There is a weak tone in the equity futures market this morning and it is more than just a tryptophan hangover. It is an expression of growing concerns about global growth prospects due to reports of increased social protests in China over the government’s zero-COVID policy.
While there is much support outside of China for the protests themselves, there is also some angst that they will embolden Chinese leader Xi Jinping to clamp down even more with his zero-COVID policy. The lockdowns, the mass testing, and the protests, though, are regarded as ongoing disruptions to supply chains and logistics operations that are not good for the Chinese economy or the global economy.
That understanding has manifested itself in crude oil futures prices. WTI crude is down 2.9% to $74.10/bbl, leaving it down 14.3% for the month, and Brent crude is down 2.8% to $81.37/bbl, leaving it down 12.3% for the month.
Currently, the S&P 500 futures are down 31 points and are trading 0.9% below fair value, the Nasdaq 100 futures are down 73 points and are trading 1.0% below fair value, and the Dow Jones Industrial Average futures are down 210 points and are trading 0.7% below fair value.
This weakness, however, isn’t just about China. The reports out of China have also become a good excuse to take some money off the table following a big run by the market.
Since November 3, the S&P 500 has surged 8.2% and the Nasdaq Composite has gained 8.5%. The move by the S&P 500 has left it flirting with its 200-day moving average (4,054), so there is a measure of technical resistance in the air as well knowing that the summer rally got stopped cold in its tracks with the re-test of the 200-day moving average.
Other elements are in the air, too, lending to this morning’s hesitation on the part of buyers.
Several Fed officials will be speaking this week before they enter their quiet period. Fed Chair Powell highlights the list of speakers with an appearance at the Brookings Institution on Wednesday to talk about the Economic Outlook, Inflation, and the Labor Market.
There is also a slate of key economic releases this week that will offer some updated insight on economic conditions and the Fed’s expected policy path. The November Consumer Confidence Report will be out on Tuesday followed by the November ADP Employment Change, Revised Q3 GDP, and October JOLTS – Job Openings Reports on Wednesday, the October Personal Income and Spending and November ISM Manufacturing Index on Thursday, and the November Employment Situation Report on Friday.
Tucked in between will be some ongoing earnings reports, so there won’t be a shortage of trading catalysts.
On a related note, the casino stocks are making some headway this morning after China granted a 10-year renewal of gaming concessions to several operators, including Las Vegas Sands (LVS) and Wynn Resorts (WYNN). That has been about the only good news coming out of China over the weekend where a lot of situations, ranging from social to economic, are up in the air.
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Originally Posted November 28, 2022 – Something in the air
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