JASPER’S MARKET SQUAWK 22-12-2022

Risk appetite on the rise

Crude prices rose for the third day in a row following EIA’s weekly stock release on Wednesday, as the agency reported a big draw of 5.9 million barrels. This is on top of a sentiment boost from weather conditions and China’s reopening.

Key factors for today:

• WTI records 3-day streak after positive EIA
• US indices spike higher on increased risk appetite
• Yen weakens after a big drop on what appears to be a pullback
• UK nurses join industrial strikes, cable not doing so well
• China reports support Asian indices, along with Albanese-Xi meetup

Crude soars 4.36% on EIA inventories

There was a surprise drawdown in DOE crude inventories reported for last week, though a larger than anticipated building gasoline reserves. The figures come in the context of colder weather across the US, and a section of the Keystone pipeline still closed. WTI rose to a 2-week high in a bid to get past the $80/bbl handle. $75.90/bbl is support.

Major indices bounce in thin trading

US consumer confidence came in well above expectations at 108.3, hitting an 8-month high. Inflation expectations also fell to the lowest level in over a year. It appears that better-than-anticipated earnings from Nike and FedEx helped support a general risk-on move reflected in falling bond yields and a weaker dollar. Major indices surged, with the DJIA mostly up after a 1.60% gain. Nasdaq and S&P 500 closed 1.54% and 1.49% higher -respectively.

Yen in correction mode

After the BOJ’s surprise move earlier in the week, speculation is now moving that it will move to eliminate the YCC policy entirely as its next move. Yen appreciation supported local investment; a measure of flow data showed that Japanese investors became net sellers of foreign bonds this week, but a natural correction has been in focus, with USD/JPY 0.47% higher on the close. Yen has already recovered the losses this morning, as the pair treads 0.54% lower on Thursday.

UK nurses go on first one-day strike

Industrial actions keep UK firms under pressure as UK nurses decided to go on strike too. Meanwhile, CBI retailing reported sales data in a surprising increase, above expectations of another drop. Cable plunged 0.73% on Wednesday after recovering from a 0.98% drop at a 3-week low near $1.2055. $1.2164 is intraday resistance.

China supports reopening

Reports circulated that some cities in China ordered employees infected with covid back to work. Regulators also offered comments supporting real estate developers, which helped buoy risk appetite in Asian markets. The Hong Kong index is more than 1% at the time of writing, followed by ASX and Nikkei, with gains of 0.53% and 0.46% -respectively.

Australia’s Albanese talks with China’s Xi

In the context of 50 years of diplomatic relations between Australia and China, Albanese and Xi held a conversation in what was seen as a thawing of relations between the countries. The Australian dollar saw a 0.49% lift on expectations that China’s move towards fewer covid restrictions and supporting the housing industry would increase imports from Australia. Sentiment continues early Thursday as the Aussie continues to ascend, so far registering a gain of 0.72%. On that pace, 68 cents could be seen, so long bulls defend the 0.6728 swing.

On the docket

• UK and US GDP growth figures
• TCMB rate decision
• Jobless claims
• Japan inflation

FX 1-day relative performance (USD)

• Aussie and yen 0.74% and 0.53% higher
• Euro, kiwi, franc and pound all ~0.40% plus
• Loonie lags advance at 0.17% higher
• Platinum and copper futures 0.73% in loss
• Crude up on 0.38% gain, but gold unchanged