U.S. and EU Mulling Sanctions against China’s Metal Smelters for Air Pollution

Treasury yields climbed and the dollar halted a 4-day rout, and DXY Dollar Index regained 17 pps to 105.3, as the economic outlook fueled speculation the Federal Reserve will keep policy tight, no matter what, to tame derogatory inflation. Although Chinese authorities eased some Covid-19 measures propping up investors' spirit, the positive sentiment was spoiled by, surprisingly, too strong economic data in the U.S., which raised concerns that the Federal Reserve might opt for a higher terminal rate than previously anticipated.

The U.S. and European Union are weighing new tariffs on Chinese steel and aluminum as part of a bid to fight carbon emissions. The move would mark a novel approach, as the US and EU would seek to use tariffs – usually employed in trade disputes – to further their climate agenda. The new framework is mainly aimed at China, the world’s biggest carbon emitter and producer of steel and aluminum, as well as other large polluting nations, sources say. But the plan would likely deepen divisions between Beijing and Washington.

Major stock indexes in Europe are trading with moderate losses amid the latest economic data releases. According to the country's Federal Statistical Office Destatis, seasonally adjusted new factory orders in Germany grew by 0.8% in October on a monthly basis. However, compared to the same period a year prior, new orders slid 3.2%. In the United Kingdom, global construction PMI is scheduled for release later during the day.

Interest rate talks continued, as European Central Bank chief economist Philip Lane stressed that "more [rate] increases are necessary" in order for the central bank to curb inflation. The ECB will reveal its updated decision on monetary policy next week.

Meanwhile, at the time of writing, the German DAX is edging higher by just 0.06%, as Vonovia (VNA.DE) advanced by 0.25%. The French CAC 40 decreased also a microscopic 0.02%, with TotalEnergies (TTE.PA) tumbling 0.68% concurrently. The British FTSE 100 fell 0.13%, as Mondi (MNDI.L) nosedived 4.66%.

Asian stocks mostly fell after U.S. shares dropped yesterday. Equity indexes for Japan and Hong Kong slid following a third day of declines in the S&P 500. In mainland China, the Shanghai Composite closed the day flat, with the Shenzhen Composite rising 0.62% simultaneously. Also, Hong Kong's Hang Seng tumbled 0.97%, while South Korea's Kospi Composite slipped 1% at the same time.

At the close, Japan's Nikkei 225, however, gained 0.24%. Japanese Finance Minister Shunichi Suzuki earlier today said the country is continuing to monitor foreign exchange market moves "with a sense of urgency." He noted it is important for the dynamics in the exchange rate to be steady and said any volatility can hurt the economy. The finance minister also said the government in Tokyo did not change its stance towards the fact that the authorities are ready to take action once they prove necessary.

Meanwhile, the Australian S&P 200 fell by 0.47% at the closing bell. The Reserve Bank of Australia announced its decision to hike interest rates at its December meeting, adjusting its monetary policy setting by the widely expected 25 basis points. The country’s central bank's targets for the cash rate and the interest rate on Exchange Settlement balances will be increased, standing at 3.10% and 3.00%, respectively.