Lasting Recovery in Small Caps Still Elusive as Debt Costs Bite

Last month, the 3rd Belt and Road Forum for International Cooperation officially convened in Beijing, marking the 10th anniversary of the Belt and Road Initiative. During the past decade, the BRI has transformed into the world's largest platform for international cooperation, providing a new vision for implementing global economic governance, promoting common development, and contributing to peace, stability and prosperity worldwide.

The main drivers of world economic growth over the past decades, such as scientific and technological progress, population growth and economic globalization, are currently in a "gear shifting" period, with their contribution to the world economy weakening significantly.

Meanwhile, the problem of imbalanced global development remains serious. There are no more than 30 industrialized countries — whose population totals no more than 1 billion — but they account for a large part of the global economy.

Focusing on these two global challenges, the BRI, referring to the Silk Road Economic Belt and the 21st Century Maritime Silk Road, is committed to giving full play to the development potential of all relevant countries.

Over the past decade, China has greatly promoted all-round connectivity among countries involved in the BRI. According to a study by the World Bank, the average transport time for trade among these countries has been reduced by 4 percent and the cost of trade by 3.5 percent.

With an aim to cultivate new sources of economic growth, China has deepened its practical cooperation with other countries in emerging fields such as green finance, big data and artificial intelligence.

Since the beginning of this year, despite a sluggish global economic recovery, the BRI has continued to show strong resilience in development.

The BRI is providing new opportunities and impetus for the construction of an innovative, dynamic, interconnected and inclusive global economy, and has promoted shared prosperity worldwide based on leveraging complementary strengths and mutual benefit.

As regional instability and terrorism spread, President Xi Jinping has said that the future of all countries is closely linked and that we should cooperate to build a global community for a shared future.

The BRI has always regarded the achievement of this goal as a top priority and has actively provided practical platforms for it.

Over the past decade, China has invested $57.13 billion in the economic and trade cooperation zones built in the countries involved in the BRI, creating 421,000 local jobs in total. The World Bank had previously predicted that the BRI would increase global income by 0.7 to 2.9 percent by 2030.

Besides, with more than 200,000 students from these countries arriving to study in China every year, the BRI has trained a large number of excellent engineers and technicians for the world and promoted deeper cultural exchanges.

In 2023, China has specifically focused on constructing more small-scale yet impactful projects overseas, which has greatly enhanced people's sense of gain in relevant countries.

The BRI has strengthened exchanges and trust among various civilizations, and safeguarded world peace with its fruitful results in shared development. All parties are now working hand in hand to build a global community for a shared future.

The world is seeing a rise in unilateralism and protectionism, and some countries are seeking "decoupling" under the pretext of "de-risking". This has severely harmed global trade and investment.

Moreover, with the global economic balance of power shifting profoundly, the system and rules of global economic governance are undergoing major adjustments.

Human society urgently needs a more reasonable and balanced system of global governance with high resilience and efficiency.

To achieve this, China has signed over 230 BRI cooperation agreements with more than 150 countries and 30 international organizations in the past decade, and set up over 20 multilateral cooperation platforms in specialized fields such as investment, science and technology, and people's livelihoods.

China is also actively seeking cooperation with other countries to promote green development, food security and data security worldwide.

In 2023, with the Regional Comprehensive Economic Partnership entering into full force for its 15 signatories, China signed relevant memorandums of cooperation with Brazil and four other countries.

Adhering to the principle of "extensive consultation, joint contribution and shared benefits", the BRI has built a new international cooperation mechanism featuring multilateralism and win-win cooperation, making global governance fairer and more reasonable.

In line with current requirements, the BRI has effectively responded to the shared expectations of human society and provided new impetus and platforms for many developing countries to achieve independent and autonomous development.

In the future, China will continue to deepen its BRI partnerships with relevant countries and strengthen practical cooperation in multiple fields, further contributing to global modernization.

Short-term bond yields rose Friday amid Fed comments disagreeing with markets pricing rate cuts. Equities were steady, while oil rose and the US dollar fell, AUD up to 0.6510. Today's global calendar is low key.

Australia's calendar was effectively empty. AUD/USD traded a very tight 0.6458-75 range. Regional equities were quite mixed, Hong Kong under pressure again but Japan closing up and the ASX 200 in the middle, -0.1%.

The US dollar fell against all major currencies on Friday despite increased yield support. EUR/USD rose from 1.0850 to 1.0916 – a three-month high. GBP/USD rose half a cent to 1.2460. USD/JPY fell from 150.75 to 149.65. AUD/USD rose 0.7% to 0.6510. NZD/USD rose only 20 pips to 0.5990. AUD/NZD rose about 40 pips to 1.0875.

US housing starts in October rose 1.9% (est. -0.6%), although the prior month was revised lower, from +7.0% to +3.1%. Building permits rose 1.1% (est. -1.4%, prior revised from -4.4% to -4.5%).

Boston Fed president Collins said policymakers should not take further tightening off the table despite welcome progress on inflation: "In order to get back down to 2% in a reasonable amount of time we need to be patient and resolute, and I wouldn't take additional firming off the table. We need to really stay the course." San Francisco Fed president Daly said: "I wouldn't want to declare victory on either our inflation battle or get overly optimistic about what kind of disruptions in the economy there will be. We have to continue our hard work and make sure that we get there as softly as possible, as gently as possible".

Fed governor Barr said: "We're likely at or near the peak of where we need to be in terms of having a sufficiently restrictive stance of monetary policy that will sustainably bring inflation down to 2%. I think the recent economic readings reinforce my view that that is probably correct".

ECB member Holzmann (Austria) said it won't cut interest rates in the second quarter, and that market expectations for a reduction are premature: "That would be somewhat early. We are still trying to communicate, please, don't think that we are already at the end of the path." ECB's Villeroy (France) said its decision to halt interest rate increases at its October meeting is fully justified by a slowdown in inflation: "It's the proof of the effectiveness of monetary policy, which fully justifies the halting of the sequence of rate hikes decided by the Governing Council".

BoE's Ramsden said market pricing was too low: "Markets, as always, are entitled to make their assessment of the future…but may be underpinned by a different view about prospects…The encouraging progress on headline inflation masks diverging and significant trends in the components…evidence of greater persistence to inflation together with continued upside risks".

US 2yr treasury yields rose from 4.84% to a 4.89% close, while the 10yr yield closed unchanged at 4.44% (via 4.38%-4.47%). Markets currently price the Fed funds rate, currently 5.375% (mid), to be unchanged at the next two meetings, with easing expected from May 2024.

Australian 3yr government bond yields (futures) roundtripped from 4.10% to 4.05% and back, while the 10yr yield roundtripped from 4.48% to 4.42% and back. Markets currently price no hike at the next meeting on 5 December, but a 35% chance of one by May 2024. New Zealand rates markets price the OCR, currently at 5.50%, to be unchanged on 29 November and in February, with easing expected from May 2024.

Credit spreads saw a positive close on Friday with Main another 2bp better at 70 and CDX in a bp to 64 as both indices close at their (roll adjusted) ytd tights, while US IG cash was also 2-3bp better to now be ~15bp tighter month to date with US senior fins ~20bp better over the same period. Primary slowed for Friday as expected with no supply from the US while Europe saw 3 issuers come to market

Crude markets ended the week with a solid bounce as traders focused on the upcoming OPEC+ meeting November 26 and the possibility that the group would weigh further production cuts. The December WTI contract rose $4.1 or 3% to $75.89 while the January Brent contract rose $4.12 or 3.19% to $80.61. Goldman argued that they "believe that OPEC will ensure that Brent prices end up in a $80 to $100 range in 2024 by ensuring a moderate deficit and leveraging its pricing power". And over the weekend the FT reported that "Saudi Arabia is preparing to prolong oil production cuts into next year and OPEC+ weighs further reductions in response to falling prices and rising anger over the Israel-Hamas war" with one informed person describing the cartel as "galvanised" by the conflict. Still, WTI fell 1.7% on the week and Brent fell 1% as global inventory rose and concerns increased about production from the likes of the US, Iraq, Venezuela and Brazil. The FT also reported that Petrobras was aiming to transform Brazil into "a global energy power". Brazil's crude output grew 4% in 2022 to 3mbpd and the Brazilian government has an aggressive plan to hit 5.4mbpd by the end of the decade. The massive pre-salt region has costs of roughly $35/barrel with CO2 emitted per barrel roughly 18kg/b according to Rystad Energy. Finally, Bloomberg reported that Western oil sanctions are not working with gross revenues from the three main tax sources of petrodollars nearly doubling between April and October, coming in at $13bn last month according to Bloomberg calculations.

Metals bounced Friday with risk-on sentiment and a sharp fall in the US$ helping the rebound. Copper jumped 1% to $8,309 while nickel jumped 0.88% to $17,170. Aluminium was unchanged though at $2,216 and zinc down 0.7% at $2,559. Bloomberg reported that Chinese copper smelters had agreed the first drop in fees in 3yrs by 9% to $80 for treatment and $8 for refining. The price drop indicates a tightening in the market with China bringing on a massive wave of additional processing capacity. Panama's supreme court will deliberate on First Quantum's contract on November 24, considering two constitutional challenges with a backdrop of protests and some groups calling for a national strike.

Iron ore markets marked time as traders focused on the reported massive Chinese stimulus of low-cost financing for urban village renovation and affordable housing programs. However, prices gave back some gains into the end of the week as weak housing data and warnings from the NDRC capped sentiment. The December SGX contract is down $1.65 from the same time Friday morning at $129.15 while the 62% Mysteel index fell $2.25 to $130.25. Goldman noted that "the iron ore market should remain relatively tight, and prices well supported" given low inventory and restocking over year end. Port inventories fell 1.1% last week.

Australia's data calendar is quiet this week though we will see RBA November minutes on Tuesday and Governor Bullock delivers a keynote speech on Wednesday evening.

The global data calendar is low-key today. China is expected to maintain its 1-year loan prime rate at 3.45% and its 5-year rate at 4.20% (12:15pm Syd).

1. OPEC+ may consider an additional 1 million bpd output cut.

2. Fed officials are open to further rate hikes.

3. Russia lifts ban on gasoline exports.

4. SEC delays decisions on two spot Bitcoin ETF applications.

5. The Israeli-Palestinian conflict has killed over 13,400 people on both sides.

Oil prices fell to a four-month low of $77 a barrel last week and growing anger among member states over Gaza may prompt Saudi Arabia's decision to cut oil supplies further, people familiar with the Saudi government's thinking said. Saudi Arabia is highly likely to extend its 1 million bpd production cuts which are set to expire at the end of this year until at least next spring. OPEC+ is preparing to meet in Vienna on Nov. 26 and is discussing further production cuts, which could heighten tensions with the United States.

Recently, Boston Fed President Susan Collins said that he would not rule out the possibility of further rate hikes; Chicago Fed President Austan Goolsbee argued that inflation has improved but is still too high and that every effort will be made to beat it; San Francisco Fed President Mary C. Daly reiterated that the Fed is unsure if inflation will reach its 2% target and patience should be maintained in the face of economic uncertainty; and Fed Vice President Michael S. Barr noted the Fed's concern about hedge funds' highly leveraged basis trades.

Russia's Ministry of Energy said last Friday that it had lifted restrictions on gasoline exports due to oversupply, while wholesale prices fell. Last month, Russia lifted most restrictions on diesel exports. Its energy ministry said it could reimpose the export ban if necessary, adding that gasoline stocks had risen to about 2 million tons. Russia is the world's largest seaborne exporter of diesel, and it introduced a ban on fuel exports on Sept. 21 to address high prices and shortages at home. The lifting of the ban could complicate Russia's efforts to cut oil and petroleum product exports by 300,000 barrels per day by the end of the year. However, Russia has confirmed that it will continue its additional voluntary production cuts until the end of December, as previously announced by OPEC+.

The U.S. Securities and Exchange Commission (SEC) has again pushed back its decision on whether to approve the listing of the first U.S. ETF that invests directly in Bitcoin, with Franklin Templeton and Globe X among the issuers put on hold on Nov. 17. Before that, applications for spot Bitcoin ETFs from a number of issuers also had been put on hold.

More than 12,000 people, including about 5,000 children, died in the Gaza Strip since the outbreak of the current round of the Israeli-Palestinian conflict, the Palestinian Islamic Resistance Movement (Hamas) media office said in a statement last Friday night, local time. The number of people injured in the Gaza Strip has exceeded 30,000, more than 75% of whom are women and children. There were 205 Palestinians killed and about 2,780 injured in the West Bank, according to another statement issued by the Palestinian Ministry of Health on Nov. 17. Data from the Israeli government showed that about 1,200 people died on the Israeli side. According to current statistics, the current conflict has resulted in more than 13,400 deaths on both sides.

UTC+8 15:00 Germany PPI YoY & MoM (Oct)

UTC+8 22:00Bank of England Financial Stability Report

UTC+8 23:00 U.S. Conference Board Leading Indicators MoM (Oct)

UTC+8 01:00 Next Day: 2024 FOMC Voter, Richmond Fed President Barkin Interviewed

UTC+8 02:45 Next Day: Bank of England Governor Andrew Bailey Speaks

UTC+8 03:30 Next Day: NYMEX WTI Crude December Futures Roll Over

After a steady decline, Tesla stock price (NASDAQ: TSLA) found support near the $195.00 zone. A base was formed, and the price started a fresh increase above $220.

Looking at the 4-hour chart, the price started a decent increase above the $225 level. There was a move above the 50% Fib retracement level of the last main decline from the $278 swing high to the $194 low.

The bulls were able to pump the price above the $235 level. However, they are now facing a major hurdle near the $245 and $250 levels. There is also a major bearish trend line forming with resistance near $245 on the same chart.

The trend line is near the 61.8% Fib retracement level of the last main decline from the $278 swing high to the $194 low. A clear move above the trend line and then a break above the $250 resistance might spark bullish moves.

The next major resistance is near the $275 level. A clear move above $275 could open the doors for a move toward the $288 level. In the stated case, the bulls could even attempt a move toward $300.

Conversely, Tesla's stock price might face rejection near $245 or $250. If there is a fresh decline, the price might find support near $225.

The next major support on the downside is near the $215 level. Any more losses could resend the price toward $205 support. The main breakdown support sits at $195.

German Buba Monthly Report.

Japanese shares climbed to highs not seen since 1990 on Monday as strong earnings and offshore demand fuelled a three-week winning streak, while other Asian markets were more mixed with eyes fixed on the U.S. rate outlook.

Japan's Nikkei added another 0.6 per cent to break its September peak and bring its gains for the month so far to a whopping 9.3 per cent.

Financial shares led the gains on Monday as investors prepare for an eventual end to negative rates, while auto makers have been benefiting from a weak yen and high exports.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1 per cent, having climbed 2.8 per cent last week to a two-month high.

The Black Friday sales will test the pulse of the consumer-driven U.S. economy this week, while the Thanksgiving holiday will make for thin markets.

There were media reports Israel, the United States and Hamas had reached a tentative agreement to free dozens of hostages in Gaza in exchange for a five-day pause in fighting, but no confirmation as yet.

S&P 500 futures eased 0.1 per cent and Nasdaq futures lost 0.2 per cent. The S&P is now up nearly 18 per cent for the year and less than 2 per cent away from its July peak.

Yet analysts at Goldman Sachs note the "Magnificent 7" mega cap stocks have returned 73 per cent for the year so far, compared with just 6 per cent for the remaining 493 firms.

"We expect the mega-cap tech stocks will continue to outperform given their superior expected sales growth, margins, re-investment ratios, and balance sheet strength," they wrote in a note. "But the risk/reward profile is not especially compelling given elevated expectations."

Tech major Nvidia reports quarterly results on Tuesday, and all eyes will be on the state of demand for its AI related products.

The flow of U.S. economic data turns to a trickle this week, but minutes of the Federal Reserve's last meeting will offer some colour on policy makers' thinking as they held rates steady for a second time.

Markets have all but priced out the risk of a further hike in December or next year, and imply a 30 per cent chance of an easing starting in March. Futures also imply around 100 basis points of cuts for 2024, up from 77 basis points before the benign October inflation report shook markets.

That outlook helped bonds rally, with 10-year Treasury yields down at 4.45 per cent having dropped 19 basis points last week and away from October's 5.02 per cent high.

It also dragged the U.S. dollar down almost 2 per cent on a basket of currencies and helped the euro up to $1.0900 having jumped 2.1 per cent last week.

The dollar even lost ground to the low-yielding yen, last sitting at 149.88 and short of its recent top of 151.92. Futures data showed speculative accounts had expanded their short yen positioning to the highest level since April 2022, suggesting a risk those positions could get squeezed out.

Closely watched surveys of European manufacturing are due this week and any hint of weakness will encourage more wagers n early rate cuts from the European Central Bank.

"These surveys will be very important around the Euro area services sector given the sharp deterioration seen recently," said analysts at NAB. "If another soft print eventuates, expect pricing for ECB cuts to extend beyond the current 100bps of cuts being priced for 2024."

Markets imply around a 70 per cent chance of an easing as soon as April, even though many ECB officials are still talking of the need to keep policy tight for longer.

Sweden's central bank meets this week and may hike again, given high inflation and the weakness of its currency.

In commodity markets, oil rebounded from four-month lows on Friday amid speculation OPEC+ will extend, or increase, its production cuts into next year.

Brent nudged up 2 cents to $80.63 a barrel, while U.S. crude firmed 5 cents to $75.94 per barrel.

Gold was slightly lower at $1,977 an ounce, having climbed 2.2 per cent last week.

While the oil market managed to rally by more than 4% on Friday, taking ICE Brent back above US$80/bbl, the market still registered its fourth consecutive week of declines following signs that the market is not as tight as initially expected. However, the recent weakness has increased noise over what OPEC+ will decide to do at its meeting on 26 November. We continue to expect that Saudi Arabia and Russia will roll over their additional voluntary cuts into early 2024. However, what is less clear is whether the broader OPEC+ group will make further cuts. There were reports on Friday that the group could consider a cut of up to 1MMbbls/d. A deeper group cut combined with the Saudis and Russians rolling over their voluntary cut would be more than enough to ensure that the surplus currently expected in 1Q24 disappears.

The latest positioning data shows that speculators continue to reduce their net long in oil. Speculators sold 5,053 lots in ICE Brent over the last reporting week to leave them with a net long of 170,985 lots as of last Tuesday. It was a similar move in NYMEX WTI with speculators selling 11,257 lots, leaving them with a net long of 124,296 lots, which is the smallest position they have held since July. Speculators will likely be a little concerned about leaving too much risk on the table ahead of next weekend's OPEC+ meeting. Therefore, there is the potential for some further short-covering this week.

The latest data from Baker Hughes shows that the US oil rig count increased by 6 over the last week to 500, which is the largest increase since February. However, the rig count is still down close to 20% YTD. The slowdown in drilling activity this year suggests that US supply growth in 2024 will be much more modest than the roughly 1MMbbls/d supply growth estimated for this year.

Russia announced on Friday that it lifted its export ban on gasoline with the domestic market a lot more comfortable now. The export ban had been in place since 21 September, and it originally included diesel as well. Russia is a fairly small exporter of diesel, exporting less than 5m tonnes last year.

As for the calendar this week, WTI December futures expire today, whilst we will also get further trade data out of China, which includes flows by country. Trading volumes will also likely be thinner towards the end of the week with Thanksgiving in the US on Thursday. However, this week's big event falls over the weekend with OPEC+ set to meet in Vienna to discuss output policy. There will likely be plenty of noise around what the group may do in the lead-up to the meetings.

Recent numbers from the National Bureau of Statistics (NBS) show that China's refined copper output rose 13.3% YoY to 1.13mt in October. However, copper production fell marginally -0.4% MoM last month, after posting gains for two straight months. Among other metals, zinc output rose 7.7% YoY to 626kt, while lead production increased 8% YoY to 674kt last month.

Chilean copper miner, Antofagasta and Chinese smelter, Jinchuan have agreed on an annual treatment charge of US$80/t for next year, which is 9% lower than 2023 levels. It is also the first decline in three years. An easing in treatment charges suggests that there is an expectation that the copper concentrate market will tighten in 2024. Given the expansion in smelting capacity in China, this tightening shouldn't come as too much of a surprise.

Data from the Shanghai Futures Exchange (ShFE) shows that copper stocks decreased by another 3,820 tonnes over the last week, a second consecutive week of declines. SHFE copper stocks now stand at 31,026 tonnes as of 17 November, the lowest since the end of September 2022. Among other metals, zinc stocks increased by 7,626 tonnes to 43,204 tonnes, while lead stocks also reported inflows of 10,920 tonnes to 79,816 tonnes as of Friday.

Data from the National Federation of Cooperative Sugar Factories Ltd. shows that sugar production in India fell by 37% year-on-year to 1.28mt between 1 October to 15 November. The group said that sugar cane crushing in India decreased by 34% YoY to 16.2mt over the period, as unfavourable weather conditions decreased yields. Meanwhile, around 263 sugar mills were crushing cane as of 15 November, down from 317 mills seen last year.

Recent numbers from Ukraine's Agriculture Ministry show that the domestic grain harvest is up 38% year-on-year to 53.8mt as of 17 November. The increase was driven largely by corn, with the harvest rising 93% YoY to 23.7mt. Similarly, the soybean harvest stood at 4.8mt (+32% YoY), while the wheat harvest stood at 22.4mt (+16% YoY).

According to the latest monthly report from Western Australia Grain Association, wheat production estimates fell to 7.9mt for the 2023/24 season, down from the previous month's estimate of 8.1mt. Drier weather conditions over September and October, and lower yields at the start of the harvest are primarily responsible for lower production estimates.