Marketmind: “Old friends” get together

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A look at the day ahead from Sujatha Rao.

A screen shows Chinese President Xi Jinping attending a virtual meeting with US President Joe Biden via video link at a restaurant in Beijing, China November 16, 2021. REUTERS/Tingshu Wang

A Joe Biden-Xi Jinping summit – in which the Chinese leader called the US president his “old friend” – has put the markets in a good mood.

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However, this may depend on the US October retail sales data due later this season.

Given that personal consumption comprises about 70% of US GDP, it matters immensely whether Americans choose to spend or save. At the same time, US buyers are also a major driver of pressures engulfing global supply chains.

And while the forecast is for 1.1% growth, the risk is that inflation – the highest since 1990 – may have started to dent spending. Remember, last Friday’s data showed consumer sentiment at a decade low.

Third-quarter earnings from retailers like Walmart and Home Depot will add to the picture. So far, equity investors don’t seem upset, with Wall Street’s index of retail stocks rising more than 10% in the past month, allowing it to outperform the broader S&P 500.

Meanwhile, Britain has released strong jobs data showing unemployment has not risen since the end of furlough schemes. With the Bank of England increasing the interest rate but certain for December, sterling is heading higher.

A bullish Asian session after the Biden-Xi summit tipped European and US equities to open strongly. The Chinese yuan has hit a five-month high against the dollar.

And bond yields have eased, although at 1.6%, the 10-year Treasury yield is still up about 20 basis points ahead of last Wednesday’s inflation data.

Finally, look at shares in EV maker Tesla. It has lost more than $200 billion in market cap as its CEO, Elon Musk, continues to liquidate holdings.

Key developments that will provide further direction to the markets on Tuesday:

-Reserve Bank of Australia Governor Philip Lowe rejects market pricing for 2022 rate hike

-Vodafone raises free cash flow guidance after Achha H1; Imperial Brands’ revenue boosted by higher cigarette prices

-Bitcoin drops to $60,000, now down more than 11% since Nov 10

– US retail sales October / industrial production / inventory

-US TIC data – Foreign purchases of bonds September

-Fed Speaker: Bank of Atlanta President Rafael Bostic

-Emerging markets: Hungarian central bank will raise interest rates

-Europe earnings; Vodafone, Imperial Brands, Boys, Zooplus,

-US Income: Home Depot, Walmart, La-Z-Boy. Retail Sales,

Reporting by Sujatha Rao; Editing by Dhara Ranasinghe

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