Credit Agricole

Asia overnight

While China’s official PMI data surprised to the upside yesterday, private-sector data disappointed today. PMI data from other Asian centres was strong, however, which helped support sentiment the face of the dual threats coming from a more hawkish FOMC and the omicron coronavirus variant. Most Asian bourses and S&P 500 futures were trading higher at the time of writing. In G10 FX, the Antipodean currencies were the outperformers on the back higher iron ore prices as well as an upside surprise in Australia’s GDP data. The JPY was the underperforming G10 currency in the Asian session.


Key Headlines

  • BioNTech CEO Ugur Sahin said there's no reason to be particularly worried, Pfizer vaccine is likely to offer strong protection against any severe disease from the new Omicron Covid variant. The mood was certainly better, US equity futures are in black, Yen-crosses are up.
  • However, governments are still taking cautious steps, CDC is working to impose stricter Covid testing rules for travellers entering US; Japanese cabinet sec Matsuno said foreign residents’ re-entry from 10 countries halted; and South Korea is considering variant tests to all entering the country.

FX Flows

  • It is certainly a quiet start for December. Sentiment is positive, Yen-crosses traded higher, EUR$ slipped. Most commodities higher.
  • Australia’s third quarter GDP growth wasn’t as bad as many thought. Over the quarter it contracted 1.9% as supposed to estimates of -2.7%. Annual growth was +3.9%. A$ barely reacted, it only moved higher in the mid-morning on small risk-on. Expect to run into offers near the 0.7165 strike for A$780mio expiring today.
  • Reverse of Tuesday, $Yen rose to 113.55 and remained firm throughout the morning. Risk-on mood led Yen-crosses higher, pairs like AUD¥, NZD¥ and CAD¥. There should be some offers ahead of option strikes at 114.00.


European Open

A pendulum swing in the FX markets saw market participants cautiously dip their toes into risk assets. Antipodeans outperformed, with NZD (+0.47%) and AUD (+0.5%). UST yields edged higher by 3-4bps across all tenors. There was little news on the Asian morning following Powell’s hawkishness yesterday which roiled markets. JPY was down 0.3% as safe havens declined. Over in the EM space, KRW gained 0.8% on large foreign inflows (USD 779mn) into equities. MXN was up 0.74% as a risk proxy. Oil saw gains with WTI up 3.37% and Brent gaining 3.52%. In the equities space, S&P e-minis were up 0.80% and Nasdaq100 was up 1.32%. Kospi was up 2.17%, HSI +1.10%, Nikkei +0.41%.

Looking ahead, the US sees ADP employment change (13:15 GMT), ISM Manufacturing (15:00 GMT) and Powell & Yellen (15:00 GMT). We eye the Fedspeak for more headlines following Powell’s comments yesterday. NOK will see current account (07:00 GMT), SEK will sight Swedbank/Silf PMI Manufacturing (07:30 GMT), CHF its Core CPI (07:30 GMT), and EUR will see Markit Manufacturing PMIs, starting with Italy (08:45 GMT). In the EM space, CLP will see Economic Activity (11:30 GMT) and HUF its Manufacturing PMI (08:00 GMT). RUB (16:00 GMT) and PEN (15:00 GMT) see CPI, and BRL will see trade balance (18:00 GMT).