55.6, up from 54.4, whereby figure 50 separates expansion from contraction. A strong service sector PMI could also raise doubts over the Fed’s ability to slow rate hikes significantly and pull stocks lower while boosting the USD.

Oil

Oil prices are rising after OPEC+ agreed to keep oil production steady and as investors cheer easing Covid curbs in China. As several major economic hubs such as Shanghai and Beijing relaxed some COVID measures, hopes are rising that China’s zero-COVID strategy will also ease soon. This would be beneficial for the oil demand outlook. However, case numbers are still at record highs, so a full-scale reopening could still be some way off.

OPEC+ will maintain current output levels after cutting production by 2 million barrels per day in the October meeting. The next meeting is in February.

The G7 price cap on Russian oil also comes into play today. The price was agreed at $60 per barrel. However, there are questions about how effective the price cap will be given that China and India, that buy large quantities of Russian oil, are not participating in the oil cap.

WTI trades +1% at 80.50 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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