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Pandemic Continues to Shake Chinese Investment 

China covid cases are rising, the post-inflation-reading optimism fading, but investors still look to be cautiously positioned for a rally into year end. Resurgence of covid cases and lockdowns, which is spread across the country and affecting more people than at any time since the initial spread of the pandemic, is certainly pushing back hopes for a swift reopening next year, in turn adding to worries about a global recession next year. Chinese tech stocks fell sharply in Hong Kong. European stocks had a mixed open but oil and basic resources are leading the FTSE 100 to some decent gains, with Shell +3%, Harbour Energy +4% and BP +5% in early trading. 

Wall Street Falters 

Wall Street closed lower on Monday, with the S&P 500 down 0.4% and the Nasdaq down 1%. A 6% rally for Disney ensured the Dow Jones finished almost flat for the session. Zoom fell after-hours on weak fourth-quarter guidance despite beating on the top and bottom lines in the third quarter. Holiday shortened trading week not sparking much momentum, with the rally off the mid-October lows retreating a bit at the 61.8% retracement area for the S&P 500 – where we’d flagged last Wednesday as likely to mark a near-term top. 

Policy Makers Battle with Rate Hikes 

San Francisco Fed president Mary Daly said the impact of rate hikes “is much higher than what the [federal] funds rate tells us…it will be important to remain conscious of this gap between the federal funds rate and the tightening in financial markets. Ignoring it raises the chances of tightening too much”. Bit dovish..? I dunno, I think we can pay way too much attention to some of these tea leaves. Cleveland Fed president Loretta Mester said it was now the time to consider slowing down the pace of rate hikes. “I think it makes sense that we can slow down a bit the ... pace of increases,” she said. “We’re still going to raise the funds rate, but we’re at a reasonable point now where we can be very deliberate in setting monetary policy.” 

ECB split: Austrian central bank chief Robert Holzmann, a hawk, backed going for a third 75bps hike in December, saying he does not see signs of core inflation easing. Chief economist Philip Lane said only yesterday that 75bps was off the table...so we are set up for a split vote next month…but still seems likely the ECB errs on the side of doing not enough rather than over-tightening, particularly as ECB president Christine Lagarde believes a recession won’t bring down inflation to target – why make things even worse if it’s not going to lower inflation?  

Japan Still Grappling with Inflation 

The Bank of Japan’s weighted median inflation rate, rose to a record 1.1% in October, building on the core inflation reading last week to point to broadening price pressures. USDJPY has pulled back a touch to 141.680 after it had pushed up to the highest in over a week yesterday on broad-based USD strength. No signs that inflation rising will stop the BoJ from continuing with ultra-loose monetary policy.  

Rise and Fall: Oil and Crypto 

Oil rallied on Tuesday after a wild ride on Monday amid reports – later categorically refuted – that OPEC was considering increasing production by up to 500k bpd. Possibly this was a trial balloon to see what the reaction might be? The move lower yesterday afternoon on the WSJ report was sharp but failed at the late September swing low. Although this was a news-driven move, the rejection paves the way for another run up towards the 50-line around $91.50. 

Cathie Wood...is of course still buying and doubling down on busted flushes. ARK funds have been adding Coinbase and other crypto-linked stocks in the wake of the FTX collapse. COIN is down over 83% YTD, and fell another 9% yesterday...timing. Meanwhile bitcoin continues to languish below $16k. Meanwhile Genesis says it has no plans to file for bankruptcy despite reports indicating it was close to doing so. 

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