This week
started with a bit of a startle as mass protests erupted in China against the zero
tolerant COVID-19 policy. Students in Shanghai and Beijing called on Xi Jinping
to resign. The Kuomintang, the opposition of the ruling party that is pro-independence of
Taiwan, won local elections on the separatist island over the weekend.
Markets are
reacting by lowering their appetite for risk. The S&P 500 broad market
index futures fell by 0.5-0.8%. Brent crude prices splashed down below the crucial
support level of $83-84 per barrel, signaling further moves downwards as they
are approaching $81 per barrel. The U.S. Dollar index is sitting on the support
level of 105 points while the Japanese Yen is gaining traction at its current
position of 137.60 against the Dollar, pointing to the market's appetite for
risk.
As for the
protests in China, they are unlikely to become a one-time show. The same could
be said about political activity in Taiwan. Markets fear that political
tensions in mainland China may nudge Xi Jinping to seek a heavy-handed approach
to the issue of Taiwan as people in Taiwan are seeking peace in cross-Taiwan
Strait relations. Such a scenario may be surprisingly shocking to investors, so
it should be monitored closely.
Investors
are waiting for the release of macroeconomic data this week. If political
tensions ease by the middle of the week macroeconomic issues would come into
focus starting with the testimony of the Federal Reserve’s (Fed) Chairman
Jerome Powell on Wednesday. Investors are betting that the Fed is set to raise
interest rates by 50 basis points in December but are still waiting for Powell
to confirm this. Powell’s speech would be accompanied by the U.S. GDP data for Q3
2022, and the first estimate of November Non-Farm Payrolls presented by ADP.
The Core Personal Consumption Expenditure Price Index (PCE) in the U.S. will be
published on Thursday. That is considered to be one of the major guiding stars
for the Fed in terms of inflation. The Bank of England (BoE) is planning to
start selling gilts for $23.2 billion that were acquired to stabilise markets
during the political crisis in the United Kingdom in late September and the
first half of October. Friday will be marked by the official Non-Farm Payrolls
data. The S&P 500 index is expected to perform elevated volatility within the
3980-4080 area without any particular direction.
The oil
market is moving according to the recession scenario as Brent crude prices are
heading to the next support at $78-80 per barrel after sliding below the
support of $83-84 per barrel. Targets are set at $60-70 per barrel. With this
in mind, the oil market is becoming a guideline for all markets.
Gold prices
are rising in line with geopolitical tensions to $1761 per troy ounce. This new
trend may easily break the downside scenario that was previously developed. So,
it would be better to look for long positions, but entry points are still
unclear.
The money
market continues to experience elevated volatility that prevents the use of
short-term signals. So, it is better to place orders that are attached to
longer perspectives. Short trades for AUDUSD that were opened at
0.63700-0.64200 are still on the go and may be terminated when the pair reaches
the 0.59000 area. These operations should be terminated at December 1.