US open: Stocks drop as China COVID fears rise

US futures

Dow futures -0.07% at 33723

S&P futures -0.39% at 3954

Nasdaq futures -0.5% at 11617

In Europe

FTSE +0.15% at 7390

Dax -0.5% at 14337 

More China lockdowns coming?

US stocks are set for a weaker open as risk sentiment takes a hit amid rising COVID cases in China.

The spike in cases and stricter curbs being implemented around some economic hubs such as Beijing and Shanghai is forcing pouring cold water over hopes that China could be considering a move away from its zero-COVID strategy.

China’s reopening is seeing a massive setback and is proving to be a wild card for the markets. The prospect of worsening outbreaks means fresh lockdowns are looking increasingly likely, which would blow growth. Last week's data highlighted the impact of tighter curbs on consumption and growth. More restrictions mean slower growth and weaker demand for risk assets.

There is no high-impacting economic data due to be released today. Investors will be looking ahead to the release of the minutes from the November meeting for further clues as to the path for rate hikes.

Atlanta Fed President Raphael Bostic said that he sees the pace of hikes slowing in December and that the Fed is still aiming for a soft landing. Meanwhile, Susan Collins, the Boston Fed President, still considers all options open regarding the size of the December rate hike.

Corporate news:

Disney jumps 9% pre-market on the news that CEO Bob Iger will return, replacing his successor Bob Chapek in a surprise move after a slew of disappointing numbers. Iger, who had spent over four decades at Disney, has agreed to return for two years to help find another replacement. The share price was down 41% so far this year.

Coinbase trades at an all-time low as Bitcoin continues its slide amid the ongoing fallout of FTX.

Dell and Zoom are due to report earnings after the close.

Where next for the Nasdaq?

The Nasdaq trades caught between the 50 & 100 sma. The RSI is over 50 suggesting further gains are to be had. Buyers will look for a rise over 12000, the 100 sma and 12100 weekly high, to extend the bullish trend towards 12900, the September high. Sellers could look for a fall below 11400, the 50 sma, to extend the selloff to 10640, the November low.

FX markets – USD rises, GBP drops

The USD is rising, adding to last week’s gains, boosted by a combination of safe haven flows and ahead o the FOMC minutes on Wednesday. Fed speakers last week pointed to the pace of rate hikes slowing, but the terminal rate was likely to be higher as the Fed continues raising rates for longer.

EURUSD is falling after German PPI plunged to 34.5% YoY in October, down from 45.8% in September, as electricity and natural gas prices eased. ECB chief economist Philip Lane said that the ECB was considering a smaller sized rate hike in December after a 75 bps in the previous meeting.

GBP/USD fall in risk-off trade, putting it on track for its largest decline in two weeks. Investors continue assessing Chancellor’s Budget and the outlook for the UK economy remains gloomy. Weak sentiment and dire public finances leave little for pound traders to cheer.

GBP/USD -0.8% at 1.1909

EUR/USD -0.6% at 1.0370

Oil falls as China COVID cases rise

Oil fell over 10% last week and remains depressed today amid China demand concerns and a stronger USD.

Schools in some districts in Beijing have been closed, and residents in Guangzhou are under lockdown. With COVID restrictions rising in the world’s largest oil importer, the prospect of weaker demand weighs on the price of crude oil.

In addition to China’s demand woes, the macroeconomic data from the US and Europe also points to an economic slowdown, which hurts the oil demand outlook.

The USD is rising on a combination of safe haven flows and following hawkish Fed commentary last week,

WTI crude trades -0.4% at $79.79

Brent trades at -0.4% at $87.00 

Looking ahead

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