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The US indices fell on Monday due to pressure from Federal Reserve officials, who reiterated the need for higher rates for a more extended period. Civil unrest in China, amid intensifying Covid, also added to the negative sentiment. As the stock market closed Monday, the Dow Jones Index (US30) decreased by 1.45%, and the S&P 500 Index (US500) lost 1.54%. The Nasdaq Technology Index (US100) was down by 1.58%.

Federal Reserve Bank of St. Louis President James Bullard said markets are "underestimating the risk that the FOMC will have to be aggressive for a longer period of time. The remarks followed comments by John Williams, president of the Federal Reserve Bank of New York, who reiterated that inflation remains too high. The remarks further dampened investor sentiment, leading to a rise in the dollar index and a decline in stock indices.

Goldman Sachs analysts dampened investor enthusiasm for 2023. In their report, the analysts warned that next year's stock market dynamics would be characterized by "no growth in earnings per share (EPS), which will correspond to zero growth in the S&P 500 (US500). GS estimates that earnings per share for the S&P 500 will remain at $224 in&2023, and the index will end next year at $4,000 (up 1%). According to the investment bank, the "hard landing" recession scenario remains a "clear risk."

Stock markets in Europe were mostly down yesterday. Germany's DAX (DE30) decreased by 1.09%, France's CAC 40 (FR40) lost 0.70%, Spain's IBEX 35 (ES35) was down by 1.11%, and the British FTSE 100 (UK100) closed down by 0.17% on Monday.

European Central Bank President Christine Lagarde showed her hawkish side on Monday, pointing out that inflation has not yet reached its peak, thus adding more uncertainty to what further action the ECB will take. Some ECB officials favor a 0.75% rate hike, while others insist on a 0.5% step so as not to affect the region's economic performance so much.

Public protests against Covid blockades in China, the largest oil importer, have added to the already tense oil market. Protests in China put upward pressure on oil quotes, along with rumors that OPEC countries will consider new production cuts this week. On the other hand, the EU and allies are considering imposing a ceiling on oil prices from Russia to limit Russian revenues to finance the war with Ukraine. This situation puts downward pressure on oil prices. According to the Australian-New Zealand bank ANZ, the surge in new infections in China has reduced expected oil demand by at least one million barrels a day from the previous average.

Asian markets traded lower yesterday. Japan's Nikkei 225 (JP225) was down by 0.42% for the day, Hong Kong's Hang Seng (HK50) lost 1.57%, and Australia's S&P/ASX 200 (AU200) decreased by 0.42% on Monday.

Analysts believe the protests in China could also prompt the government to eventually roll back its zero COVID policy, a largely positive scenario for the Chinese and broader Asian markets. But given that the country is struggling with a record-high daily increase in infections, the chances of being able to stop COVID-19 in the near future seem slim.

In Japan, the unemployment rate has remained at 2.6%. While the numbers show that good working conditions will put upward pressure on wages, they still show that labor market tensions remain well below pre-pandemic levels. These figures have not led to the wage growth sought by Bank of Japan Governor Haruhiko Kuroda, who has repeatedly said that Japan needs wages to grow at around 3% in order to reach the central bank's goal of 2% sustainable inflation. For the Bank of Japan to move away from its current adaptive policy, further labor market strengthening may be needed to encourage firms to raise wages faster.

Prime Minister Fumio Kishida on Monday instructed his defense and finance ministers to secure funds to increase Japan's defense budget to 2% of GDP. The Defense Ministry has said that 48 trillion yen will be needed over the next five years to improve the country's defense capabilities amid China's growing military might and North Korea's missile development.

• S&P 500 (F) (US500) 3,963.94 −62.18 (−1.54%)
• Dow Jones (US30) 33,849.46 −497.57 (−1.45%)
• DAX (DE40) 14,383.36 −158.02 (−1.09%)
• FTSE 100 (UK100) 7,474.02 −12.65 (−0.17%)
• USD Index 106.71 +0.76 (+0.71%)

Important events for today:

• Japan Unemployment Rate (m/m) at 01:30 (GMT+3);
• Japan Retail Sales (m/m) at 01:50 (GMT+3);
• Switzerland GDP (m/m) at 10:00 (GMT+3);
• Spanish Consumer Price Index (m/m) at 10:00 (GMT+3);
• German Consumer Price Index (m/m) at 15:00 (GMT+3);
• Canada GDP (q/q) at 15:30 (GMT+3);
• UK BOE Gov Bailey Speaks at 17:00 (GMT+3);
• US CB Consumer Confidence (m/m) at 17:00 (GMT+3).

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