Stocks erased losses from shock NFP beat

Wall Street ended Friday basically flat after November non-farm payrolls data came in ahead of expectations. US jobs rose by 263,000 in November, ahead of the 200k expected. Stocks initially dropped on fears that the data could prompt central bankers to reassess plans for a policy pivot. However, they recovered the kneejerk losses as investors bought the dip on the belief that the stronger data was not enough to stop the Fed opting for a smaller 50 basis rate hike at its December meeting. It marks the second positive weekly close for US markets, which comes off the back of a
blockbuster November that saw a massive short covering rally off 2022 lows. Bullish traders perhaps face a more perilous fate in the week or so ahead. Behind them lies a large percentage gain off the lows which is open to some retracement, while ahead there is the prospect of a Santa rally.

Key Factors for Today

- NFP tops expectations
- Wall Street points slightly higher after volatile Friday session
- Oil rises after OPEC+ opted to lower production again at a meeting on Sunday
- European stocks T-up for soft start on Monday
- Asian markets start the week strongly after China eases covid restrictions
- November ISM services PMI data out

Oil prices pare gains, up 1%

The price of oil jumped in reaction to the decision by OPEC and its allies to cut production. Futures were up 2% but have since moderated the gains to just 1%. Naturally, lower supply from the cartel is a positive for prices. The economic weakness in China, which could spread further afield through supply chain disruptions has emboldened OPEC to press ahead with reducing oil supply in anticipation of lower demand in the first
half of 2023.

While November was a good month for many risky assets from stocks to high beta currencies, it was not so good for oil. WTI crude slumped from ~$90 to ~$75 across the month, although has rebounded off the lows. Either oil is due some catchup or the energy commodity is offering a warning sign for the sustainability of the rally in equities.

Europe opens first full week in December flat

European shares shrugged off big overnight gains in Asia, tracking the more muted opening moves in US futures. Europe had finished lower on Friday in sync with the initial drop on Wall Street to the better than expected payrolls data.

Hong Kong shares surge 4%

The week started with a bang across Asia, with Hong Kong enjoying some of the best of the gains, rising as much as 4%. The gains came as Chinese authorities in some big cities relaxed some covid testing rules. Footage of containment camps and widespread protests have left the world aghast- but it appears some investors are seizing the opportunity to buy equities at knockdown prices when ‘blood is on the streets’. Travel and leisure stocks, including casino names like MGM China and Wynn Macau were among the biggest gainers.

ISM PMI data out

Data-wise it will be PMIs that should garner the most attention. A slowdown in inflation and the resulting prospect of smaller rate hikes has boosted equites and driven down the US dollar over the past month. The dollar index (DXY) sits at a 5-month low, while GBPUSD is back at highs last seen in August. However, if inflation is weakening because of a material slowdown in the global economy, then that is much less of a reason to be bullish.
PMI survey data, known for being some of the most forward-looking, will offer a glimpse into what purchasing managers are seeing for the all-important holiday season. Economists polled by the Dow Jones are expecting a reading of 53.7.