There were many protests in China over the weekend against the Chinese Communist Party’s blockages, censorship and mishandling of the COVID crisis. Movements in the financial markets during the session can be summarized as flows into safe-haven and risk-free assets.
Coronavirus cases in Beijing nearly doubled over the weekend and rose nationwide. The government’s harsh restrictive response continued, triggering widespread protests. In the very early hours of Asia, the US dollar widened just about everywhere. As time passed and more markets opened up, the same sentiment was reflected in prices. US stock indices on Globex fell and US Treasuries were bid on (thus yields fell).
Oil prices fell (lower Chinese demand due to tighter lockdown combined with increased supply in Venezuela – regarding Chevron, see bullet points above).
USD/JPY lagged the early move in the dollar. There were some safe haven flows into the yen. As the session progressed, we heard remarks from Bank of Japan Governor Kuroda and Japanese Prime Minister Kishida. Kuroda called wage gains supportive of more stable levels of inflation (more in the bullet points above), which gave the yen a boost. USD/JPY has fallen more than a big number from its early highs. It has since retraced some of that decline.
As I post, the EUR, AUD, NZD, GBP and others are all even lower against the USD. Friday’s “vacuum” has not been filled. ‘
From Australia, we heard today from Governor Lowe of the Reserve Bank of Australia. The RBA recently reduced the magnitude of its rate hike from a series of +50 bps rate hikes to now two successive +25 bps rate hikes (October and November). Lowe gave no indication that the Bank was actively considering reinforcing the increases to +50bps. The market consensus is for a +25 basis point hike at the December 6 meeting, with the Bank content to keep a slower pace of the hike in place as it watches and waits and assesses the impact of the rate hikes so far on the economy. Interestingly, Lowe issued an apology to Australians who took out loans based on indications from the RBA that interest rates were unlikely to rise before 2024. You may remember that forward guidance? We at ForexLive warned, contemptuously, that he was not to be trusted given the RBA’s dismal forecasting record:
The RBA was negligent in making such a horrible forecast. Market participants know full well to treat this kind of RBA rubbish with contempt, but it is grossly unfair to give such “advice” to unsuspecting members of the public.
We also received October retail sales data from Australia today. It came in at -0.2% m/m, the first negative since December 2021. RBA rate hikes aim to weigh on consumer demand. Retail sales data shows they could very well do it.
In Chinese stock markets, the losses were significant. HK and Mainland stocks traded lower. State banks stepped in to support prices, which helped recoup some of the declines (see bullets above for more on state bank stock purchases).
USD/CNH rose but government intervention allowed much of the rise to be retraced (5-minute bars):
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