Weekly Insight 25/11
The US markets had a shorter week with Thanksgiving, market sentiment remained positive as the focus remained on the likelihood of rate hikes slowing down. Over the past 5 days ending Wednesday, the 3 major indices gained 0.91-1.91%. The US Federal Reserve released their November FOMC meeting minutes on Wednesday, minutes showed that officials were inclined to dial down on rate hikes, and some members were also concerned about the delayed impact of rate hikes on the economy and inflation. However, members also noted that the terminal rates would likely be higher than previously expected, and they warned of a ~50% chance of recession happening. Markets focused on the reconfirmation of slower rate hikes and posted continued gains. At the time of writing, Bloomberg interest rate futures data showed that markets expect the Fed to hike rates for 50 bps at the December meeting, and rate would peak around 5% mid next year.
The Institute of International Finance (IIF) published the latest forecast for the global economy, suggesting that global growth in 2023 could further slow to 1.2%. IIF suggested that the largest drag factor will come from the Ukraine conflicts, while positive drivers would come from China. On the economic fundamentals front, manufacturing PMI for November came in at 47.6, much lower than the market expected 50.0 and 50.4 In October, it also marked the first contraction since the height of the COVID pandemic back in 2020 July. Services PMI for November of 46.1 also came in lower than market expectations and the previous month figure. Labour market data continued to show signs of easing, with initial and continuing jobless claims coming in higher than both market estimates and the previous reading. Next week, the US will be releasing November data on the latest Conference Board Consumer Confidence Index, ISM manufacturing PMI, as well as nonfarm payrolls data.
European markets performed in line with global markets, over the past 5 days ending Thursday, the UK, French, and German indices were up 1.63-2.00%. The ECB just released their October interest rate meeting minutes on Thursday, minutes revealed that while most members agreed that a shallow recession would not be enough to bring down inflation, there is disagreement on the size of hikes, with some calling for a 50 bps hike instead. Regarding the energy crisis, members remained split over the gas price cap, ministers will meet again in mid-December. On the economic front, Eurozone PMIs were better than expected, with manufacturing and services PMIs coming in at 47.3 and 48.6 respectively, both beating market estimates, though they remained below 50. The UK PMIs were in a similar position, it remained in contraction, but the November figures beat market estimates nevertheless. Next week, the Eurozone will publish the latest Economic sentiment data for November, as well as the preliminary CPI figures. It was also reported that European Council President Charles Michel will visit China on 1st December.
China and Hong Kong equity markets paused after the recent rallies, the CSI 300 index was slightly down 0.68% this week, while the Hang Seng Index is down 2.33%, the Hang Seng Tech index fell further, dropping 6.48% over the period. COVID cases continued to surge in China, with daily infection figures hitting a record high, markets continue to look for clues for China’s possible pivot on the COVID policy. Regarding the property sector crisis, Chinese banks including ICBC and others pledged support to provide financing to certain troubled developers, totaling up to 1.28 trillion CNY, the news lifted the property sector in anticipation of further support from the government. However, the loan prime rate was left unchanged this week. In other news, some hedge fund managers claimed that they opened bets against the Hong Kong Dollar peg. China will be releasing a lot of economic data next week, including both NBS official manufacturing and non-manufacturing PMIs for November, Caixin manufacturing PMI in November, and industrial profits YTD YoY for October.