1 Dec 2022

Last night, the three major U.S. stock indexes rose sharply in late trading. Powell’s speech boosted the rise of risky assets. The Dow entered a technical bull market, and Chinese concept stocks closed up across the board. As of the close, the Dow rose 2.18%, the Nasdaq rose 4.41%, and the S&P rose 3.09%. The yield on the 10-year U.S. Treasury bond fell 3.762% to close at 3.607%, a difference of -72 basis points compared to the yield on the two-year Treasury bond. The panic index VIX fell 5.98%. Brent crude ended up 2.1%. Spot gold closed up 1.08% at $1,768.43 an ounce. The U.S. dollar index remained high, closing at 105.99.

U.S. ADP employment increased by 127,000 in November, the smallest increase since January 2021, far below expectations, suggesting that demand for labor is cooling amid a backdrop of high interest rates. Job growth is gradually slowing as aggressive rate hikes by the Federal Reserve have slowed demand in the economy. Still, labor demand remains strong. According to the survey, job vacancies are still increasing in October.

The annualized quarterly rate of real GDP in the United States in the third quarter was revised up by 0.2% to 2.9% from the initial value, which was better than the initial estimate, reflecting the upward revision of consumer spending and business investment, but the trade balance in October did not meet expectations. Indicates that there is a downside risk to GDP in the fourth quarter. The U.S. Chicago PMI recorded 37.2 in November, the lowest since May 2020.

The month-on-month rate of the U.S. existing home sales index in October was -4.6%, the fifth consecutive month of decline, expected to be -5%, and the previous value to be -10.20%. Of the four U.S. regions, transaction volumes were down sequentially in three, and all four regions were down year-over-year. October was a tough month for homebuyers as they faced the highest mortgage rates in 20 years. The western region is particularly affected by the double impact of high interest rates and high housing prices. Only the Midwest narrowly wins. Buyers should return in the coming months, as mortgage rates appear to have peaked and have been falling since mid-November.

The initial value of the CPI annual rate in the euro zone in November was 10%, expected to be 10.40%, and the previous value was 10.60%. The European Central Bank will suspend the reinvestment of the Asset Purchase Program (APP) and the Emergency Pandemic Bond Purchase Program (PEPP) from December 21 to January 1. The seasonally adjusted unemployment rate in Germany recorded 5.6% in November, the highest since July 2021.

According to the Fed's Beige Book on Economic Conditions: Inflation is expected to remain stable or moderate further; since the last report, economic activity has been flat or slightly higher than the moderate average growth rate during the previous Beige Book period; most Regional consumer price indices rose modestly or strongly.

Federal Reserve Chairman Powell said in his speech that a sufficiently strict restrictive policy has made substantial progress and will be maintained for a period of time; interest rates will rise further, and the pace of interest rate hikes will be slowed down in December; Safe levels to stop balance sheet shrinkage; there is a path to a soft landing for the economy, with a softer labor market and lower commodity and housing inflation. Still does not see a severe recession; terminal interest rates will be slightly higher than expected in September, and there is greater uncertainty; only "preliminary" signs of slowing labor demand and wage growth have been seen.

According to agency analysis: This basically reiterates the message of the last FOMC meeting and meeting minutes. Markets now expect the Fed to raise interest rates by about 55 basis points next month. Importantly, Powell's speech also verified the view that the pace of interest rate hikes will become slower and longer and last longer, that is, terminal interest rates will be higher and restrictive policies will be maintained for a longer period of time. After Powell's speech, according to CME's "Fed Watch": the probability of the Fed raising interest rates by 50 basis points in December to the range of 4.25%-4.50% rose from 65.1% to 77%, and the probability of raising interest rates by 75 basis points fell from 34.9% to 23% .

Market news: The U.S. House of Representatives has enough votes to pass a bill to prevent railroad strikes. According to the British trade union: The three-day strike action originally scheduled for this week, involving more than 2,000 bus drivers of the subway company, was canceled due to the realization of a salary increase. According to a Reuters survey, after OPEC+ announced its production cut decision last month, oil production in November fell by 710,000 barrels per day from October to 29.1 million barrels per day; OPEC+'s implementation rate of production reduction in November was 163%; Lowered the Russian oil price ceiling to $60/barrel.

Apple rose 4.86%, and its Apple Pay is growing very fast. So far in November, the global usage level has increased by 52% year-on-year, and it has increased by 59% year-on-year in the United States.

Microsoft rose 6.16%, and Microsoft announced a dividend of $0.68.

Amazon rose 4.46%, and the sales volume of "Chop Hands Monday" reached 11.8 billion US dollars, catching up with "Black Friday" to become the largest shopping festival in the United States.

Tesla rose 7.67%. Tesla plans to significantly increase the production of the Texas Gigafactory to 75,000 Model Y vehicles in 23Q1.

Meta rose 7.89 percent, shrinking the size of its offices in New York City's Hudson borough in a cost-cutting drive.

TSMC rose 4.6%. President Biden will visit TSMC’s Arizona factory on December 6; in the latest ESG newsletter, he pointed out that the machine learning method to optimize the energy-saving model of the ice water system will be gradually introduced into all 12-inch factories in 2023 , is expected to save 100 million kilowatt-hours of electricity per year.

Airbnb rose 7.09%, launching a new rental apartment listing service.

Boeing rose 2.03%. U.S. congressmen are close to reaching a compromise on Boeing 737 Max certification. Boeing Max models may continue to be produced under the potential agreement.

Sources from: Investing.com; Reuters.com

Louis Yap

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