European markets are set to open tepid ahead of several PMIs and EU retail sales data

The European market is predicted to open with a tepid tone on Monday, countering the trend in Asia-Pacific markets overnight, which was positive as investors would cautiously monitor the latest PMI data from Germany and UK, which are set to stay in the contraction zone. Traders, also, watch the ECB president Lagarde’s speech where she is expected to address further steps of the bank’s monetary policy. In the European markets, there were lower closes on Friday, influenced by a decline in the US market as investors digested the latest US jobs report showing that payrolls rose by 263,000 in November, a larger increase than expected.

Risk assets rose on China's easing COVID-zero policies

In the wake of strong payroll data released on Monday, most Asian markets traded sideways due to some uncertainty surrounding US monetary policy. The dollar, on the other hand, fell across the board as traders piled into riskier assets. On the bright side, several Chinese cities eased some of their COVID-related restrictions on Monday, creating hopes of the eventual reopening of the world's second-largest economy.

Several cities, including Shanghai, the financial hub of the world, and Urumqi in the far west, announced over the weekend that they would be easing Coronavirus curbs following recent, unprecedented protests against the government's uncompromising approach to "dynamic zero-COVID". It is expected that China will soon announce a nationwide easing of testing requirements. This will enable positive cases and their close contacts to isolate themselves in their own home under certain conditions.

US inflation and the Fed's meeting in the spotlight

The US consumer price inflation data is expected to be released on Dec. 13, the day before the Federal Reserve closes its two-day policy meeting. At the meeting, it is expected that the Federal Reserve will reduce the pace of rate hikes to 50 basis points. Fed funds futures traders are now pricing the Fed's benchmark rate to peak at 4.92% in May.

There is a growing sense in the market narrative that investors are repositioning themselves for the possibility of an outright recession as a result of the most aggressive tightening pace since the 1980s. Consequently, it led to the most inversion in the yield on US Treasury securities since 1981, a leading indicator of recession.

Oil started the week strongly

In the energy market, an increase in optimism about a Chinese reopening overshadowed the indications that the Organization of Petroleum Exporting Countries and Allies (OPEC+) will maintain its current levels of oil production. Crude oil futures surged 2.1% to $81.66 a barrel in early Asian trade, while Brent oil futures advanced 2.3% to $87.38 a barrel. Crude prices also logged strong gains last week.

In the wake of cutting crude production by 2 million barrels per day in October, the cartel said it would continue to assess the impact of sluggish demand and slowing economic growth on the oil market. Russia, a major crude oil producer, was also seen to be considering a reduction in its crude output after the G7 nations put a $ 60-a-barrel cap on the country's crude exports.

A big swing in the crude oil markets has been recorded in the past week due to the summit of the Organization of Petroleum Exporting Countries, which was its last meeting for the year. For the time being, the cartel is going to meet only in February 2023 to decide on future production levels. There will, however, be a large amount of additional data about the Chinese reopening and global economic trends available when that happens. Weaknesses in the dollar also appeared to be benefiting crude prices.