MAXIN ADVISORS Weekly Market Review adresses the issues of the moment and the events of the past week in the financial markets.
Bear Market Rally
Thursday’s US CPI numbers came out lower than expected, triggering a sharp rally in bonds, equities and precious metals while the Dollar sank at the fastest rates in many months.
We were amongst the very few commentators to expect the US inflation data to come out on the soft side and our bear market rally roadmap is unfolding as expected. the SP500 closed a tad under our first target of 4’000 and we see the rally continuing into year end at least towards 4150. However, we cannot exclude that its could extend towards 4’500 at the beginning of 2023 if subsequent inflation data releases show an easing of inflationary pressures or the FED adopts a more conciliatory tone when. it comes to its tightening.
Nevertheless, this is a bear market rally and we expect the main western indexes to roll over in January and February and start an extended bear phase again.
What we see ahead is a morphing of the market narrative from inflation fears to recession and earnings recession fears. As the news shows, corporations are already layoff staff in a big way in the technology sector, a sector that has been a major purveyor of jobs especially for the youth in the past decade. The sharp turnaround, and the first one in many years is not good news for the US economy at large.
Within a softer job market, lower real estate prices, high mortgage rates and stabilising commodities, economic data and retail sales in particular are bound to remain soft in the foreseeable future.
The other big story last week was the sharp rebound in Chinese assets, equities and currencies, as the Government is laying out policies to ease the COVID lock downs, provide support to the real estate sector and adds liquidity in the economy, all things we have accurately predicted.
The rally has legs and reports from brokerage houses are that the Chinese are opening new accounts at a pace not seen since 2015. Equities are extremely cheap and time has come ti trade on the long side structurally.
The HSECi index has already risen by 20 % since its 31st October bottom.The real estate sector has been a strong outperformer and travel and hospitality are breathing again.
On the international front, XI Jing Ping is scheduled to meet with Joe BIDEN on Monday at Bali’s G20 meeting and we expect the US to pivot somewhat from its aggressive and confrontational stand against China towards a more collaborative framework. America has no choice but to cooperate with Xi Jing Ping’s China and the rest of the world is turning its back on America’s confrontational rhetoric vis a vis China. China is going to become “investable” again…
October 2022 marks a secular bottom in Chinese equities and the coming rally will be fuelled by valuation expansion, liquidity and economic growth.
Only a couple of days after we published our article titled THE UNBEARABLE EXCESSES OF A DECLINING AMERICA , one of those excesses led to yet another massive systemic blow.
The collapse of FTX, the world’s second largest crypto exchange, is another nail in the coffin of the crypto space and illustrates how far behind US regulators are in fulfilling their job of protecting the general public from excesses and Ponzi schemes, despite the writing having been on the wall all along.
Besides the regulators failures, the collapse of FTX illustrates the vicious dynamics of the US liberal system where Venture Capital, Social Media, and excessive liquidity all combine to mint one-time billionaires by the simple rise in share prices of companies that have little history, unproven business models and extremely weak managements and governance. At the end of the day, all the billionaires were made billionaires by gullible retail investors ready to pay up for hugely overvalued shares in an endless search of quick profits, infatuation with social media made characters and excessive liquidity.
SBF, as he wanted to be called, has never been a manager, a CEO or a proven businessman, just a social media phenomenon intronisé by venture capitalists who are quick to get in and quick to get out. The list of fallen icons from Mark Zuckerberg who just laid off 11’000 of his staff, Elon Musk who manages his companies through Twitter and e-mails, Masayohi Son who has burnt billions of investors capital through his “Ted Talks” orA Archegos Bill Hwang who could secure hundreds of billions of financings without any regulator wondering what was happening is getting longer by the day…
In April 2021, we were calling the END OF CRYPTOS, an eco-system based on Ponzi schemes whereby the value of tokens that had NO intrinsic value was pushed to dizzying heights by the sole greed of irrational investors ready to act as the dummy of last resort…
Cryptos were born in the US, developed in the US, hyped in the US and are now collapsing in the US. Excesses, excesses excesses…. China banned crypto mining and crypto trading more than a year ago protecting its investors from a glaring mania and speculative bubble with no equivalent apart from the Dutch Tulip bubble of the 17th century.
Today, the tally of losses trillions of US dollars and its full extent is not yet known.
The survival of the ecosystem is on the table. FTX has USD 900 million in assets and USD 9 Billion in hidden liabilities having gone on a buying spree of failed businesses, publicly, and with no reaction whatsoever by the US regulators.
More worryingly, all the other tokens are now in the hands of investors who see no real rationale for any upside move while the downside risks are significant as the question now is who will bail out first.
Large amounts of tokens are now stored in cold wallets and professionals will be watching when and how these “frozen” assets come back to the market. Our target on Bitcoins is towards 13’000, but even when we get there, we do not really see how any rally can develop from there.
Excesses are being unwound at a huge cost for investors …
Why were they allowed to develop ?
It is interesting to observe that it is the Nation that has the most excesses and least regulatory supervision is also the most aggressive and pro-active at sanctioning others…
Weekly Market Review
13 Nov 2022
US Consumer Sentiment at 4-Month Low
The University of Michigan consumer sentiment for the US fell to 54.7 in November of 2022, the lowest since July, from 59.9 in October and below market forecasts of 59.5. The current economic conditions index sank to 57.8 from 65.6 and the expectations gauge tumbled to 52.7 from 56.2.
US Inflation Expectations Increase
Inflation expectations increased for both the year ahead (5.1% vs 5% in October) and the next 5 years (3% vs 2.9%). “All components of the index declined from last month, but buying conditions for durables, which had markedly improved last month, decreased most sharply in November, falling back 21% on the basis of high interest rates as well as continued high prices. Instability in sentiment is likely to continue, a reflection of uncertainty over both global factors and the eventual outcomes of the election.”, Surveys of Consumers Director Joanne Hsu said.
Germany Inflation Rate Confirmed at Record High of 10.4%
The annual inflation rate in Germany was at 10.4% in October 2022, matching the preliminary reading and hitting a fresh peak since the reunification, amid euro weakness, a deepening energy crisis, and lingering supply chain issues. The goods inflation rose to 17.8% in October from 17.2% a month earlier, led by high cost of energy (43.0% vs 43.9% in September) and an acceleration in food prices (20.3% vs 18.7%). Also, cost of services quickened (4.0% vs 3.6%), with rent prices rising further by 1.8%. The prices of energy products increased sharply, especially for natural gas (109.8%), heating oil (35.6%), electricity (26.0%), and motor fuels (22.3%). On a monthly basis, consumer prices were up 0.9% in October. The CPI, harmonized to compare with other European countries, increase 11.6% on the year, the highest level on record; and went up 1.1% month-on-month.
German Current Account Surplus Narrows in September
Germany’s current account surplus narrowed sharply to EUR 14.8 billion in September 2022 from EUR 23.5 billion in the same month last year, as the goods surplus shrank to EUR 12.6 billion from EUR 17.7 billion and the primary income surplus declined to EUR 11.7 billion from EUR 12.5 billion. At the same time, the services deficit widened to EUR 5.3 billion from EUR 1.6 billion, while the secondary income gap was little changed at EUR 4.2 billion. Considering January to September, the current account surplus dropped to EUR 100.8 billion from EUR 204.0 billion in the same period of 2021.
UK Economy Grows 2.4% YoY in Q3
The British economy expanded 2.4% year-on-year in the third quarter of 2022, the lowest reading since the contraction in Q1 2021, but slightly above market expectations of 2.1%, preliminary estimates showed. Household spending slowed sharply (0.8% vs 4.3% in Q2), business investment rose less (3.5% vs 5.2%) and government expenditure stalled. Meanwhile, exports jumped 18% and imports increased at a slower 7.2%.
UK Manufacturing Stalls in September
Manufacturing output in the UK stalled in September of 2022, compared to a downwardly revised 1.1 percent contraction in the previous month and halting three consecutive months of decline. Production rebounded for basic pharmaceutical products and preparations (9.3% vs -4.1% in August) and transport equipment (2.7% vs -2%), and grew for textiles, wearing apparel, and leather products (3.3% vs 0.7%), offsetting contractions in basic metals and metal products (-3.4% vs -2.2%), coke and refined petroleum products (-1.2% vs 1.3%), chemicals (-3% vs 1.2%), and computer, electronic, and optical products (-2.7% vs 0.8%). On a yearly basis, manufacturing production fell by 5.8%, less than forecasts of a 6.8% contraction and slowing from the downwardly revised 6.2% decline in August.
Hong Kong Economy Contracts 4.5% in Q3
Hong Kong’s economy shrank by 4.5 percent year-on-year in the third quarter of 2022, following a 1.3 percent contraction in the previous period. The unexpected contraction in GDP was mainly attributable to the weak performance in external trade during the quarter, with exports of goods tumbling 15.6 percent (vs. -8.4 percent in Q2) and services declining 3.8 percent (vs. 2.2 percent in Q2). Prive consumption remained virtually flat while government spending slowed (5.1 percent vs. 13.0 percent). At the same time, gross fixed investment tumbled further (-14.3 percent vs. -2.1 percent). On a seasonally adjusted quarterly basis, GDP declined 2.6 percent, following a 1.0 percent gain in the previous period.
New Zealand Services Sector Growth Accelerates
The Performance of Services Index (PSI) in New Zealand increased by 1.5 points to 57.4 in October of 2022 from an upwardly revised of 55.9 in the previous month, above the long-term average of 53.6. The two key sub-indexes of new activity/sales (61.0) and new orders/business (59.9) remained in a very healthy position and employment (57.0) experienced its highest level of activity since April 2021. In line with an improvement in expansion levels, the proportion of positive comments for October (55.4%) was up in September (47.9%). Seasonal influences were mentioned by a number of respondents, including improved weather conditions and upcoming planning before Christmas. BNZ Senior Economist Craig Ebert said that “the latest NZ PSI and PMI results chime with the narrative of spending shifting back to services, away from durables. However, they also highlight a divergence to what’s been going on globally, with respect to services industries”.
Turkish Industrial Output Continues to Slow
Turkey’s industrial production growth eased to 0.4 percent year-on-year in September 2022 from an upwardly revised 1.1 percent rise in the previous month, and well below market expectations of 3.6 percent. It was the smallest increase in production since a contraction was recorded in June 2020, as output declined for mining & quarrying (-16.5 percent vs -11.6 percent in August) and electricity, gas, steam & air conditioning supply (-2.4 percent vs -3.7 percent). At the same time, production of manufacturing slowed (1.7 percent vs 2.3 percent). On a seasonally adjusted monthly basis, industrial production fell 1.6 percent in September, following an upwardly revised 2.5 percent gain in August.
India Industrial Output Beats Forecasts
India’s industrial production rose by 3.1 percent from a year earlier in September 2022, reversing a revised 0.7 percent decline in the previous month and easily beating market expectations of 2.0 percent growth. Manufacturing output rebounded 1.8 percent, after a decline of 0.5 percent in August, backed by increases in the production of basic metals (5.8 percent), coke and refined petroleum products (9.8 percent), food products (5.3 percent), machinery and equipment (5.3 percent), motor vehicles, trailers and semi-trailers (29.9 percent), and other non-metallic mineral products (9.3 percent). In addition, output rose for both mining (4.6 percent vs 3.9 percent in August) and electricity (11.6 percent vs 1.4 percent).
India October Passenger Vehicles Sales Fall 5.4% MoM
Total passenger vehicles sales in India declined by 5.4 percent month-over-month to 291,113 units in October 2022, a reversal from a 9.3 percent rise in September, amid growing cost pressures and rising interest rates, the Society of Indian Automobile Manufacturers (SIAM) said. Still, on a yearly basis, passenger car sales climbed 28.6 percent, reflecting overall improvement in the domestic COVID situation and robust demand in the Diwali festive season.
Brazil Business Confidence Hits Lowest Level Since 2020
The industry confidence indicator in Brazil fell to 51.7 in November of 2022 from 60.2 in the previous month. It was the lowest reading since July 2020, as sentiment deteriorated regarding the current conditions of respondents’ respective companies (53.4 vs. 56.3 in October) and the Brazilian economy (52.9 vs. 58.0). In the meantime, future expectations declined regarding respondents’ companies (53.6 vs. 63.0) and perception of macroeconomic conditions (45.9 vs. 59.3).
Colombia Retail Trade Growth Slows to 7-Month Low
Retail sales in Colombia rose 7.2 percent year-on-year in September of 2022, the lowest since February and compared to market expectations of a 7.1 percent increase. The most significant increases in retail activity came from sales of fuels for automobiles (8.5 percent); other automobiles and motorcycles (13.6 percent); household automobiles and motorcycles (6.7 percent) and auto parts, accessories, and lubricants (9.6 percent). In September, only three sectors observed a decrease in the volume of sales.
Colombia Manufacturing Output Eases to 6.9% in September
Manufacturing production in Colombia increased 6.9 percent year-on-year in September of 2022, easing from a 9.1 percent rise in the previous month. In September, 28 out of 39 activities registered increases, mostly beverages (7.9 percent); clothing (20.1 percent); pharmaceutical and chemical medicinal goods (13.7 percent) and coking, oil refining, and fuel blending (10.2 percent).
Baltic Dry Index Books 1st Weekly Gain in 5
The Baltic Dry index, which measures the cost of shipping goods worldwide, fell about 2.5% to 1,355 points on Friday, but booked its first weekly gain in five. On Friday only, the capesize index, which tracks iron ore and coal cargos of 150,000 tonnes, dropped 6.5% to 1,544 points from Thursday’s two-week high; while the supramax index declined for a 15th straight session to 1,213 points, the lowest level since February 2021. On the other hand, the panamax index, which tracks about 60,000 to 70,000 tonnes of coal and grains cargoes, rose 1.1%, to 1,637 points, snapping a four-session losing streak. For the week, Baltic Dry index gained 2.4%, as a 15% jump in the capesize index offset a 3.7% fall in the panamax index.
The Week Ahead
After the softer-than-expected US CPI inflation release last week, next week investors will be watching the producer prices index, exports and imports prices and retail sales. The PPI is seen rising 0.5% month-on-month, resulting in the annual rate of inflation slowing to 8.3% from 8.5% while retail sales are expected to rise 0.9% month-on-month gain, suggesting consumers are still spending despite higher prices. US building permits, housing starts, and existing home sales will offer further clues on the impact of rising rates on economic activity. Furthermore, earnings results from big retailers, including Home Depot, Walmart, and Target, will help investors gauge the health of the world’s largest economy.
Elsewhere in America, Canada will release inflation and housing starts data.
In the United Kingdom, UK Chancellor Jeremy Hunt’s Autumn budget is due Thursday and will likely point to sharp spending cuts and tax increases to fill the £50 billion fiscal hole in the UK public finances. Britain’s economic calendar is packed with important data, including key reports on inflation, unemployment, and retail sales. UK consumer price data for October is expected to show annual inflation accelerating to a new 40-year high of 10.6% from 10.1% in September as regulated energy prices rose, despite costly subsidies to limit the increase.
In Europe, investors will keep an eye on the Germany Zew Economic Sentiment Index and preliminary Q3 GDP data for several countries, including the Netherlands, Poland and Russia. Eurostat will release the final estimate of Q3 GDP and inflation rate for Euro Zone as well as balance of trade, industrial and construction output; and wholesale prices.
In Asia, Japan is headlined by preliminary third-quarter GDP figures, followed by the inflation rate and balance of trade for October. The Japanese economy is expected to have grown 0.3% in Q3, extending three straight quarters of expansion.
China will release industrial production, retail sales, housing price growth, and fixed investment data for October.
In India, October’s inflation print is expected to show that retail price growth slowed to edge closer to the RBI’s upper target of 6%, while the Ministry of Commerce will release fresh trade data. Elsewhere, investors await interest rate decisions by monetary authorities in Indonesia and the Philippines.
In Australia, minutes from the RBA’s November meeting should give more insights on the course of monetary policy after the central bank delivered lower-than-expected 25bps rate hike. Other key releases include labor data for October and wage data for Q3.
Brazil’s 10-year government bond yield skyrocketed to 13%, the highest in more than three months, amid mounting concerns about Brazil’s public finances. Brazil’s leftist President-elect Luiz Inacio Lula da Silva said in a speech to lawmakers that many expenditures considered government spending should instead be classified as investments, adding to concerns about rising debt levels after significant outlays through the pandemic. On the policy side, Brazil’s central bank has already pushed interest rates to 13.75% from a record low of 2% in March last year while hinting at cutting rates from June 2023 despite uncertainty regarding the inflation path.
The yield on the UK’s 10-year Gilt remained around 3.3% Friday, its lowest level since September 20th, as investors were weighting weak economic data against expectations the US Fed will become less aggressive on interest rate hikes following the release of weaker-than-expected US CPI data. The UK economy contracted by 0.2% in Q3 while The Bank of England has predicted Britain’s economy would go into a two-year recession if interest rates rose as much as investors had been pricing. Elsewhere, investors await British Finance Minister Hunt’s autumn statement due next week. UK 10-year bond yields started to sharply rise in late September and hit a 14-year high of 4.6% on October 12th, after the market took fright at government plans to fund tax cuts by borrowing, which ultimately forced Liz Truss to resign and new PM Rishi Sunak to reverse most of her mini-budget measures. Markets are now more stable, with government borrowing costs broadly back to where they were before the turmoil.
The yield on the French 10-Year OAT hovered around 2.6%, well below a decade-high of 3% hit on October 21st, tracking a similar trend in US Treasuries on growing expectations that the Fed will deliver a smaller rate hike in December following softer-than-expected US inflation. Still, in Europe, the ECB signaled it will continue to raise rates as inflation shows no signs of abating. Consumer prices in the bloc rose by a fresh record 10.7% in October, soaring past expectations of 10.2% as energy prices continued to accelerate. The ECB said it would continue to reinvest bond payments in full, discarding a quick start of quantitative tightening.
The yield on the Swiss 10-year government bond fell to the 1% mark, hovering close to levels from early September and tracking the general decline in global bond yields as cooler-than-expected inflation in the United States eased expectations of prolonged rate hikes by the Federal Reserve. Lower pressure to tighten policy is also seen domestically, as inflation eased for a second straight month in October. Consumer prices rose by 3% annually, well below central bank forecasts of 3.4% and retreating further from the 29-year peak of 3.5% hit in August. SNB Chairman Thomas stated that the central bank should continue to tighten policy as medium-term inflation risks persist. The SNB hiked its key rate by 75bps to 0.5% in its September meeting, lifting interest rates out of the negative territory for the first time since 2011.
The yield on the Italian 10-year BTP was at 4.1%, retreating sharply from the two-week high of 4.5% hit November 7th and 80bps below the 10-year peak from October, tracking the decline in worldwide bond yields as the slowdown in US inflation cooled expectations of monetary tightening by the Federal Reserve. Still, hawkish expectations remain for monetary policy in the Eurozone. ECB Board member Schnabel stated that hiking borrowing costs to a neutral level will not be enough to tame record-high inflation. Additionally, ECB President Lagarde said that the ECB must continue to tighten policy even if recession risks increase, underscoring the central bank’s willingness to fight price growth. Despite the outlook of tighter policy, the closely watched spread between the Italian 10-year BTP and the Bund narrowed to 200bps, the lowest in four months.
US equities closed Friday session higher after a choppy morning session, extending Thursday’s sharp gains prompted by weaker-than-expected CPI reading for October which reinforced the case for only a modest 50 bps hike in December. The S&P 500 closed up 1%, bringing the weekly gain to 5.9%, the strongest since June. The Nasdaq 100 rose 1.9%, closing the week almost 9% higher, the best performance in 2 years as a sharp decline in Treasury yields brought respite to beaten-down technology and other high-growth stocks. Meanwhile, the Dow was up 0.1%, adding 4% on the week as China eased some Covid restrictions sparking gains for US-listed Chinese stocks and commodities while fresh turmoil in the crypto space spooked some investors. FTX exchange has officially filed for bankruptcy, pushing cryptocurrencies sharply down while sending shockwaves through other risk asset classes.
Canada’s S&P/TSX Composite index closed 0.6% higher above the 20,100 mark on Friday, finishing the week 3.4% higher at levels last seen in late August, supported by heavy-weighing resource stocks. Miners traded in Toronto were supported by the rally for base metals prices after Beijing shortened the quarantine time for individuals who were in contact with Covid patients, ramping up hopes that reopening measures could follow. In the meantime, investors digested remarks by BoC Governor Macklem stating that the Canadian economy could weather an economic slowdown without a sharper increase in unemployment. Following the lower-than-expected rate hike in October, money markets currently price a 25bps rate increase by the BoC in December.
Brazil’s Ibovespa gained 2.3% Friday to above 112,300 mark on Friday, halting two sessions of sharp declines as a rebound in commodity prices supported heavy-weighing miners. Iron ore miner Vale and steel producer Gerdau both added over 10%, tracking higher prices for base metals after Beijing lowered the quarantine period for individuals who came in close contact with Covid patients despite rising cases, igniting hopes of an economic reopening. In the meantime, food processor JBS added more than 11% after releasing third-quarter results. On the other hand, retail giant Magazine Luiza tanked 14% after posting a BRL 146 million loss in the third quarter, blaming higher interest rates. The Ibovespa closed the week 4.6% lower after incurring heavy losses on Wednesday and Thursday, following president-elect Lula signaling significant increases in social spending and delaying ministerial appointments.
Mexico’s S&P/BMV IPC index shot up 2.0% Friday hitting the 52,000 mark, the highest in five months and erasing earlier losses to notch a 1.1% increase on the week as investors continued to digest a batch of economic data and the Bank of Mexico’s interest rate hike in the prior session. Domestic industrial production unexpectedly contracted for a second straight month in September, led lower mining output. Still, materials shares jumped nearly 5% amid a 7.8% increase for heavyweight miner Grupo Mexico, with support from higher copper prices.
European equity markets had their best week since March, with the benchmark Stoxx 600 adding 3.7% and the German DAX up 5.7% buoyed by expectations that the Fed will slow the pace of rate hikes and news that China eased some Covid rules. For Friday only, the regional Stoxx 600 edged up 0.1% to above the 430 level, the highest in 11 weeks, led by basic resources, miners and luxury goods retailers. Domestically, the DAX climbed 0.6% to 14,225, the highest since early June. Among single stocks, Delivery Hero soared nearly 9% as analysts raised their price targets on the German takeaway food company’s shares a day after it forecast a positive adjusted core profit margin for next year and reassured investors of reaching profitability.
France’s CAC 40 index added 0.6% to close at 6,595 on Friday, advancing 3% on the week to its highest since April as hopes of a slowdown for monetary tightening by the Federal Reserves and lower pandemic restrictions in China supported French equities. The heavy-weighing luxury brands traded in Paris led the gains in the session with LMVH, Hermes, and Kering jumping over 2% each, extending last session’s rally amid news that top consumer China eased some quarantine rules for individuals in contact with Covid patients and supported by the strong guidance from Richemont. Policy-sensitive tech shares also rose sharply, led by a 4% advance by Capgemini. In the meantime, Teleperformance jumped by 8% after yesterday’s 32% plunge, as the Colombian Labor Ministry launched an investigation into the firm for trade union rights infringements.
Equities in Spain increased for the sixth day in a row on Friday, with the benchmark IBEX 35 climbing above the 8,100 mark for the first time in two months and heading for an over 2% weekly gain. On the corporate side, Cellnex jumped roughly 5% after the company posted quarterly results that surprised investors on the upside. The banking sector was under pressure, with Santander, BBVA, Caixabank, Sabadell, and Bankinter down between 1% and 3%.
Italy’s FTSE MIB index edged up by 0.3% to a five-month high of 24,455 on Friday, notching its sixth consecutive session in the green and adding 5% on the week, as investors continued to assess tightening paths for major central banks amid signs of slowing inflation. In Milan, energy and consumer discretionary brands led the gains, with Saipem and Moncler shares jumping 8% and 4%, respectively. In the meantime, Enel outperformed other utility companies and increased by nearly 1% as investors monitored measures to be set by the European Commission to control natural gas prices. The EU’s executive arm is expected to propose a dynamic price corridor for TTF contracts, fully departing from previous considerations of a hard price cap. Also, Rome approved a EUR 9 billion package to support natural gas output and stock levels ahead of the winter. The package adds to EUR 66 billion in stimulus from the previous government led by Mario Draghi.
Equities in London failed to hold their initial upside momentum to close Friday’s session on a weak note, with the blue-chip FTSE 100 bottoming around 7,300, as sharp losses in the healthcare sector were enough to offset gains among heavyweight materials stocks. BAE Systems dropped around 8%, the most on the FTSE 100 index, while big miners Anglo American and Rio Tinto outperformed by adding 8% and 5%, respectively, amid soaring commodities prices. The exporter-heavy index ended the week virtually flat. On the macro front, figures showed the UK’s economy contracted 0.2% QoQ in the third quarter, which could potentially be the beginning of the country’s longest recession since records began that is expected to last until the first half of 2024.
The Nikkei 225 Index rallied 2.98% to close at 28,263 while the broader Topix Index jumped 2.12% to 1,978 on Friday, reaching their strongest levels in over eight weeks and taking cues from a strong lead on Wall Street, as softer-than-expected US inflation data fueled bets for a slower pace of monetary tightening from the Federal Reserve. Investors also reacted to data showing producer prices in Japan slowed less than expected to 9.1% in October as high commodity prices and a weak yen continued to inflate input costs for companies. Moreover, investors awaited a raft of earnings reports from major firms such as SoftBank Group, Olympus and Toshiba. Technology stocks led the rally, with notable gains from Tokyo Electron (8.4%), Advantest (9.1%) and Recruit Holdings (8%). Other index heavyweights also posted strong gains, including Fast Retailing (2%), Sony Group (5.5%), Shiseido (10.9%), Daikin Industries (7.2%) and Shin-Etsu Chemical (6.6%).
The Shanghai Composite jumped 1.69% to close at 3,087 while the Shenzhen Component surged 2.12% to 11,140 on Friday, rising from recent lows after China eased some Covid rules by reducing the quarantine period for travelers and close contacts of infected people. Chinese authorities would also cease the practice of identifying close contacts of close contacts, dialing back strict contact tracing measures that earned the ire of the public. Moreover, Chinese stocks tracked a global equity rally after lower-than-expected US inflation data raised hopes that the Federal Reserve would tighten less aggressively in the coming months. Nearly all sectors advanced, with strong gains from index heavyweights such as Kweichow Moutai (3.6%), Zijin Mining (8.4%), East Money Information (5.3%), Contemporary Amperex (4.5%) and China Tourism Group (3.7%). The benchmark index ended the week marginally up, having been whipsawed earlier in the period by mixed signals about China’s Covid policy.
India’s BSE Sensex rose 1,180 points, or 1.9%, to a fresh record close of 61,795 on Friday, tracking the strong momentum in equities worldwide after the cooler-than-expected inflation print in the US ramped up hopes of slower monetary tightening by the Federal Reserve. Policy-sensitive tech shares traded in Mumbai tracked the surge in the Nasdaq index and closed sharply higher, with Infosys and Tech Mahindra gaining 4.6% and 3.6%, respectively. Bullish support was also due to news that Beijing eased quarantine rules for individuals in close contact with Covid patients, spurring hopes that additional measures to reopen the economy could follow. Consequently, metallurgists moved higher with a 3% advance for Tata Steel. Outside the Sensex, Zomato shares surged 13.6% after posting strong quarterly results.
Asian equity markets rallied on Friday, tracking a strong rally on Wall Street overnight as softer-than-expected US CPI numbers raised hopes that inflation has peaked and that the Federal Reserve would slow the pace of interest rate hikes in the upcoming meetings. Sentiment was also boosted after China eased some Covid rules by reducing the quarantine period for travelers and close contacts of infected people, while dialing back its stringent contact tracing practices. Hong Kong stocks led the advance, surging more than 7%, while mainland China stocks jumped about 2%. Shares in Australia, Japan, South Korea and India also posted strong gains.
The US dollar index depreciated below 107, a level not seen since mid-August, as softer-than-expected US data set the stage for a slower pace of interest rate hikes by the Federal Reserve. A Bureau of Labor Statistics report showed that the annual inflation rate eased to 7.7%, below economists’ forecasts of 8%. The report also showed the CPI coming in cooler than expected on a month-on-month basis and in its core reading. Money markets are currently priced for a more moderate 50 basis point Fed rate hike in December after it delivered four consecutive 75 basis point increases. Given the above, the DXY is now down more than 3% this week, on track for its worst week since March 2020.
The British pound extended gains against the USD on Friday, to trade above the $1.17 mark for the first time late August. Data showed the UK economy contracted 0.2% in the third quarter, less than markets had expected, suggesting the Bank of England will maintain its policy tightening path as the UK inflation rate is running at a 40-year high. Last week, UK policymakers delivered a 75 basis point rate hike, the most significant rate increase since 1989. Also, investors turned to riskier currencies after the US CPI report showed inflation rate slowed more than expected last month, trimming bets on faster interest-rate hikes by the Federal Reserve. On the political front, British Finance Minister Jeremy Hunt is set to outline up to £60 billion of tax rises and spending cuts next week, including at least £35 billion pounds in cuts following the Bank of England’s recession warning.
The offshore yuan jumped to around 7.10 per dollar, hitting its strongest levels in over a month after China eased some Covid rules by reducing the quarantine period for travelers and close contacts of infected people. Chinese authorities would also cease the practice of identifying close contacts of close contacts, dialing back strict contact tracing measures that earned the ire of the public. Moreover, the yuan was boosted by softer-than-expected US inflation data which raised hopes for a slower pace of interest rate hikes from the Federal Reserve. China’s currency has come under heavy selling pressure throughout the year due to the country’s divergent monetary policy with the US, as well as persistent economic concerns in China driven largely by Covid-related disruptions.
The Canadian dollar strengthened to 1.3275 per USD, the strongest since September 19th, as the US dollar sank after a lower-than-expected inflation reading for the US increased bets the Fed will raise rates by a smaller 50bps next month. The Bank of Canada lifted rates by 50 bps on October 26th, a sixth consecutive rate hike, but below a 100bps hike in July and a 75bps increase in September. Still, the central bank is expected to tighten further and raise rates by another 50bps in December as the inflation remains elevated. In Canada, CPI figures are due next week. Meanwhile, BoC Governor Tiff Macklem said the unemployment rate needs to increase from near-record lows to contain inflation.
Bitcoin tumbled more than 6% to below $17,000, approaching a two-year low as the FTX exchange has officially filed for bankruptcy, pushing cryptocurrencies sharply down while sending shockwaves through other risk asset classes. In a matter of days, FTX, one of the world’s biggest crypto exchanges, collapsed after concerns about its financial health triggered $6bn of withdrawals while sending the price of its Token FTT plummeting more than 80%. Worries about insolvency intensified after Binance scrapped its acquisition plans, leaving FTX without money to repay customers and investors. On top of that, Sam Bankman-Fried allegedly used customer funds to support the exchange’s sister firm Alameda Research. Bitcoin plummeted over 20% this week, while Ethereum is down roughly 25%.
WTI crude futures rose more than 2.5% toward the $89 per barrel mark, extending a 0.8% gain in the previous session as news of China relaxing some of its stringent coronavirus-induced restrictions lifted the outlook for demand. The world’s top oil importer shortened quarantines by two days for close contact with infected people and inbound travelers and removed airlines’ penalties for bringing in too many cases. On top of that, prospects that global oil markets would remain extremely tight continued to lend optimism to bulls. OPEC+ has recently agreed to cut production by 2 million barrels per day in November. Keeping a lid on prices were persistent concerns about a potential recession-driven demand downturn triggered by an aggressive tightening from major central banks. The US benchmark fell more than 4.4% this week, putting it on track for its first weekly decline in four.
US natural gas future closed a volatile week 9% lower at around $5.8/MMBtu, the lowest since November 1st, as temperatures are expected to remain higher than usual next week. Meanwhile, the Freeport LNG export plant has not yet submitted a request to federal safety regulators to resume operations in November after being offline since June, making more gas available for domestic use. Elsewhere, the latest EIA data showed US utilities added 79 bcf of gas to storage last week, below market expectations of an 84 bcf increase and compared with an increase of 15 bcf in the same week last year.
Gold prices extended their rise to $1,771 an ounce on Friday, the highest in nearly three months and booking another strong week as softer-than-expected US inflation data raised hopes for peak inflation and a slower pace of interest rates hikes from the Federal Reserve. Gold ended the week up 5.5 % after Thursday’s rally brought the metal to its strongest levels in over two months.
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