MAXIN ADVISORS Weekly Market Review addresses the major issue of the moment, reviews the market moves of the past week and monitors the evolution of the MAXIN GLOBAL FUND
Good Bye Yellow Brick Road !
The bright, shining, golden Yellow Brick Road is a modern representation of a much older spiritual philosophy known as The Golden Path. The Golden Path is referenced in Buddhist philosophies and Kabbalah mythology and is seen as the path the soul must take to achieve enlightenment.
In his extremely touching song, Goodbye Yellow Brick Road, Elton John sings :
“So goodbye yellow brick road
Where the dogs of society howl
You can’t plant me in your penthouse
I’m going back to my plough”
The path of Western equity markets of late has been very much the thorny path to the Wizard of Oz where investors have been dreaming the enlightenment of declining inflation, no economic landing at all, a resumption of earnings growth to achieve higher stock prices and everybody laughing to the Bank.
Unfortunately with the events unraveling over the past few weeks, investors may well be forced to say Goodbye to the Yellow Brick Road and go back to their plough…
Over the past weeks and months, we painted the somber clouds amassing over the horizon of the US and Western economies, calling the top of the real estate market back in the summer, warning about the dangerous consequences of high inflation and interest rates, highlighting the risks of collateral damages to the financial system and in particular, the risks of a severe and contagious financial crisis should US regional and niche banks were to blow-off.
On Tuesday last week, Jeremy Powell made a considerable about-face when testifying in Congress. Well gone were his extremely dovish predictions made on February 1st, sending equity markets flying and speczukutuiin to return in force. Last week’s message was clear : inflation is not tamed yet, it is far from declining to where the Fed would like to see it, and interest rates will likely rise further and probably for much longer than overly optimistic investors expect.
Last week also, Silvergate, a US banks specialised in interfacing the crypto world with the real banking system had to cease operations and ended-up in receivership, dealing yet another severe blow to the crypto space and finally on Friday, Silicon Valley Bank, America’s 16th largest bank with in excess of USD 200 Million in assets went into distress, closed its operations and was taken over by the FDIC, creating extremely high anxiety in the Silicon Valley and the entire VC/startups/Technology ecosystem that embodied the American Dream of getting immensely rich through disruptive technologies.
This is the first bank failure since 2009, and it came much earlier and from a much larger bank than we expected.
What makes the SVB blowup signifiant, and probably akin to the blowup of Lehman and Bear Stearns in 2007 / 2008 is not only the impact it may end up having on the entire Silicon Valley eco-system, but the reasons why SVB went under.
Here, contrary to FTX where an astounding lack of controls, supervision and regulations led thirty-somethings to defraud investors in a massive way, SVB was actually managed prudently as would be expected from a top-20 US bank.
Their only mistake was to go longer down the yield curve in US Government bonds in search of desperate returns at times of unorthodox monetary policies pursued by the FED keeping interest rates artificially low and tweaking the bond markets through quantitative easing in a way never heard of or seen in Central Bank’s History. SBV was actually being prudent consecrating its assets in the safest credit of all, US Government bonds, instead of extending dangerous credits to corporations in its sphere of operations, As a result, to earn the spreads needed to pay for its normal overhead, it was gradually forced to extend maturities and diversify in mortgage backed securities.
What caused the debacle is the unique surge in inflation caused by these dangerous monetary and facial policies pursued for far too long and taken to extremes during the COVID period. The return of inflation caused short term and long term rates to surge twentyfold in a matter of 18 months, devastating SVB’s leveraged bond portfolio, as they did the traditional 40/60 portfolios in a unique way in the past century, leading to billions in losses, the need to raise equity, to sell assets at losses and ultimately a run on the bak as investors lost confidence.
This was exactly the dynamics that at we feared when we were writing about the systemic risks that could arise form sharply higher interest rates, mortgage rates, real estate prices tanking and corporations being over-leveraged in the face of surging interest rates.
And unfortunately, SVB is probably not the only bank in the US to feel these pains, and there are much ore to come from real estate ahead.
Can contagion and a systemic financial crisis arise from there on ? It can indeed, as we saw with the demise of Bear Sterns that we predicted in July 2007 and of Lehman afterwards,
Then, as now, market professionals as Jim Cramer were saying that they were too big tio fail and that the US Government would bail them out. Then, as now, containing the panic proved far more difficult than expected and it took massive Government nationalisations such as AIG or UBS or Fannie Mae and Freddy Mac to contain the storm but this two institutions did not survive and asset markets plunged like never before.
A very likely mechanism of transmission will be households and corporations shifting quickly and en masse their cash balances deposited at banks, even the largest ones, to the perceived safety of US Treasury bills paying close to 5 % interests. If this were to happen, Banks would suddenly find themselves in a huge dearth of liquidity, and forced, in turn, to liquidate as well their securities available for sale, booking losses and downsizing their balance sheets by tightening drastically credit standards.
Can this be reasonably excluded ? Certainly not ! In a world and culture where personal interest prevails over everything and where the fast movers are usually the ones being rewarded, any sensible CEO/CFO of household is probably reflecting on the appropriateness of making the move, and as soon as next week.
Can this be prevented ? Well the inly way to prevent it would be for the banks, the Government and the FDIC to impose limits on amounts that can be withdrawn or converted to T-Bills by enacting regulations and Executive Orders. But the remedy could prove to be worse than the illness by creating a massive panic, leading investors to liquidate all kinds of liquid investments, including and primarily stocks to move into Gold or precious metals if their bank accounts are frozen or withdrawals limited.
Could that lead banks to raise sharply the interest rates they pay depositors – something they have been both slow and reluctant to do until now – to entice investors to keep their money at the bank ? Yes, it could ! But then the entire profitability of the banking system would be wiped out and even worse as Banks usually make money by lending long term and funding those loans through short term deposits. Bank stocks would tank, as they have started to do on Friday, and banks would be extremely busy restraining new credits in an environment of the most inverted yield curve in 50 years.
Can this be a global banking crisis ? Well, apart form the Chinese banking system that, for now has been eerily absent from global inter banking operations, preferring to focus on their domestic market and on trade financing, most Western banks ae global players and have considerable exposure to each others, through direct operations, or the massive accumulation of off-balance sheet swaps that are another area of global systemic risk we highlighted in the past.
Are Nations and Governments in a position to bail out again the world banking system ? Well contrary to 2008, the public finances of the major Western economies have deteriorated massively over the past decade with high budget deficits and exploding public debt. The US Government is already entering an extremely dangerous situation of political deadlock over the debt ceiling that has been breached in February. France has seen its public debt increase by 40 % since Macron took the helm 6 years ago, Sweden is having major problems as well and most Western Governments are currently facing sharp decreases in tax receipts – – 10 % year on year in February in the US, and exploding outlays , + 21 % YoY in the US in February, with a budget deficit that, a USD 262 Billion in February , equals the entire amount of tax receipts for the same month.
Saving the world banking system from a panic attack would cost trillions that Western Governments do not have…
Raising taxes in a period of economic contraction and high inflation is equally unpalatable for populations and lawmakers alike, and would plunge the Western economies in a deep recession similar to the 1929 crisis.
We are probably facing a perfect storm here and not is highly likely that all the Governments, regulators and Central Banks units in charge of financial stability have spent the week-end finding a quick solution to SVB, including asking the ruling family of the UAE to acquire SVB…
But the depth of the problem will not disappear and now that the pandora box has been opened, large cash holders such as Apple Inc who is keeping tens of Billions in cash at banks are already considering their options extremely fast, particularly considering the huge amount of debt they have accumulated in the past as a quidproquo.
Only Time will tell…
But investors can already say Goodbye to their Yellow Brick Road of declining inflation, lower rates, and surging profits and stock prices.
And in fact the markets have already turned.
Our expected Q4 bear market rally actually ended in February 2023 as we initially expected and predicted.
The past few weeks have been extremely coop,icated to trade as investors, cheered by the most imprudent Central Banker in history led them to believe that inflation would be tamed easily and speculations and irrationality took over pushing equities and some equities in particular to extremes of unsustainable valuations.
Last week break down of the uptrend in place since October 13 2022 is the final confirmation that we will not see the last Hurrah towards 4300 and that we have already started what will prove to be a devastating second leg of the secular bear market that started in January 2022, taking the SP500 to our ultimate target of 2800/3000 by October 2023.
What remains to be seen is how SVB could accelerate the speed and pace of the decline, coming at a time of extreme bullishness, extreme positioning on the. long side, and extreme valuations.
To get a feel for how fast things can happen, and measure the potential contagion effect, suffice to look at the breakdown in the US Financial sector last week. This is NOT good news ! and the downside is considerable.
Likewise, European Banks were smashed last week hinting at the risks of global contagion we highlighted above.
Finally, anyone hoping that tech stocks could be the saviour should consider that SVB has always been a major and historical banking partner of most of the Unicorns that they helped biberon from their cradle, including the GOOGLEs, META, AMAZON, APPLE and TESLA of this world.
Investors and analysts will now want to know what is the exposure of these companies to the SVB debacle and their own CFOs must have spent a sleepless weekend trying to quantify precisely their risk and exposure.
So, if you cannot short as we do, and your are heavily invested in stocks as most have done in the past two months, you probably have three options :
– SELL and sell rather quickly…
– BUY US Treasury Bonds
– BUY Gold and Gold Miners
We have done all three, and bought Volatility on Top.
Weekly Market Review
11 Mar 2023
US Jobs Report Strong, but Unemployment rate rises
The Labor Department’s closely watched employment report showed that US employers hired more workers than expected in February, with nonfarm payrolls increasing by 311,000 jobs last month. Still, the same report showed that unemployment unexpectedly rose to 3.6% last month while wage growth slowed, easing some worries that a still-tight labor market will prompt sharper interest rate hikes. The number of unemployed people increased by 242 thousand to 5.94 million and employment levels rose by 177 thousand to 160.32 million. The U-6 unemployment rate, which also includes people who want to work, but have given up searching and those working part-time because they cannot find full-time employment, rose to 6.8 percent in February from 6.6 percent in January. The labor force participation rate inched higher to 62.5 percent, the highest since March 2020.
Companies Cut Most Jobs in February since 2009
US-based employers announced 77.77K job cuts in February of 2023, the most for the month of February since 2009 and compared to 102.943K in January which was the highest reading since September of 2020. Job cuts occurred in all 30 industries, led by technology companies (21,387) and the health care/products space (9,749). So far this year, employers announced plans to cut 180,713 jobs, up 427% from the 34,309 cuts announced in the first two months of 2022 and the highest January-February total since 2009. The tech sector has announced 35% of all job cuts in 2023. “Certainly, employers are paying attention to rate increase plans from the Fed. Many have been planning for a downturn for months, cutting costs elsewhere. If things continue to cool, layoffs are typically the last piece in company cost-cutting strategies,” said Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc
US Wages Grow Less Than Expected
Average hourly earnings for all employees on US private nonfarm payrolls rose by 8 cents, or 0.2%, to $33.09 in February 2023, while markets had expected them to remain at 0.3%. This was the smallest growth in average hourly earnings in a year. Average hourly earnings of private-sector production and nonsupervisory employees rose by 13 cents, or 0.5%, to $28.42. Over the past 12 months, average hourly earnings have increased by 4.6%, up from 4.4% in the prior month but slightly below market forecasts of a 4.7% rise.
US Budget Deficit Widens to $262 Billion in February
The US government budget deficit stood at USD 262 billion in February of 2023 after a USD 217 billion shortfall in the corresponding period of the previous year, a 20.7 % increase, and compared to market expectations of a USD 256 billion deficit. It was the widest deficit since July 2021, mostly due to higher tax refunds issued.
Outlays rose by 4% to USD 525 billion from a year earlier, while receipts shrank by 10% to USD 262 billion, meaning that the US Government is spending twice as much as it earns. The individual withheld tax receipts rose by 4%, compared to a year ago, but individual tax refunds, which reduce revenues, soared 153% to $52 billion.
China Bank Loans Largest on Record for February
China’s banks extended CNY 1.81 trillion in new yuan loans in February 2023, down from a record CNY 4.90 trillion in the previous month but above market expectations of CNY 1.50 trillion. It was also the largest amount of new bank loans for a February month since at least 2004, as activity and demand rebounded helped by Beijing’s efforts to boost growth in the world’s second-biggest economy and following the lifting of harsh pandemic controls. Other credit gauges showed solid improvement. Broad M2 money supply grew 12.9 percent from a year earlier, beating market expectations of a 12.5 percent rise, and outstanding yuan loans advanced 11.6 percent, also above forecasts of 11.4 percent growth.
China Liquidity Beats Expectations
China’s total social financing (TSF), a broad measure of credit and liquidity in the economy, dropped to CNY 3.16 trillion in February 2023, down from CNY 5.98 trillion in the previous month but well above market expectations of CNY 2.20 trillion. The better-than-expected data came in following China’s reopening and Beijing’s latest efforts to revive growth in the world’s second-largest economy. Growth of outstanding total social financing picked up to 9.9 percent in February from January’s six-year low of 9.4 percent. TSF includes off-balance-sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.
China Vehicle Sales Rebound Sharply in February
Auto sales in China surged by 13.5% from a year earlier to nearly 1.98 million units in February 2023, rebounding sharply from a 35% plunge in the previous month. It was the first increase in car sales in four months, data from the China Association of Automobile Manufacturers (CAAM) showed. Sales of New EVs jumped 55.9 percent year-on-year to 525 thousand units in February. For the first two months of the year, car sales fell by 15.2 percent from a year earlier to 3.625 million units, reversing from a 7.5 percent growth in the same period of 2022.
Japan Holds Rates at Kuroda’s Last Meeting
The Bank of Japan (BoJ) kept its key short-term interest rate unchanged at -0.1% and that for 10-year bond yields around 0% during its March meeting by a unanimous vote. The central bank also made no tweaks to yield curve control including a 0.5% cap set for bond buying, tempering views that the side effects of the policy need to be addressed soon. Meantime, policymakers indicated their concerns over the economy by lowering their views on exports and production while leaving the overall economic assessment unchanged. The BoJ reiterated it would take extra easing measures if needed while expecting short-and long-term policy interest rates to stay at their present or lower levels. Friday’s meeting was Governor Haruhiko Kuroda’s final session before retirement, as his successor, Kazuo Ueda, will take the helm in April. The new governor will chair his first policy meeting on April 27-28, when the board will offer fresh quarterly growth and price forecasts extending through FY 2025.
Japan Household Spending Drops More Than Expected
Household spending in Japan declined in real terms by 0.3% year-on-year in January 2023, slowing from a 1.3% drop in December but coming in worse than market expectations for a 0.1% fall. This was also the third straight month of decrease in personal expenditures as intense cost pressures continued to dampen consumption. Spending fell the most for housing (-12.1%), education (-9.6%), furniture & household utensils (-9.1%), medical care (-7.1%) and transportation & communication (-1%). Meanwhile, spending increased for culture & recreation (18.6%), fuel, light & water charges (5.3%) and clothing & footwear (5.1%)
Japan Producer Prices Rise the Least in 16 Months
Producer prices in Japan increased by 8.2% yoy in February 2023, slowing from a 9.5% rise a month earlier and falling short of market consensus of 8.4%. This was the lowest producer inflation since October 2021, marking the second straight month of a slowdown in producer prices, amid signs that the impact of past spikes in raw material costs was fading. Prices eased for foods (7.6% vs 7.8% in January), chemicals (4.7% vs 5.7%), iron & steel (18.5% vs 18.9%), plastics (8.6% vs 9.6%), and non-ferrous metals (5.3% vs 6%). In addition, cost fell further for woods (-10.7% vs -8.7%) and petroleum (-4.7% vs -0.3%). By contrast, inflation was unchanged for textile (at 6.3%), metal products (at 13%), and production machinery (at 4.7%). Meantime, cost grew faster for business-oriented machinery (1.3% vs 0.7%) and transport equipment (4.7% vs 4.6%). On a monthly basis, producer prices fell by 0.4 percent, the first drop since November 2020, after a flat
Canada Unemployment Rate Steady at 5%
The unemployment rate in Canada held steady at 5% in February of 2023, remaining close to the record-low of 4.9% observed in June and July 2022, and beating market forecasts of 5.1%. The result gave further evidence of a stubbornly tight labor market, challenging the Bank of Canada’s expectations that recent weak economic growth would pressure the job market. The number of unemployed people rose by 20,400 from the previous month to 1,066,400, as a decrease in joblessness for older men offset increased unemployment for core-aged women. Still, 21,800 jobs were added to the Canadian economy in the period, more than twice of expectations, with a solid increase noted in goods-producing industries (+0.4% to 4,158,400). Meantime, the number of jobs in services-producing industries was broadly unchanged at 15,895,700.
UK GDP Growth Beats Forecasts in January
The British economy expanded 0.3% month-over-month in January of 2023, partially bouncing back from a 0.5% contraction in December when strikes halted activity and beating market forecasts of a 0.1% rise. The services sector grew by 0.5%, rebounding from a 0.8% fall in December, and was the main driver of growth, led by education (2.5%), as school attendance levels returned to normal levels; transport and storage (1.6%); human health activities (0.7%), and arts, entertainment and recreation activities (3.4%), in a month where Premier League football returned to a full schedule. Output in consumer-facing services grew by 0.3% after a fall of 1.2%. On the other hand, production output fell by 0.3%, following growth of 0.3% in December, led by a 0.4% drop in manufacturing, namely basic pharmaceutical products and pharmaceutical preparations (-4.7%). Construction was also down (-1.7%). Considering the three months to January, the GDP was flat.
UK Manufacturing Output Drops 0.4% MoM
Manufacturing production in the UK dropped 0.4% month-on-month in January 2023, after stalling in the previous period and more than market estimates of a 0.1% fall. Most of the sub-sectors reported a decrease in production, led by basic pharmaceutical products & preparation (-4.7% vs 2% in December). Additionally, output declined for machinery & equipment (-1.6% vs 1.6%), computer, electronics & optical products (-1% vs 0.1%) and coke & refined petroleum products (-0.4% vs -1.7%). On a yearly basis, manufacturing output shrank 5.2%, following a 5.7% contraction in December and slightly above market forecasts of a 5% fall.
Construction Output in the UK Slows Sharply
Construction output in the UK expanded 0.6% year-on-year in January of 2023, the smallest increase since a fall in February of 2021. Decreases were seen for new housing (-3.8%) and new work excluding infrastructure (-1.4%) while repair and maintenance increased 3.9%. Compared to December of 2022, construction output declined 1.7%, the worst performance since June of 2022, with economic uncertainty leading to delays, cancellations, and less work being requested by customers; this has particularly contributed to an ongoing slowdown of work in the housing sector.
German Inflation Rate Confirmed at 8.7% in February
The annual inflation rate in Germany was confirmed at 8.7% in February 2023, not far from a peak of 8.8 percent seen in October and November, and remaining well above the European Central Bank’s target of about 2 percent. The goods inflation slowed to 12.4% in February from 12.7% a month earlier, due to a softer rise in energy cost (19.1 percent vs 23.1 percent) partially offset a faster increase in the cost for food (21.8 percent vs 20.2 percent). Meanwhile, cost of services accelerated (4.7% vs 4.5%), with rent prices rising 2.0 percent, the same pace as in the prior month. The prices of energy products advanced sharply, especially for natural gas (46.6%), electricity (23.1%), and heating oil (16.1%). On a monthly basis, consumer prices went up 0.8% in February. The CPI, harmonized to compared with other European countries, climbed 9.3% on the year, the fifth-highest level on record, and gained 1% month-on-month.
Italian Producer Inflation Drops to 19-Month Low
Industrial producer prices in Italy rose 11.1 percent year-on-year in January of 2023, the least since June 2021, and aggressively pulling back from the 31.7 percent increase in the previous month, largely due to base effects regarding Italian regulated energy prices. While remaining high, the effect drove energy inflation to tumble (10.7 percent vs 80.2 percent in December 2022). In the meantime, prices decelerated at a more moderate pace for intermediate goods (10.8 percent vs 12.2 percent), capital goods (8.4 percent vs 7.3 percent), and consumer goods ( 10.2 percent vs 10.7 percent). On a monthly basis, industrial producer prices fell by 7.5 percent, the sharpest drop on record.
Portugal Inflation Rate Confirmed at 8.2%
Annual inflation rate in Portugal slowed for a fourth consecutive month to 8.2% in February of 2023, the lowest since May of 2022, compared to 8.4% in January, final estimates confirmed. Prices rose at a slower pace for energy (1.9% vs 7.1% in January), transport (2.6% vs 4.8%) and housing and utilities (6.9% vs 8.1%). On the other hand, inflation accelerated for food and non-alcoholic beverages (21.5%, the highest rate since May of 1985 vs 20.6%) and leisure and recreation (4.1% vs 2.7%) while communication cost rebounded (3.6% vs -1%) after major companies updated tariffs for this year. Compared to January, the CPI went up 0.3%, after a 0.8% fall in the previous month. Meanwhile, annual core rate rose to 7.2% from 7%. The EU-harmonized index increased 8.6% year-on-year in February, the same as in January and rose 0.4% over the previous month, rebounding from a 0.8% fall in January.
Dutch Manufacturing Output Falls the Most in Near 2 Years
The manufacturing production in the Netherlands fell 3.3% month-over-month in January 2023, shifting from a downwardly revised 1.4% growth in the previous month. It was the sharpest contraction since February 2021, as output shrank for chemicals (-5.5% vs 2.8% in December), electronics & electrical equipment (-8.3% vs 8.6%), and repair & installation of machines (-8.5% vs 1.1%). Moreover, production contracted further for rubber & plastics (-1.9% vs -0.4%) and metal products (-2.3% vs -0.2%), while output decreased at a softer rate for machines (-0.4% vs -0.7%). On an annual basis, manufacturing production dropped 2.9%, the first decline in almost two years.
Austria Industrial Output Falls for 1st Time in Nearly 2 Years
Industrial production in Austria fell 0.7 percent year-on-year in January 2023, following an upwardly revised 0.5 percent growth in the previous month. This was the first decline since February 2021, as production fell sharply for intermediate goods (-6.2 percent vs -1.7 percent in December 2022) while output slowed for consumer non-durables (3.8 percent vs 5 percent). Meanwhile, output fell softer for both energy (-4.9 percent vs -6.4 percent) and consumer durables (-1.6 percent vs -5.1 percent), while output increased for capital goods (8.3 percent vs 2.8 percent). On a seasonally adjusted monthly basis, industrial activity grew by 0.5 percent in January 2023, rebounding from an upwardly revised 2 percent fall in the previous month.
Belgium Industrial Output Extends Decline in January
Industrial production in Belgium sank by 7.3 percent from a year earlier in January of 2023, extending the downwardly revised 1.7 percent contraction in the previous month, as higher borrowing costs continue to hurt Belgian economic activity. Output fell at a faster rate for manufacturing (-6.7 percent vs -0.5 percent in December) and electricity, gas, steam, and air conditioning supply (-12.8 percent vs -11.9 percent), while the decline eased for mining (-8.5 percent vs -20.6 percent). On a monthly basis, industrial production fell by 4.1 percent, the most since July 2021, following the downwardly revised 2.6 percent drop in the previous month.
Spain Retail Sales Growth Quickens to Near 2-Year High
Retail sales in Spain surged by 5.5% year-on-year in January 2023, following an upwardly revised 4.8% rise in the previous month. It marks the second consecutive month of growth in Spanish retail activity and the strongest since May 2021, boosted by sales of non-food products (15%), of which personal equipment (22.2%) and other goods (11.3%). Conversely, spending on food decreased (-1.7%). On a monthly basis, retail sales went up by 0.4% in January, after a revised 0.5% increase in the prior month.
France Current Account Deficit Narrows
France’s current account deficit narrowed sharply to EUR 3.6 billion in January 2023, the smallest shortfall since March 2022 and from a downwardly revised EUR 7.6 billion in the previous month, mainly due to the decrease in the goods deficit (EUR 10.4 billion vs EUR 12.8 billion in December). Moreover, the surplus increased for both services (EUR 3.7 billion vs EUR 2.7 billion) and primary and secondary income (EUR 3.1 billion vs EUR 2.5 billion). In January 2022, the country posted a current account surplus of EUR 1.1 billion.
Austria Trade Deficit Smallest in 5 Months
Austria’s trade deficit decreased to EUR 1.36 billion in December 2022 from EUR 1.66 billion in the same month of the previous year. It was the smallest trade shortfall since July last year, as exports rose by 8.1% from a year earlier to EUR 14.98 billion while imports increased by 4.1% to EUR 16.34 billion. Considering the whole year of 2022, the country’s trade gap widened to EUR 19.59 billion from EUR 12.86 billion in 2021, with imports jumping 19.8% to EUR 213.72 and exports rising 17.2% to EUR 194.13 billion. The main reason for this was the strong increase in energy import prices compared with 2021. Within a year, the import value of fuels and energy has increased by 86.0%. For Gas in particular almost twice as much money was transferred to import partners compared with the previous year, while the volume of imports fell by 38.0%.
Greek Industrial Output Rebounds in January
Industrial production in Greece rose 0.5 percent from a year earlier in January 2023, recovering from a 1.4 percent decline in the previous month. It was the gain in industry activity first since last August, as output rebounded sharply for mining & quarrying (7.8 percent vs. -13.4 percent in December) while it increased faster for manufacturing (8.4 percent vs. 5.6 percent). On the other hand, output fell for electricity (-23.5 percent vs. 21.9 percent) and water supply (-2.2 percent vs. -2.7 percent). On a seasonally adjusted monthly basis, industrial production decreased by 1.3 percent, reversing the prior 0.1 percent gain.
Greece Posts Smallest Trade Deficit in Over a Year
Greece’s trade deficit shrank to EUR 2.36 billion in January 2023 from EUR 3.03 billion in the same month a year ago. This was the smallest monthly trade shortfall since September 2021, as exports surged 30.2% year-on-year to EUR 4.46 billion, underpinned by shipments to the EU (+35.7%), mostly mineral fuels, lubricants; manufactured goods and chemicals and related products. Overseas sales also increased to non-EU countries (+23.9%), primarily on account of mineral fuels, lubricants. Meanwhile, imports advanced at a slower 5.8% to EUR 6.83 billion, driven by purchases from non-EU countries (+8.1%), especially minerals fuels, lubricants; and the EU (+2.9%), mostly machinery & transport equipment and chemicals and related products.
Turkey Unemployment Falls to 5-Year Low
The unemployment rate in Turkey fell to 9.7 percent in January of 2022 from a downwardly revised 10.2 percent in the previous month, the lowest since 2018. The number of unemployed fell by 166 thousand to 3,424 million people, while the number of employed rose by 354 thousand to 31.837 million. Among genders, the jobless rate was lower for men (at 7.7 percent) than for women (at 13.7 percent). Meanwhile, the labour force participation rate slightly edged up to 54.1 percent from downwardly revised 53.9 percent a month earlier and the youth jobless rate for those aged between 15-24 years was up 0.5 percentage points at 20.2 percent.
Brazil Inflation Rate Slows for 8th Month
Brazil’s consumer price inflation eased for an eighth consecutive month to 5.60 percent year-on-year in February 2023, the lowest level in two years. Still, the rate came in slightly above market expectations of 5.54 percent and remained well above the central bank’s 1.75-4.75 percent target range. Inflation slowed for food and beverages (9.84 percent vs 11.07 percent in January) and personal expenses (7.53 percent vs 7.74 percent), while transport prices continued to fall (-0.73 percent vs -0.64 percent). On the other hand, inflation picked up for housing (0.53 percent vs 0.25 percent) and health and personal care (12.08 percent vs 11.21 percent). On a monthly basis, consumer prices advanced 0.84 percent in February, the most since April 2022
Brazil Business Confidence Edges Down in March
The Industrial Entrepreneur Confidence Index (ICEI) in Brazil edged down by 0.7 points to 49.9 in March 2023 from 50.6 in the prior month. The lack of industrial confidence was mostly due to worsening current conditions of the Brazilian economy (46.6 vs 48.3) and companies (39.4 vs 41 in February), the least since July 2020. Meantime, entrepreneurs were more pessimistic about the future of the economy (46 vs 46.3), while remained optimistic about the future of the company (56.1 vs 56.2).
India Industrial Production Growth Slightly Higher than Forecasts
Industrial Production in India increased 5.2% year-on-year in January of 2023, following a 4.3% rise in December and compared to market forecasts of a 5% increase. Output from the manufacturing sector increased 3.7%, mining 8.8% and electricity 12.7%. Considering the April 2022-January 2023 period, industrial production went up 5.4%.
Russian Inflation Slows More than Expected
The annual inflation rate in Russia fell to 11 percent in February of 2023 from 11.8 percent in the previous month, the lowest since the start of Russia’s invasion of Ukraine and under market expectations of 11.2 percent. While remaining high, the result also challenged the Central Bank of Russia’s worries that the labor force crisis in the country caused by the Kremlin’s military mobilization would support inflationary pressure. Prices fell for food products (9.3 percent vs 10.2 percent in January), non-food products (11.2 percent vs 12.2 percent), and services (13 percent vs 13.3 percent). On a monthly basis, the Russian CPI rose by 0.5 percent.
Russia Corporate Profits Drop 12.6% YoY in 2022
Corporate profits in Russia amounted to RUB 25,925.6 billion in 2022, down 12.6% from RUB 29,649.8 billion the year before, reflecting the impact of Western sanctions against large companies and entire sectors of Russia’s economy, particularly the financial and energy sectors. In December alone, Russian companies’ profits amounted to RUB 2.18 trillion, a 22.5% drop from RUB 2.81 trillion in December 2021.
Baltic Exchange Dry Index Rally Continues, Posts Weekly Gain
The Baltic Exchange’s main sea freight index, which measures the cost of shipping goods worldwide, was up for the 16th straight session on Friday, rising about 3.3% to its highest since late December 2022 at 1,424 points, amid firmer demand across all vessel segments. The capesize index, which tracks iron ore and coal cargos of 150,000 tonnes, increased for the 15th successive day, surging 5.5% to an 11-week high of 1,744 points; and the panamax index, which tracks coal or grain cargoes of about 60,000 tonnes to 70,000 tonnes, was up 1.9% to 1,654 points. Among smaller vessels, the supramax index increased by 29 points to 1,209 points.
The benchmark index advanced about 17.6% for the week.
The Week Ahead
The coming week will be crucial for market participants and policymakers, as the release of the US inflation report is likely to dictate the future path for interest rates. The annual inflation is seen easing to 6% while the monthly rate will likely hit 0.4%. The core consumer prices likely grew 0.4% over the previous month, resulting in the annual rate easing to 5.5% from 5.6%. it will be also interesting to follow producer price index, exports and imports prices, and inflation expectations for March. US retail sales are expected to rise a modest 0.2% month-on-month in February, suggesting tighter financial conditions dragged consumer spending. Other important releases are preliminary reading for the University of Michigan’s consumer sentiment, industrial production and housing data including building permits, housing starts and NAHB Housing Market Index. Finally, a slew of earnings results will provide more clues about the economy’s health. Adobe Systems, Pinduoduo, Dollar General, and FedEx are the most prominent companies to report.
In Europe, the ECB is expected to raise interest rates by another 50 bps to combat high inflation. Data showed the bloc’s inflation slowed further to 8.5% in February, compared with the market consensus of 8.2%, while the core rate hit a fresh record. Traders will also monitor President Christine Lagarde’s press conference, looking for clues on the size of the next rate hike after several policymakers backed the idea of more aggressive tightening. Other important releases cover the Eurozone’s final inflation figures and industrial production; Germany’s wholesale prices; UK’s job report; and Italy’s industrial activity.
In the United Kingdom, Chancellor Jeremy Hunt’s Spring Budget statement on March 15 with households hope for more help with energy bills
China will publish key industrial production, retail sales, labor market, and fixed investment data for both January and February. The numbers are expected to reflect the pick-up in activity after the world’s second-largest economy reopened from Covid lockdowns earlier in the year.
In Japan, investors await minutes from the bank’s monetary policy decision and February trade data.
Inflation in India is set to remain above the RBI’s upper target band of 6% for a second straight month, increasing the likelihood of another rate hike in April. India will also divulge February’s trade balance.
South Korea will release its February unemployment rate, and the Bank of Indonesia will decide on its key 7-day reverse repo rate.
In Australia, key reports will include Westpac consumer confidence for March and NAB business confidence for February. New Zealand will reveal its fourth-quarter GDP growth.
European Natural Gas Prices Soar 21%
Dutch front-month futures soared 21% to €52.86 per megawatt hour on Friday, the biggest jump since June, and the highest level in near a month, pushing the weekly gain to 17.5%, amid concerns over the impact of LNG terminal closures in France. Four LNG terminals have been blocked since late Monday due to protests against pension reform in France, and disruptions may continue until March 14th. Meanwhile, storage withdrawals set their record for the entire offtake season, helping offset the consequences of the shutdown in the country. Furthermore, some cargoes have been diverted to the Netherlands and Britain. European gas storage tanks are 57% full, with Germany seeing a 65% level and France – a 35%. On the weather front, a cold snap in Northern Europe could persist into next week. In addition, LNG competition with North Asia is set to remain low for now, but Hong Kong recently agreed to import a first-ever shipment of LNG and Chinese buyers also increased activity, Bloomberg reported.
Lithium Extends Decline to 14-Month Low
Lithium carbonate prices in China tumbled to a near-14-month low of CNY 337,500 per tonne in March, losing 44% of their value in the last four months, pressured by a pullback in demand expectations and signs of strong supply. After subsidizing battery manufacturers and granting cash rewards to new electric vehicle purchases, the Chinese government halted incentives for the new energy auto sector in January and catalyzed a decline in demand for battery inputs by auto manufacturers. The overproduction of batteries at the end of 2022 to take advantage of subsidies led top battery producer CATL to sell products at a steep discount this year, with the firm projecting carbonate prices to halve in the upcoming months. Meanwhile, top producer Australia forecasted global output of lithium carbonate equivalent to reach 915,000 tonnes in 2023, a 32% rise from 2022’s estimate. 8.5 million tons of lithium were found in a deposit in Iran, equivalent to 10% of the world reserve.
Investors Rush to Safety of Government Bonds
Major sovereign bonds rallied on Friday as investors grew worried about a Fed-induced global recession and the health of the banking sector. California-based SVB Financial Group said yesterday that it was issuing new shares to bolster its capital position after a significant loss on its investment portfolio. SVB’s troubles came on the heels of the collapse of Silvergate Capital Corp. as the crypto industry’s breakdown sapped its financial stability. The US 10-year Treasury note yield, seen as a proxy for global borrowing costs, bottomed at 3.7%, moving away from an almost four-month peak of 4.1% touched last week. Meanwhile, Germany’s 10-year Bund yield eased towards 2.5%, a level not seen in two weeks.
US Treasury Yields Decline Sharply
The yield on the 10-year US Treasury note fell below 3.7% on Friday, the lowest in a month, as investors digested a batch of labor market data for February. Non-farm payrolls totaled 311,000 in the period, well above market estimates of 205,000 and in line with other hot data this week that confirms the persistent tightness in the US labor market. Still, the unemployment rate edged 0.2 percentage points higher while labor income slowed down, suggesting the job market could be starting to feel the effects of aggressive rate hikes by the Federal Reserve. Bond yields dropped sharply on Thursday after SVB Financial Group sold debt securities to meet depositor demand, raising worries that the Federal Reserve may be forced to ease its tightening path. Money markets are now favoring the likelihood of a softer 25bps interest rate increase for the Fed’s meeting this month.
US 2 Year Treasury
US 10 Year Treasury
US 30 Year Treasury
Canada 10-Year Bond Yield Eases Further
The yield on Canada’s 10-year government bond eased to around 3.1%, a level not seen in a month and tracking its US peer lower, as investors reassessed the outlook for monetary policy and growth. Lingering concerns about a Fed-induced recession and the health of the US banking sector sparked demand for safe-haven assets, mainly government debt. Domestically, the Bank of Canada signaled that it would maintain its key interest rate unchanged at the current level should the Canadian economy develop as expected. In its March meeting, the central bank paused its rate-hike cycle at 4.5%, as previously signaled, after 425bps in rate increases during the last eight sessions. Policymakers noted that GDP growth was below expectations in the fourth quarter of 2022, emphasizing the need to support growth.
UK 10-Year Bond Yield Holds at 2-Week Low
The yield on the UK’s 10-year Gilt held at a two-week low of 3.7%, as investors rushed for safety amid concerns over the US banking system and uncertainty surrounding US monetary policy. Tech lender SVB Financial Group tried on Thursday to reassure its venture capital clients their money was safe after a capital raise, leading to a bank shares’ selloff across the globe. Elsewhere, the latest labor data offered a mixed picture as Federal Reserve officials debate how long to maintain rates higher to curb inflation. The February jobs report showed the US economy added more jobs than expected in February, while wage growth came in slightly below forecasts and the jobless rate rose from January’s five-decade low. Earlier this week, data showed jobless claims hit an over two-month high and job openings fell less than expected.
Germany 10Y Bond Yield Holds at 2-Week Low
Germany’s 10-year government bond yield held at a two-week low of 2.5%, as investors turned to safety amid uncertainty regarding US monetary policy and concerns over the US banking system after a capital raising at Silicon Valley Bank. At the same time, investors digested the latest US jobs report showing payroll growth accelerated more than expected in February, while wage growth came in slightly below expectations and the unemployment rate picked up from a 50-year high. Data on Thursday had shown an increase in weekly jobless claims to the highest level for over two months, signaling a cooling labor market in the US and prompting a reduction in rate expectations.
French 10-Year Bond Falls from 11-Year High
The yield on the French 10-year OAT fell below 3%, retreating sharply from the 11-year high of 3.24% hit on March 6th as concerns over the financial stability of US banks eased bets of more aggressive tightening from the Federal Reserve this month. Meanwhile, the European Central Bank is widely expected to raise its main rates by 50bps in the upcoming meeting to extend its fight against inflation. Hawkish calls from policymakers in the currency bloc strengthened bets that the ECB’s deposit rate could peak at 3.75% by the start of the third quarter. On the fiscal side, the French Senate voted in favor of increasing the legal retirement age by two years to 64 despite heavy opposition from labor unions.
Italian Bond Yields Retreat
The yield on the Italian 10-year BTP sank to below 4.3% in March, the lowest in over three weeks, tracking the rebound in demand for global bonds after jitters for US banks drove investors to rethink bets of a more aggressive rate hike by the Federal Reserve this month. Meanwhile, the European Central Bank is widely expected to raise interest rates by a further 50bps next meeting to extend its fight against inflation. Hawkish calls from policymakers in the currency bloc ramped up expectations that the ECB’s deposit rate could peak at 3.75% by the start of the third quarter. On the fiscal side, the Italian government’s budget deficit overshot the government’s target by 2.4 percentage points at 8% in 2022, as changes in accounting drove pandemic tax breaks to be accounted upfront. Still, the spread between the 10-year BTP and Bund narrowed below 180bps, close to the nine-month low of 170bps touched in February.
Japan 10-Year Bond Yield Sinks after BoJ Decision
The yield on the 10-year JGB fell below 0.4%, the lowest since January 23rd, and nearly 11bps below the top end of the BoJ’s target of 0.5%, where it has been since late February after the Bank of Japan maintained its ultra-easy monetary stance in March. In his last policy meeting, Governor Haruhiko Kuroda kept overnight interest rates steady at -0.1% and preserved the bond-buying policy to control yields. Although no major changes were anticipated, some analysts believed at least some steps would be taken to pave the way for the new Governor, Kazuo Ueda, who is expected to end the long-term yield control policy this year. Meanwhile, the Japanese parliament has already confirmed Ueda’s appointment as the new BoJ Governor starting April 9th.
Dollar Edges Lower after Mixed Payrolls
The dollar index weakened to 104.57 on Friday as investors digested the labor market report. The US economy added 311K jobs in February, way more than expected, but the unemployment rate unexpectedly increased to 3.6% while wage growth slowed. Earlier in the week, the dollar hit more than a 3-month high of 105.5 after Fed Chair Powell told the US Congress that the ultimate level of interest rates could be higher than anticipated in light of strong economic data and that the central bank would be prepared to increase the pace of tightening if needed. After the NFP release, expectations eased about the need for higher interest rates. The market is now pricing a 50/50 chance of the Fed raising rates by either 25bps or 50bps this month, compared to a better-than-even chance of a 50bps increase earlier. Traders now await the US CPI report due next week.
Euro Recovers from 2-Month Low
The euro rose back above $1.06 after touching $1.05 on March 8th, which was the weakest level since January 6th, as investors weighed mixed employment data out of the US. The latest jobs report showed the US economy added 311 thousand jobs in February, easily beating market expectations of 205 thousand, while the wage growth missed expectations and the jobless rate unexpectedly rose to 3.6% from January’s 50-year low of 3.4%. Earlier in a week, the Euro fell sharply against USD, after Fed Chair Jerome Powell told US lawmakers that the central bank might raise interest rates more than expected but after the NFP release, expectations eased about the need for higher interest rates. Meanwhile, this week a few ECB policymakers, with board member Robert Holzmann called for four 50-basis-point interest rate hike and President Christine Lagarde said a 50 bps hike in March was “very, very likely”.
Japanese Yen Slips as BOJ Stands Pat
The Japanese yen weakened toward 137 per dollar, sliding back to its lowest levels in three months as the Bank of Japan left its policy of ultra-low interest rates unchanged at its March meeting, in what was Governor Haruhiko Kuroda’s final policy meeting before retirement. Japanese policymakers also made no indications that the bank’s yield curve control would end, underscoring their preference in recent speeches to hold off on big policy changes at least until Kuroda’s successor, Kazuo Ueda, steps in as head in April. BOJ Governor nominee Ueda stated that the benefits of the BOJ’s stimulus outweigh the negative effects in the current economic scenario, as tighter policy by the bank would hurt growth and fail to tackle supply-driven inflation. The yen also came under pressure from hawkish remarks by Federal Reserve Chair Jerome Powell who signaled further monetary tightening in light of strong US economic data.
Chinese Yuan Weakens on Soft Inflation Data
The offshore yuan depreciated toward the key psychological level of 7 per dollar, sliding back to its lowest level in two months as investors reacted to fresh CPI data. China’s inflation rate fell to a one-year low in February, bolstering bets that the central bank would maintain an accommodative stance. Producer prices also declined for the fifth straight month in February. Last month, the People’s Bank of China left its key lending rates unchanged for the sixth straight meeting, as widely expected. Premier Li Keqiang also announced a GDP target of 5% for 2023 at the annual National People’s Congress on Sunday, lower than markets anticipated. Moreover, the yuan faced downward pressure from expectations that the Federal Reserve will tighten policy further in light of stronger-than-expected US economic data.
Sterling Rises from Over 3-Month Low
The British pound extended gains above $1.20, moving further away from an over three-month low of $1.18 touched on March 8th, as investors weighed mixed economic data out of the UK and the US against the Federal Reserve’s hawkish stance. Data showed Britain’s economy expanded 0.3% in January, more than expected, despite a contraction in manufacturing. In the US, employment data showed a stronger-than-expected jobs growth in February, while the wage increase came in slightly below forecasts. Data on Thursday had shown an unexpected jump in weekly jobless claims to over two-month highs. On the monetary policy front, Fed Chair Jerome Powell said the Fed might need to increase interest rates more than forecast to combat inflation, while the Bank of England is seen ending the current tightening cycle after the March meeting. Investors now await UK employment and wage data to be published on Tuesday and British finance minister Jeremy Hunt’s new budget due on Wednesday.
Wall Street Tumbles on SVB Failure
The Dow Jones closed 345 points lower on Friday, while the S&P 500 and the Nasdaq shed 1.4 and 1.7%, respectively, as the collapse of Silicon Valley Bank was the main focus besides the latest jobs numbers. On Friday, regulators took control of the Californian bank after it shares sank,, the biggest bank failure since 2008. Other banks also suffered in the wake of Silicon Valley Bank’s demise. Earlier, the run-on deposits doomed the tech-focused lender’s share sale to shore up its balance sheet amid losses from bond sales. Meanwhile, employment report showed that US employers hired more workers than expected in February, with nonfarm payrolls increasing by 311,000. On the other hand, unemployment unexpectedly rose to 3.6% and wage inflation cooled, easing some worries that a still-tight labor market will prompt sharper interest rate hikes.
For the week, the Dow was down 4.5%, marked its worst week since September, while the S&P 500 and the Nasdaq shed 4.9 and 5.1%, respectively
Canadian Shares at 8-Week Low
The S&P/TSX Composite index finished 1.5% lower at the 19,770 mark on Friday, marked its lowest level since early January and tracked losses of its peers on Wall Street as investors weighed a slew of labor market data. The Canadian unemployment rate beat expectations at 5% in February, holding near the record-low of 4.9% touched briefly last year with 22 thousand jobs added in the period. The result challenged the Bank of Canada’s expectations that stalled growth in the previous quarter could pressure the job market, raising fears that the central bank may take a more hawkish stance if economic data continues to be hot. The heavy-weighing financials sector in Toronto tumbled 2.2 from jitters in the US after SVB Group was forced to sell debt instruments to meet depositors’ withdrawal demands. Major Canadian banks fell as BMO (-2.6%), TD Bank (-2.1%) and Royal Bank of Canada -(1.7%) booked losses.
The TSX booked its worst week in 5 months and closed the week 4% lower.
Brazilian Equities Post Weekly Loss
Brazil’s Ibovespa stock index ended 1.4% lower around the 103,600 level on Friday, extended losses for the fourth straight session as investors weighed higher-than-expected domestic CPI data and the latest US jobs report. At the same time, market sentiment was pressured by worries about the health of the US financial system. Locally, investors are still waiting for more details on the fiscal framework that will replace a spending cap. The Minister of Planning and Budget, Simone Tebet, said that the new fiscal rule will “please everyone” as it stabilizes the public debt and at the same time enables the government to invest in the prioritized areas. On the data front, Brazil’s annual inflation rate eased for an eighth consecutive month to 5.60% in February, but it came above market estimates of 5.54%. Among stocks, CVC (-18.9%) led the losses, followed by the retailer Arezzo (-11.6%) and Azul (-11.1%), while Hapvida (+27.3%) outperformed.
For the week, the Brazilian index fell 0.3%.
European Stocks End 1.5% Lower
European shares closed 1.5% lower on Friday, as investors weighed signs of stress in the US banking system against US jobs data. The losses were led by financials, with Europe’s banking index falling 3.9% and booking its largest daily decline since early June, after tech lender SVB Financial announced a capital raising to shore up its balance sheet due to declining deposits from its customers. Deutsche Bank (-7.2%), HSBC (-4.8%), Banco Santander (-4.3%), BNP Paribas (-4%) and UniCredit (-3.2%) were among the worst performers.
For the week, the STOXX 600 lost 2.5% and Germany’s DAX 40 dropped 1.2%.
FTSE 100 Ends at One-Month Low, Post Biggest Weekly Drop Since September
Equities in London dropped for a second consecutive session on Friday, with the blue-chip FTSE 100 closing down 1.7 % at a one-month low of 7,748 points, dragged by financials and materials stocks. Hints of stress in the US banking system rattled global markets after US tech-industry lender SVB Financial Group launched a share sale to shore up its balance sheet. Major lenders, including Natwest Group, Barclays, Lloyds Banking Group, Intermediate Capital Group, and HSBC, plunged between 3.5% and 6.7%. On the economic front, the British economic output rose by a stronger-than-expected 0.3% month-on-month in January, supporting bets that the Bank of England will raise interest rates again later this month.
The FT100 index declined more than 2.5% this week, the sharpest weekly drop since September 2022.
French Stocks End at 2-Week Low
The CAC 40 index shed about 1.3% to close at a two-week low of 7,221 on Friday, extending losses for the fourth straight day, in line with its regional peers. Market sentiment was pressured by uncertainty about the magnitude of the next Fed rate hike and concerns over the impact of a potential collapse of SVB Financial Group on the banking sector. Several sectors closed in the red, led by financials, with Societe Generale (-4.5%), BNP Paribas (-3.8%) and Credit Agricole (-2.5%) posting sharp losses. On the positive side, Eurofins Scientifique (+2.8%) and Carrefour (+1.4) were the top gainers.
For the week, the CAC40 index in France lost 1.7%
Spanish Stocks end the week sharply lowe
The IBEX 35 plunged to 9267 on Friday, tracking its European peers, as investors weighed US jobs data against signs of stress in the US banking system. On the corporate front, Banco Sabadell (-5.11%), Bankinter (-4.22%), and Banco Santander (-4.21%) ended as the biggest laggards. Among a few protagonists were Aena (2.18%) and Iberdrola (0.05%). Iberdrola’s US subsidiary Avangrid and PNM Resources have filed a joint petition with the New Mexico Public Regulatory Commission for the withdrawal of the appeal against their merger.
Over the week, the major stock index in Spain lost nearly 1.5%.
Milan Stocks Close Sharply Lower
The FTSE MIB index closed 1.6% lower at 27,282 on Friday, booking a 2% drop on the week after the American SVB Financial Group attempted to raise capital through a stock sale after it was forced to sell debt securities to meet deposit outflows, triggering a mass sell-off for US and European banks. Finecobank and BPER Banca were the top losers of the sector, each losing 4.5% to extend last session’s downturn. On the domestic data front, base effects drove the Italian PPI to rise 11.1 percent annually last month, well below the 31.7 percent increase in January.
Japanese Shares Fall After BOJ Decision
The Nikkei 225 Index dropped 1.67% to close at 28,144 while the broader Topix Index tumbled 1.91% to 2,032 on Friday, retreating sharply from multi-month highs, as the Bank of Japan left its policy of ultra-low interest rates unchanged at its March meeting, in what was Governor Haruhiko Kuroda’s final policy meeting before retirement. Japanese shares also tracked a bank-led selloff on Wall Street overnight amid concerns that higher interest rates are pressuring bank balance sheets due to borrower defaults. Financial stocks led the market lower, with heavy losses from Mitsubishi UFJ (-6.1%), Sumitomo Mitsui (-5.3%) and Mizuho Financial (-4.9%). All other sectors declined, including index heavyweights such as Nippon Yusen (-6.6%), SoftBank Group (-6.3%), Sony Group (-2.7%), Keyence (-2.3%) and Seven & I Holdings (-5.9%). Still, the benchmark indexes finished the week higher for their second straight weekly advance.
China Stocks Drop for 5th Session
The Shanghai Composite fell 1.37% to close at 3,230 while the Shenzhen Component dropped 1.19% to 11,443 on Friday, sliding for the fifth straight session and tracking a bank-led selloff on Wall Street overnight amid concerns that higher interest rates are pressuring bank balance sheets due to borrower defaults. The benchmark indexes also posted sharp weekly losses, weighed down during the period by a disappointing growth target for China set at the annual National People’s Congress over the weekend. Meanwhile, investors watched for market reaction as Xi Jinping is set to formally secure an unprecedented third term as president. Notable losses were seen from heavyweight firms such as BYD Company (-5.2%), Inspur Electronic (-6.5%), Zhonghang Electron (-12.6%), China United Network (-4.2%) and China Telecom (-2.9%).
Hang Seng Erases 2023 Gains
Equities in Hong Kong tanked 605.82 points or 3.04% to end at 19,319.92 on Friday, its lowest close in 11 weeks, retreating for the fourth session while tumbling around 6% weekly, amid a sharp drop in US stock equities after Wall Street sold off Thursday ahead of NFP data and as worries mounted about financial stability. The Hang Seng gave up its gains for the year, as the MSCI China Index plunged over 16% from this year’s top in late January, due to deepening uncertainty regarding the Chinese economic outlook despite the lifting of strict COVID measures. Losses were across the board, with tech falling 4%, on the ongoing chip war between Washington and Beijing, while consumers shed almost 3.5%. Financials also suffered heavy losses following the collapse of crypto-focused lender Silvergate in the US. JD.Com tumbled near 11% after downbeat revenue guidance.
Geely Auto and Hang Lung Properties each sank 5.6%, while Tencent Hlds slipped 2%.
Singapore Equities Fall to Near 4-Month Low
The stock market in Singapore dropped 1% to 3,177 on Friday, extending losses for the third day while trading not far from its lowest in four months, amid a tumble on Wall Street overnight, as worries mounted ahead of US February jobs data later today. The STI index is recording another weekly loss, the sixth consecutive decline, due to growing indications that the Monetary Authority of Singapore may not end its tightening stance soon as inflation in the city stayed elevated. Turning to the mainland, equities plunged to a three-week low, as the MSCI China index slumped over 16% from this year’s top in late January, with uncertainty surrounding an economic recovery lingering after Beijing set a 2023 GDP growth of 5% that came below market expectations. Among the biggest laggards were Jardine Cycle (-2.7%), Dairy Farm International Holdings Ltd (-2.3%), Jardine Matheson (-1.8%), UOB (-1.5%), and HongKong Land (-1.3%).
Indian Shares Close Week Lower
The BSE Sensex held losses from early trading to close 670 points lower at 59,135 on Friday, booking a 1.1% loss on the week and tracking the downturn for equities worldwide after Silicon Valley Bank’s struggle to meet depositor demand triggered a rout in global banking stocks. HDFC, IndusInd Bank, and the State Bank of India all sank more than 2% to lead losses for the financial sector in Mumbai. Tech shares also came under pressure ahead of the key US jobs report to be released after the closing bell, expected to significantly affect the Federal Reserve’s interest rate decision later this month. Expectations of a rebound in economic activity in China also pressured Indian equities as investors reallocated capital to the world’s second-largest economy. On Thursday, foreign investors snapped a four-session buying streak in Indian stocks and offloaded a net USD $68.49 million worth of equities.
Oil Regains Some Traction, Still Booking a Sharp Weekly Decline
WTI crude futures rose more than 1% to around $76.7 per barrel on Friday, looking poised to snap a three-day decline as a sharp dollar depreciation following the payrolls report made greenback-priced commodities attractive. Still, the US benchmark remains down almost 4% this week amid lingering worries that more aggressive tightening from the Federal Reserve would dent economic growth and curb demand.
OPEC Secretary-General Haitham Al-Ghais echoed such concerns, saying decreasing oil consumption in the US and Europe could threaten the market. Elsewhere, investors continued to assess the demand outlook in China, as the world’s top crude importer dismantled strict Covid curbs.
US Natural Gas Futures Remain Under Pressure after EIA Data
US natural gas futures declined to $2.4/MMBtu after the latest EIA report showed that last week’s storage withdrawal was lower than usual for this time of year as mild weather kept heating demand low. US utilities pulled 84 bcf of gas from storage last week, more than market expectations of an 80 bcf drop. Still, it is much less than a decrease of 126 bcf in the same week last year and a five-year average decline of 101 bcf. Last week’s decrease cut stockpiles to 2.030 trillion cubic feet (tcf), 493 bcf higher than last year at this time and 359 bcf above the five-year average of 1.671 tcf. Average gas output in the US Lower 48 states grew to 98.6 bcfd so far in March, up from 98.2 bcfd in the previous period. Still, the total amount of gas flowing to the seven biggest US LNG export plants increased to 13.2 bcfd so far this month from 12.8 bcfd in February. Meanwhile, average US gas demand, including exports, is expected to rise from 115.8 bcfd this week to 119.6 bcfd next week.
Copper futures eased to $4 per pound, approaching the near-two-month low of $3.95 touched on February 27th as concerns of a slowing economy and some respite to tight supply offset expectations of higher demand from China. Jitters in the US banking sector spurred worries that the Fed is on an overtightening course and raised concerns of lower economic activity in the coming months. On the supply side, improved situations in key mines in Peru and Indonesia eased worries of a wider supply deficit, while Canada’s First Quantum Minerals settled a deal with the Panamanian government on profit sharing and is expected to resume activity. Limiting the decline, the Chinese government set a growth target of 5% for this year during its National People’s Congress session and confirmed incoming stimulus for infrastructure and construction.
Gold Gains after US Payroll
Gold prices gained almost 2% to above $1860 an ounce on Friday, after the payrolls report sent the dollar down. The US economy added 311K jobs in February, way more than expected, but the unemployment rate edged higher to 3.6% and wage growth slowed, easing expectations about the need for higher interest rates. Traders now seem to be evenly divided on whether the Fed will opt for a 25bps or 50bps increase on March 22nd. Meanwhile, hawkish remarks from ECB policymakers continue to point to further increases in borrowing costs. In Canada, the central bank already paused the tightening cycle and the Bank of Japan hold its ultra-easing monetary policy as expected.
Sugar Declines from 6-Year High
Raw sugar futures in the US rose above 21.1 cents per pound, still lower than the six-year high of 22.1 cents touched on February 27th as tight supply in the near-term offset forecasts of higher production in the next marketing year. Top producer Brazil confirmed the end of its tax exemption program for gasoline, pushing demand higher for lower-taxed sugarcane ethanol. Such a policy increases the profitability of domestic ethanol blenders and forces producers to allocate sugarcane for fuel production instead of sugar crushing, limiting the sweetener supply. Elsewhere, mills in the key Indian state of Maharashtra ended the cane-crushing season, erasing hopes that additional sugar production could increase the Indian government’s export allocation quotas. Looking forward, major consultancy Datagro raised its forecast for Brazil’s center-south region to produce 38.3 million tonnes in the next marketing year, a 13.1% increase on this year’s estimate.
Cocoa Eases from Over 2-Year High
Cocoa eased to the $2,674 level, down from an over two-year high of $2,830 touched on March 1, as strength in the dollar weighed on prices. At the same time, concerns over tight supplies and prospects of a second successive global deficit this season will likely continue to provide support. Reports have shown that some Ivory Coast cocoa exporters are close to defaulting on their contracts due to a lack of cocoa beans. According to the latest data, farmers in top producer Ivory Coast sent a cumulative 1.72 MMT of cocoa to the country’s ports for the 2022/23 marketing year from October 1 through March 5, down 1.7% year-on-year. Earlier this month, the International Cocoa Organization (ICCO) forecasted global 2022/23 cocoa stockpiles to fall 3.5% from a year earlier to 1.653 MMT due to weather variations, especially in West Africa. On the other hand, global cocoa production is seen climbing 4.1% to 5.017 MMT, and global cocoa grindings should decline by 0.6% to 5.027 MMT.
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