BY: TYLER DURDEN
With even US futures shut for trading today due to Christmas falling on a Sunday, stocks around the globe rose modestly on Monday while currencies were mixed in Asia amid dismal liquidity with most markets - including Europe, Hong Kong, Singapore, and Australia - closed for holidays.
While stock indexes for mainland China, Japan and South Korea climbed less than 1%, with a gain of just above that for India, appetite for risk taking was muted with the impact from last week's US inflation data partly offset by concern over China abandoning its Covid Zero policy and what that means for the world's second largest economy. As reported last night, amid the new wave of infections, China’s National Health Commission said it would stop publishing daily case numbers for the coronavirus, complicating the task for investors trying to assess the economic impact.
Meanwhile, the latest UMich confidence data on Friday showed the Federal Reserve’s closely watched measure of inflation cooling and consumer spending stagnating. Consumers’ year-ahead inflation expectations also dropped this month to the lowest since June 2021, a survey by the University of Michigan showed.
A few Asian markets were open, and stocks there posted moderate gains after two weekly losses as equities in mainland China and India rebounded while most markets were closed on holiday. The MSCI Asia Pacific Index advanced as much as 0.4% on light-volume trades. TSMC, Reliance Industries and Tokyo Electron led the index’s gain with nine out of 11 sectors advancing. Equities in mainland China halted declines after two weekly losses as Chinese authorities predicted that Covid outbreaks will peak during January.
Stock indexes in India jumped about 1%, bouncing back from their worst week in six months. The main stock gauges in Japan and South Korea finished slightly higher while equities in Vietnam plunged more than 3% on selloffs ahead of the Lunar New Year. The recent declines in Chinese stocks could pave the way for a sharp market rally, Ai Xiongfeng, an analyst at Sinolink Securities, wrote in a note, adding that the next leg of the rally is likely to be led by smaller cap growth stocks. Trading volume in the main Asian stock benchmark plunged about 90% Monday from its recent average, according to Bloomberg data as most Asian markets were not trading. Markets in Hong Kong, Australia, Singapore, Malaysia, New Zealand and the Philippines were closed on holiday. “Global stock markets overall will likely see a quiet week due to year-end holidays,” Lee Kyoung-Min, a strategist at Daishin Securities in Seoul, said in a note. “With extremely thin trading, even a small sell or a small buy could cause big swings in markets.”
With just a handful of trading days left for the year, it looks increasingly unlikely that Santa will make a market appearance; while US stocks are closed today, December has been brutal with the Nasdaq suffering its biggest drop since 2002, while 2022 has been the worst annual performance for global stocks since the global financial crisis.
“The Fed has been telling us they are going to tighten financial conditions until a recession or something ‘breaks’,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note. “This is not a great place to own speculative assets, especially the long-duration variety telling me in times like this, cash itself is the best at the money put.” With bond markets also closed, there were some flickers of action in FX, where the offshore yuan and the euro edged higher while the Australian dollar erased earlier losses. Most G-10 currencies traded within narrow ranges against the greenback. The yen strengthened versus the dollar, even after Bank of Japan Governor Haruhiko Kuroda stressed that the BOJ’s latest adjustments to yield control were not the beginning of an exit of monetary easing. Traders are skeptical of Kuroda, with some betting that the central bank will raise interest rates next year. Yields on Japan’s 10-year government bonds jumped seven-and-a-half basis points to 0.445%, compared with the BOJ’s new ceiling of 0.5%. There was no cash trading on Monday of Treasuries, which ended a holiday-shortened session lower on Friday. The benchmark 10-year yield climbed the most last week since early April, ending Friday around 3.75%. Elsewhere in markets, Bitcoin was little changed below $17,000 on Monday as the crypto world continued to reel from the collapse of FTX. In commodities, everything from oil to gold and copper rose on Friday. Oil posted a substantial weekly gain as Russia said it may cut crude production in response to the price cap imposed by the Group of Seven on its exports, highlighting risks to global supplies in the new year.