Analyst
Stock futures continue to fluctuate, but took a breather after fears of higher interest rates in the U.S. triggered a sell-off in the previous session.
Better-than-expected ISM services data for November, which looks at manufacturers' purchasing levels as an indicator of the health of the overall economy, pressured stocks in the first two trading days of this week. The report fueled fears that the Fed will have to raise interest rates for longer than expected to bring inflation down. The release is consistent with the labor market data report late last week and suggests that some areas of the economy are resilient. For now, positive U.S. economic data continues to provide short-term headwinds for equity markets. However, it is expected that yesterday's concerns will ease today.
Stocks were also buoyed today by further signs that China is moving past its economy-damaging Covid Zero policy. Beijing announced it would eliminate Covid testing for most public facilities - including in Beijing, which has seen record-breaking infection rates in recent days.
It is expected that Chinese authorities will take further steps in the coming days and may even officially announce that China as a whole is pursuing a different strategy. If the path of reopening becomes clearer, Chinese markets and most of Asia will see a positive situation - also outperforming Wall Street. European economies, which are very sensitive to China, will also benefit greatly from the rebound in demand from China.
We take a cue from analysis analysis of yesterday and say there could be a volatile sideways movement in the first half of December and probably larger losses again towards the end of the month. However, with investors still trying to push stocks higher, the current year-end rally could play around for now. In particular, lower earnings revisions could put pressure on stocks - These could occur in late December and especially in January.
Lower U.S. Treasury yields could suggest a small rebound from yesterday's sharp losses
A brightening risk sentiment will help risk markets reduce yesterday's losses. Commodities should also be able to cut their losses - in part due to optimism that demand from China will increase in early 2023.
U.S. import and export data came in mostly as expected and may help ease concerns about an overly strong U.S. economy (a very robust U.S. economy remains a risk as it increases the likelihood of further Fed tightening).
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