21 NOV - EU Mid-Market Update: King dollar amid fresh China COVID outbreak fears and concerns of....


Zurich, Switzerland

TradeTheNews.com EU Mid-Market Update: King dollar amid fresh China COVID outbreak fears and concerns of nuclear accident in Ukraine

Mon, 21 Nov 2022 5:15 AM EST


**Notes/Observations**

-Risk aversion in play as China COVID cases rapidly rise. Country reported first COVID-related death in nearly 6 months. Beijing Health Official stated it is facing the most complex and severe situation since initial outbreak. Further concern from Ukraine/Russia conflict as Russia shells Zaporizhzhia NPP (Europe’s largest Nuclear Power Plant) in Ukraine. IAEA Chief Gross stated 'Russia is playing with fire'. Shells said fall to be within metres of the plant.

-Germany Oct PPI came in much cooler than expected with a reading that saw first MoM decline since May 2020. (MoM -4.2%, YoY 34.5%)

-ECB Chief Economist Lane reiterated that Dec will not be the last rate hike. Noted it was too early to consider pause in the tightening cycle. Provided color on QT by stating decent progress needs to be made on raising policy rate before mapping out QT.

-Asia closed mostly lower with Hang Seng underperforming at -1.9%. EU indices are lower with Dax at -0.4%. US futures are -0.3% to -0.6%. Gold -0.7%, DXY +0.8%; Commodity: Brent -0.6%, WTI -0.4%, UK Nat Gas +1.3%; Crypto: BTC -3.6%, ETH -8.0%


Asia:

- Beijing reports 2 COVID-related deaths for Sun [China's first COVID-related deaths since late May]; many shops and restaurants in Beijing's most populous district [Chaoyang] were shut

- China PBoC Monthly Loan Prime Rate (LPR) left both the 1-year and 5-year rates unchanged at 3.65% and 4.30% respectively (as expected)


Ukraine Conflict:

- Ukraine's Zaporizhzhia Nuclear Power Plant (NPP) reportedly was again shelled on Nov 20th; IAEA called explosions 'powerful' and saying 'it was a close call'; Some buildings, systems and equipment were damaged, but none of them critical for nuclear safety


Europe:

- UK govt officials said to be studying option of a Swiss-style relationship with the EU which could lead to closer economic ties and friction less trade. UK foreign ministry spokesperson later stated that reports were categorically untrue

- New Italian govt said to be planning to announce €30B of new spending in the 2023 budget

- Fitch affirmed Italy sovereign rating at BBB, outlook stable

- S&P raised Ireland outlook to Positive from Stable; Affirmed AA- sovereign rating


Americas:

- Fed's Bostic (non-voter) stated that was ready to move away from 75 bps hikes; Believed another 75 to 100 bps of tightening would be sufficient to rein in inflation over a reasonable time horizon (implied peak rate between 4.75-5.00%)


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***

Equities

Indices [Stoxx600 -0.34% at 432.98, FTSE -0.15% at 7,374.66, DAX -0.48% at 14,362.51, CAC-40 -0.22% at 6,630.07, IBEX-35 +0.32% at 8,153.98, FTSE MIB -0.90% at 24,452.00, SMI -0.01% at 11,044.80, S&P 500 Futures -0.47%]


Market Focal Points/Key Themes: European indices open down across the board and remained under pressure through the early part of the session (IBEX notable exception moving higher); better performing sectors include health care and utilities; while materials and industrials sectors lead to the downside; Sopra Steria to take over CS Group; RHI Magnesita acquires Dalmia Bharat Refractories in share swap deal; reportedly ACS looking to sell its stake in Ventia: earnings expected during the upcoming US session include Dell, Jacobs and Agilent


Market Focal Points/Key Themes:

***Equities***

- Consumer discretionary: Compass Group [CPG.UK] -2.5% (earnings; buyback)

- Energy: Chariot [CHAR.UK] +3% (JV)

- Industrials: Diploma [DPLM.UK] +1% (earnings), RHI Magnesita [RHIM.UK] -4% (acquisition), Uponor [UPONOR.FI] -3.5% (withdraws outlook)

- Technology: Keywords Studios [KWS.UK] +5% (trading update)

- Materials: Vallourec [VK.FR] -11% (earnings)


**Speakers*

- ECB's Lane (Ireland, chief economist) stated that Council would hike rates again in Dec with the scale should continue to make progress towards the levels needed. Believe it’s too early to have very strong views on where to pause at this point. Likely to lay out a road map on QT in Dec

- BOE’s Cunliffe commented on crypto currencies and noted that unbacked crypto assets were highly volatile and had no intrinsic value. Indications that a run on crypto coin FTT might have triggered collapse of FTX

- China PBOC and CBIRC bank regulator said to vow to support property loans. Called for boosting credit support for Covid hit sectors and have banks support manufacturing and service sectors

- China PBOC Gov Yi Gang stated that macro policies had supported economic stability



**Currencies/ Fixed Income**

- China lockdown fears fueled some safe-haven flows. Rising COVID cases and tightening restrictions in some cities in the world's second-biggest economy.

- EUR/USD tested the 1.0240 area. German PPI data registered its 1st decline in almost 18months largely due to much lower energy prices. Dealers noted that the reading gave hope that the inflation rate for CPI would also soon reach its peak

- GBP/USD testing the 1.18 area as Brexit news filtered its way back into the narrative.


**Economic data:

- (NL) Netherlands Nov Consumer Confidence: -57 v -59 prior