Slow week

It has been quite a quiet start to the week with many major markets still closed for Xmas holiday, but no one saw Santa coming this year, have you? 

On the contrary, the Bank of Japan led drama across the global financial markets reminded that the year will certainly not end on a positive footage, even though the last trading week of the year is expected to be marked by a ‘Santa rally’. 

A few encouraging news, however, could give a minor boost to equity markets. 

First, released last Friday, the US PCE data, the Federal Reserve’s (Fed) favourite gauge of inflation fell to 5.5% in November, the core PCE slipped below 5% to 4.7%. Still more than twice the 2% policy target, but on the right path after all the tightening drama of 2022.  

The latter gave a very small boost to US equities before Xmas, but it really didn’t help the S&P500 to reverse weekly losses. The index closed the week 0.20% lower than where it started. It is now below the major 38.2% Fibonacci retracement, meaning that we are now in the bearish consolidation zone and could expect a further and possibly a sustainable selloff below 3796, which is the 50% retracement level. 

Second, the Chinese reopening continues, with news that the country will scrap Covid quarantines and lower Covid to a lower-threat disease. The news help the Chinese stocks gain at the start of the week. Yet, there is reportedly around 250 million new cases since the reopening, which will likely throw a shadow on the reopening glow. 

But crude oil is up by around 15% since the December dip, and the Chinese reopening news could give a helping hand to oil bulls for an extension of the rally to the $88pb level.