Market update: Yields, Evergrande and oil

Market news

• USD (USDIndex 93.25) weakened on open but holds as reflation trade gains momentum. Scholz (current Fin. Min. & leader of the opposition SDP) likely to be next German Chancellor, (overall EUR positive). BOJ Mins “will not hesitate to add to easing policy”.

• Yields hold at recent highs (10yr closed 1.46% from 1.48% high) Now at  1.447% in Asian trades (highest since March 2020).

• Equities rallied but closed flat, Evergrande worries persist (HSBC, UBS & Blackrock – exposed to a total of $875m). Total offshore exposure – $20bln of the $300bln. USA500 +6.5 (+0.15%) at 4455 & over a key technical level. USA500.F higher at 4468.  Asian equities higher, ASX leads at +0.6%. VIX closed below 20.00 Friday – trades at 19.32 now.  

• USOil rally continues (October 2018 highs) +1.0% today & gapped at open, catalyst –  Supply disruptions & inventory drawdowns –  $74.88 – GS raised year end target to $87, higher, if there is a cold winter.

• Gold up from Friday lows, $1740 (touched $1760) to $1755 now.  

• FX markets USD bid – CHF & JPY weaker  – EURUSD – 1.1715, Cable 1.3660, USDJPY 110.70.

Week Ahead – Month & Quarter end, US Senate vote on Infra & Fiscal budget, 2nd Evergrande interest payment ($49.5m), Japan to have new PM Wednesday.  Dozens of Central bankers on podiums worldwide.

European Open – December 10-yr Bund future up 27 ticks, DAX & FTSE 100 futures up 0.6% & 0.7% respectively, suggesting Friday’s bout of risk aversion is abating, although China risk & surge in energy prices will remain in focus.

In Europe investors will try to assess the impact of yesterday’s election in Germany, which signalled the end of the Merkel era & brought a shift in the balance of power, but no outright majority, which means the country is now facing a period of uncertainty while party leaders try to hammer out a coalition agreement. With the Left Party failing to clear the 5% hurdle though the threat of a participation of the party in government has been avoided, which may be enough to boost confidence today & EUR in the longer term.

Today – US Durable Goods, ECB’s Lagarde, Panetta, Fed’s Evans, Williams, Brainard, BoE’s Bailey, 2yr & 5yr US supply.

Biggest Mover @ (06:30 GMT) CADCHF (+0.58%) 4-day rally from September low at  71.80 last Tuesday, next resistance 0.7350 & 0.7375. Faster MAs aligned higher, MACD signal line & histogram rallying higher, RSI 71.00 OB but still rising.  H1 ATR 0.00095, Daily ATR 0.0064.