One eye on FOMC Minutes

The week is off to a relatively slow start, with Asia trading mostly in the red and Europe and the US poised to do the same.

We don’t get many quiet weeks these days but this may turn out to be one of the few, with the US Thanksgiving bank holiday cutting the week short for many traders and the Fed minutes on Wednesday potentially weighing on activity beforehand.

The recovery rally has stalled over the last week or so as Fed commentary has remained more hawkish than investors wanted. The rebound was also much stronger than is arguably warranted, with the Dow up almost 20% from its October lows.

Policymakers appear keen to stress that one inflation number doesn’t make a trend and further evidence will be needed to justify a slower pace of tightening. While they will probably be quietly satisfied that inflation has turned a corner, there may also be a determination not to accept that publicly at the risk of undermining its tightening efforts until now. Another good report next month and the tone will almost certainly notably change.

China stocks tumble as Covid cases rise

The recent news has been less good from China, where surging Covid cases have wobbled markets just as we were seeing an improvement in sentiment. A slight relaxation of Covid restrictions and the prospect of more early next year, alongside a 16-point plan to boost the property market, had triggered a strong rebound in stocks in China and Hong Kong but that has been undermined by the recent surge and restrictions.

Not only would fresh lockdowns in major cities take a sledgehammer to growth into year-end, but it could also complicate any plans that are being put in place to soften the zero-Covid policy next year. We’re back into uncertain territory which could slow the recovery in stock markets.

Darker days ahead for crypto?

The landscape is not getting any better for cryptos as we continue to learn more about the fallout from the FTX collapse. Bitcoin is off around 4% this morning, trading below $16,000 and looking very vulnerable. Another sharp drop looks very possible as sentiment in the space has been shredded. It could take some time for that to be repaired and the uncertainty that the FTX scandal has created is an enormous headwind for cryptos in the near term. At this point, I wouldn’t be surprised to see $10,000 tested again in the not-too-distant future.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

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