Markets Bounce back after the U.S buckles to a Hawkish Powell

01/12/2021 Most Asian markets are higher this morning along with U.S. equity futures as traders weighed positive regional economic data and the Federal Reserve’s signal of stepped up efforts to curb elevated inflation.
MSCI Inc.’s Asia-Pacific share index jumped the most since mid-October. South Korea led gains on strong export growth, while purchasing managers’ gauges pointed to resilient Asian manufacturing. S&P 500, Nasdaq 100 and European futures are all higher, indicating stabilization after U.S. stocks slumped nearly 2%.
Chair Jerome Powell said the next Fed meeting should discuss whether to wrap up bond purchases a few months sooner and retired the word “transitory” to describe high inflation. That could open the door to earlier interest-rate hikes. Money markets show about 60 basis points of increases priced in by end-2022.

Locally our market bucked the downward trend with the JSE All Share closing up 0.67% at 70475. Mining names led the gainers with GFI and ANG up 8.87 and 7.02 percent respectively. The ZAR rallied 2.1 % yesterday and has gained a further 0.63% this morning to trade at R 15.81/$ and R 21.07/GBP. We should be in for a positive start with Tencent up 2.09%, US and European Futures higher and IG Top 40 up 173 points.

State inquiry into government corruption resumes as the Deputy Chief Justice Raymond Zondo delivers a ruling on former spy boss, Arthur Fraser’s application to cross-examine certain witnesses.

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ECONOMIC DATA:

• 11am: Nov. Absa Manufacturing PMI, est. 53.2, prior 53.6
• Nov. Naamsa Vehicle Sales YoY, est. 6.2%, prior 6.1%

Some key events to watch this week:

• Euro zone manufacturing PMI, Wednesday
• U.S. construction spending, ISM Manufacturing, Fed’s Beige Book on Wednesday
• OPEC, allies may re-evaluate plans for reviving oil supplies, Thursday
• U.S. initial jobless claims, Thursday
• U.S. jobs report, factory orders, durable goods on Friday

European stocks are expected to open higher later after struggling to regain ground amid fears around the new omicron Covid variant. The positive start to the first trading day of December comes after global markets were rattled at the start of the week and into Tuesday by concerns surrounding the new omicron Covid-19 variant amid fears that it could evade vaccines. All futures are up across the region and data releases include final purchasing manager’s index (PMI) data for the euro zone in November, Ireland’s unemployment rate for November and German retail sales for October.
Overnight in the US , the Dow lost more than 650 points. The S&P 500 shed 1.9% and the tech-focused Nasdaq Composite dipped 1.6%. The small-cap benchmark Russell 2000 tumbled 1.9% as cyclical names dragged on the markets. U.S. stocks hit their session lows when Federal Reserve Chair Jerome Powell said the central bank will discuss speeding up the bond-buying taper at its December meeting. Despite the potential disruption of omicron, the Fed chief said he thinks reducing the pace of monthly bond buys can move quicker than the $15 billion-a-month schedule announced earlier this month. Stocks wrapped up a volatile month of trading on Tuesday. The Dow lost 3.7% for its second month of losses in three. The S&P 500 fell 0.8%, while the Nasdaq Composite gained 0.25% in November. The Russell 2000 shed 4.3% in November, its worst month since March 2020. Still, the major averages are up solidly for the year. The Dow is up 12.7% and the S&P 500 is up 21.6% in 2021. The Nasdaq Composite is up an impressive 20.6% this year.
Gold has rallied off nearly a one-month low after Fed governor Jerome Powell said the Fed will discuss whether to end their bond purchases a few months earlier than previously anticipated in December and the word “transitory” is no longer the most accurate term for describing the nature of current inflation. Gold + 0.9% $ 1790, Platinum + 2.03% $ 958 and Palladium + 2.54% $ 1785.
Oil rebounded from a sharp decline on speculation that recent deep losses were excessive and OPEC+ may decide to pause hikes in production, with the abrupt reversal fanning already-elevated volatility. Oil has sunk into a bear market, losing more than 20% since closing at a seven-year high in October as major consumers led by the U.S. released crude from strategic reserves, and the omicron variant cut appetite for risk.
Brent + 3.42% $ 71.64 , WTI + 3.29% $ 68.37.