US Session (11/15/2021)
On Monday, stocks struggled to find direction amid extreme volatility in Tesla Inc. and a jump in bond yields.
Major equity indexes recovered from session lows as Tesla reduced losses after entering a bear market with a nearly 20% drop from a record. Earlier in the day, the company plummeted when CEO Elon Musk suggested selling more of his shares. Treasuries fell on concern that the Federal Reserve may have to reduce asset purchases more quickly following the fastest inflation in three decades.
Following a year marked by unrelenting stock gains and a bond selloff, analysts have begun pitching their calls for 2022, with the spectre of inflation looming big in investors' minds. Morgan Stanley's Mike Wilson anticipates the S&P 500 to fall to 4,400 in the next 12 months, a 6% decrease from Friday. While profits are expected to expand further, he warns that a slowing economy and the withdrawal of Fed assistance would likely put pressure on valuations.
It's the third week of the month when most equity options expire, and the event has regularly jolted equities this year. While history is not always a reliable indication, the S&P 500 has reported a 1% increase – in either direction – in six of the last eight expiration weeks, according to data provided by a major news wire.
According to Janus Henderson investors, worldwide dividends just had their best-ever third quarter, putting them on track to surpass their pre-pandemic peak by the end of 2021. The money manager boosted its projection for total payouts to $1.46 trillion this year, citing stronger balance sheets and optimism about the future, indicating a speedier comeback to an all-time high than projected in its previous report.
This week's attention will be on consumer strength, with retail sales expected to accelerate on Tuesday and industry titans such as Walmart Inc. and Home Depot Inc. reported quarterly results. Strong merchandise expenditure should continue to put a strain on global supply systems, which are already struggling to keep up.
Even if hopes for a breakthrough on big issues are low, Biden and Chinese President Xi Jinping will have much to talk about during their first virtual summit, including sanctions to Taiwan. According to a Biden administration official, the virtual summit, which begins at 7:45 p.m. on Monday night in Washington, will span many hours, including translation for both leaders in their third conversation this year.
Asia Session (11/15/2021)
Stocks were steady on Tuesday as traders weighed inflation risks and kept an eye on the first face-to-face virtual summit between Biden and China’s Pres. Xi. Treasury yields and the dollar both lost ground.
Japan's stock market rose modestly, while Hong Kong and China's markets fluctuated. After the S&P 500 and Nasdaq 100 ended flat, equity futures in the US and Europe edged higher.
After resuming trading in Hong Kong, units of troubled Chinese developer Kaisa Group Holdings Ltd. performed mixed. At least some creditors of Kaisa Group have not received bond interest that was due last week.
The 10-year Treasury yield in the United States was around 1.60% Bonds fell overnight on speculation that the Federal Reserve may need to tighten policy more quickly to combat price pressures. Stronger-than-expected manufacturing data from New York bolstered the case for an earlier interest-rate hike.
The US and China are attempting to stabilize their relationship while dismissing the possibility of major breakthroughs. Signs of improved bilateral ties may boost sentiment, but the effect may be fleeting given broader concerns about inflation and the fallout from Xi's "common prosperity" drive to combat inequality.
Europe Session (11/15/2021)
ECB's President Lagarde believes that the prerequisites for a rate hike are unlikely to be met by 2022.
ECB's President Lagarde: Inflation will continue to moderate in the coming year, although it will take longer to fall than previously anticipated.
BoE's Haskel signaled caution in the debate over lifting UK interest rates.
ECB's President Lagarde: The duration of supply constraints is uncertain; they are expected to last many months and progressively ease only during 2022.
BoJ's Governor Kuroda: Even if consumer inflation in Japan approaches 1% next year, the BoJ will not slow down or quit easy monetary policy.
European equities were steady around record highs after earnings season revealed that firms were deleveraging and weathering the supply-side crisis.
The STOXX 600 Europe index edged higher after increasing for six weeks, the benchmark's longest weekly winning streak since mid-April. With NASDAQ 100 contracts, the S&P 500 futures showed moderate gains. Bonds in Europe climbed in tandem with US Treasuries.
Strong corporate results are driving investors into surging markets and overshadowing concerns about the highest US inflation print in three decades in the United States. The emotion spread to calmer bond markets, where the pandemic's worries have resulted in the highest volatility since the outbreak.
Oil decreased in price as markets awaited Biden's response to rising gasoline prices, which have sparked widespread concern about the impact of rising prices.
Tuesday FX Options Expiries
EUR/USD: 1.1450 (EU720.5M), 1.1625 (EU689.9M), 1.2200 (EU623.8M)
USD/CNY: 6.4000 ($2.29B), 6.7900 ($700M), 6.5850 ($700M)
USD/CAD: 1.2265 ($629M), 1.2370 ($530M), 1.2390 ($300M)
USD/JPY: 114.30 ($1.6B), 113.40 ($830M), 113.50 ($450M)
USD/BRL: 5.4750 ($480M)
AUD/USD: 0.7300 (AUD606.9M), 0.7250 (AUD371M)
EUR/GBP: 0.8525 (EU810.9M), 0.8395 (EU455M)
GBP/USD: 1.3500 (GBP407.4M), 1.3400 (GBP383.6M)
USD/MXN: 20.40 ($1.42B), 20.80 ($500.3M), 20.30 ($415M)