There were widespread protests in China on the weekend over Chinese Communist Party heavy-handed lockdowns, censorship, and mismanagement of the COVI
There
were widespread protests in China on the weekend over Chinese
Communist Party heavy-handed lockdowns, censorship, and mismanagement
of the COVID crisis. Movement in financial markets on the session can
be summarised as flows into haven assets and out of risk.
Coronavirus
cases in Beijing almost doubled over the weekend and gained right
across the country. The government’s harsh restrictive response
continued, triggering widespread protests. In the very early Asian
hours the US dollar gapped higher pretty much across the board. As
time rolled on and other markets opened the same sentiment was
translated into prices. US equity indexes on Globex moved lower and
US treasuries were bid (therefore yields fell).
Oil
prices dropped (the lower China demand story due to stricter lockdown
combined with a boost in supply story out Venezuela – re Chevron,
see bullets above).
USD/JPY was a laggard in the early dollar move. There were some haven flows into the yen. As the session progressed we had remarks reported from Bank of Japan Governor Kuroda and Japanese Prime Minister Kishida. Kuroda referred to wage gains as being supportive of more stable levels of inflation (more in the bullets above) which gave the yen a boost. USD/JPY fell more than a big figure from its early highs. Its since retraced some of that drop.
As I post EUR, AUD, NZD, GBP and others are all lower still against the USD. The ‘gap’ down from Friday has not been filled. ‘
From Australia today we had testimony from Reserve Bank of Australia Governor Lowe. The RBA recently dialled back its rate hike magnitude from a series of +50bp rate hikes to now two +25bp rate hikes in succession (October and November). Lowe gave no indication the Bank is actively considering beefing hikes back to +50bp. The consensus in the market is for a +25bp hike at the December (6th) meeting with the Bank content to keep a slower hiking pace in place while they watch and wait and assess how rate hikes so far will impact the economy. Interestingly, Lowe offered an apology to Australians who took out loans based on guidance from the RBA that interest rates were unlikely to rise until 2024. You may recall this forward guidance? At ForexLive we warned, scornfully, it was untrustworthy given the RBA’s woeful record on forecasting:
It was negligent of the RBA to make such a horrible forecast. Market participants know full well to treat this sort of rubbish from the RBA with contempt, but it is very unfair to disburse such ‘guidance’ to unsuspecting members of the public.
Also from Australia today we had retail sales data for October. This came in at -0.2% m/m, the first negative since December of 2021. The RBA rate hikes are aimed at weighing on consumer demand. The data for retail sales show they may very well be doing so.
In Chinese stock markets, losses were steep. Both HK and mainland shares traded lower. There was intervention from state banks to prope prices up, which has assisted in recovering some of the declines (see bullets above for more on state bank stock buys).
USD/CNH gapped higher but state intervention has seen a good deal of the rise retraced (5 min bars):
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