Morning Quotes: Markets have turned risk averse after a bumper month

A look at the day ahead in the European and global markets from Wayne Cole.

Asia started Monday in a hesitant manner and turned steadily gloomy, although there was no clear catalyst for the risk-off mood. Most regional stock markets fell modestly, as did Wall Street and European futures.

Treasury yields rose a few basis points, but that did not help the dollar, which lost ground against a broadly stronger yen. Oil prices fell further, while gold reached a six-month high above $2,017 an ounce – although there are no clear fundamentals behind the move.

China’s central bank announced it will encourage financial institutions to support private companies, including greater tolerance for non-performing loans. The market didn’t seem impressed and China’s blue chip stocks (.CSI300) fell about 1.2%.

There has been a backlog of reports about official steps to support the real estate sector, including whitelisting companies for loans, yet most remain talk rather than action.

China’s official November PMI is due out on Thursday and analysts are generally looking for a slight rise and perhaps a reading above 50.0.

Approaching the end of the month may also generate some caution given the huge gains being made by investors. Japan’s Nikkei (.N225) is up more than 8% so far in November, as is the S&P 500 – this would be its best performance since mid-2022.

About 55% of the stocks that make up the S&P 500 are trading above their 200-day moving averages, the highest share in nearly two months, according to LPL Financial.

The oil market faces a tense few days ahead of the OPEC+ meeting on November 30, which has been postponed from Sunday as producers struggle to reach a unanimous position.

OPEC+ sources said African oil producers are seeking to impose a cap for 2024, while media reports suggest Saudi Arabia may extend an additional voluntary production cut of 1 million barrels per day that is set to expire at the end of December.

Brent crude fell another 0.8% today, and 8.6% for the month so far, which if it continues will be a boon to the battle against inflation and consumer spending capacity.

The Fed’s preferred measure of inflation — personal consumption expenditures — is due Thursday and is expected to fall again to 3.1%, partly due to lower gas prices. Core inflation is expected to fall to 3.5%, its lowest level since mid-2021.

EU inflation data is also due on Thursday, along with measures for Germany and Spain. The core inflation rate in the European Union is expected to reach 3.9%, the lowest level since the middle of last year.

If this materializes, it will support market bets against raising interest rates and easing policy in 2024. Futures involve cuts of about 80 basis points for both the Fed and the European Central Bank, starting in June.

Fed Chairman Jerome Powell will have a chance to hit back at the dovish in a fireside chat on Friday, and there are at least seven other Fed speakers on the agenda this week.

European Central Bank President Christine Lagarde also appeared in a hurry to mitigate the crisis, and she will have another opportunity to deliver the message to the EU Parliament later on Monday.

Key developments that may impact markets on Monday:

– European Central Bank President Christine Lagarde at an ECON hearing before the European Parliament’s Economic and Monetary Affairs Committee

– UK Central Investment Bank distribution trades for November

– US new home sales and building permits for October

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