Harris Fraser |
금융 시장 리포트
5 August, 2022
Weekly Insight August 5

Weekly Insight August 5

usaUS

While Asian stock markets were shaken by US House Speaker Nancy Pelosi's visit to Taiwan, US stocks managed to maintain their momentum, with the tech heavy NASDAQ seeing a bigger rebound, up 4.59% over the past 5 days ending Thursday, while the S&P 500 and Dow rose 1.95% and 0.61% over the same period. Several Fed officials have recently made hawkish comments, reiterating that maintaining price stability is their top priority. The Cleveland Fed President reiterated the Administration's determination to curb inflation by raising interest rates, while the San Francisco Fed President also said that a 50 bps hike is most likely at the September meeting.

Recent data from the US was mixed, with the ISM Manufacturing Index falling to a two-year low of 52.8 in July, mainly due to a contraction in orders and an increase in inventories, while the ISM Services Index unexpectedly rose to a three-month high of 56.7 in July, ahead of market expectations of 53.5. The number of job openings in the US fell to a nine-month low of 10.698 million in June, slightly below market expectations of 11 million, indicating a slight moderation in labour demand. Next week, the University of Michigan market sentiment for August and the CPI for July will be released, with the market expecting the annual CPI rate to slow to 8.8% from 9.1% in June.

 

euroEurope

European equities followed US markets, with the UK, French, and German equities rising between 0.33% and 1.32% over the past 5 days ending Thursday. The Bank of England raised its policy rate by 50 bps to 1.75% after the interest rate meeting, which was the largest hike since 1995. The central bank warned that the UK could face more than a year of recession under the pressure of soaring inflation. On the data front, the Eurozone's preliminary Harmonised Index of Consumer Prices (HICP) rose by a record 8.9% YoY in July, adding to concerns over inflationary pressures; retail sales in the Eurozone fell by 3.7% YoY in June, exceeding the expected drop of 1.7%. Next week, the Eurozone industrial production for June and the Sentix Investor Confidence Index for August will be released.

 

chinaChina

Tensions over the Taiwan Strait triggered a sharp fall across Asian stock markets, affecting both China A-shares and Hong Kong stocks, though both recovered lost ground later on. The CSI 300 Index was slightly down 0.32% over the week, while the Hang Seng Index edged up 0.23%, investors remained on the lookout for the latest developments. On the earnings front, Alibaba's second quarter revenue fell for the first time on record, but the drop was smaller than expected. In addition, the People's Bank of China (PBOC) held the working meeting for the second half of the year, which called for maintaining adequate liquidity, stable and moderate growth in monetary and credit terms, and prudent resolution of risks in key areas. Next week, China will announce the PPI and CPI for July.

 

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금융 시장 리포트
29 July, 2022
Weekly Insight July 29

Weekly Insight July 29

  usaUS

Market rallied on the back of optimism over moderation in monetary tightening, alongside some upbeat corporate earnings this week has lifted market sentiment despite ongoing worries over recession, the 3 major indices gained 0.85-1.84% over the past 5 days ending Thursday. The US Fed announced a rate hike of 75 bps, in line with market expectations. In the statement, the Fed had acknowledged that economic indicators have softened for the first time, Fed President Jerome Powell admitted that the inflation is still too high, reiterating the Fed’s determination to fight inflation, but also mentioned that a slowdown in the pace of rate hikes will be likely ‘at some point’. He also emphasised that the Fed does not believe the US is in a recession, citing the strong labour market and other factors.

On the corporate earnings front, Meta, Alphabet, and Microsoft all missed market estimates, but the latter provided an optimistic outlook for the year. Amazon and Apple on the other hand defied expectations and had a strong quarter, showing solid growth amid the slowing economy, lifting market sentiment. As for fundamentals, Consumer Board consumer confidence index of 95.7 in July missed expectations of 97.2, new home and pending home sales also missed expectations. The US preliminary Q2 GDP came in at -0.9% QoQ, lower than the market expected 0.5% expansion. With the Q1 GDP contracting at -1.6% QoQ, the US has entered technical recession. However, according to the National Bureau of Economic Research (NBER) definition, which is more commonly used by US officials, the US has yet to enter recession. Next week, US will be releasing various ISM indices for July, as well as unemployment and nonfarm payroll figures.

 

euroEurope

Despite the surprise in rate hikes earlier, European equities continued to rally on the back of improved market sentiment. Over the past 5 days ending Thursday, the UK, French, and German indices gained 0.27-2.23%. The Nord Stream 1 has returned online after the earlier maintenance, and had been operating at 40% capacity. Russian gas giant Gazprom announced further supply cuts to 20% on Monday, citing maintenance and repairs. The further cut in supplies raises concerns over a potential energy crisis, which could intensify if Russia completely cuts off gas supplies to Europe. European countries agreed to reduce usage of natural gas by 15% so as to counter Russian threats. For fundamentals, sentiment indicators in Europe continued the slide and missed expectations, CPI for July was 8.9%, hitting another new record high. Next week, Eurozone unemployment data for June will be released, the Bank of England will also hold its interest rate meeting.

 

chinaChina

Both Hong Kong and Chinese equity markets were volatile this week, the Hang Seng Index lost 2.20%, while the CSI 300 slipped 1.61%. The economy remains under pressure due to the COVID situation, affecting market sentiment. Alibaba founder Jack Ma announced the decision to give up control over Ant Group, which would complicate plans for the latter to go public in accordance to listing rules in Hong Kong. According to The Paper, former China Securities Regulatory Commission chairman Xiao Gang suggests more oversight on cooperation between financials, internet platforms, and technology companies. Industrial profits for June released earlier showed improvement over the previous month figure. Next week, China will release the Caxin PMIs for July.

 

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금융 시장 리포트
25 July, 2022
Weekly Insight July 22

Weekly Insight July 22

  usaUS

Despite the disappointing results of some of the financials reporting earlier, US stocks continued the rebound, with the three major indices rising between 4.59% and 7.19% over the past five days ending Thursday. US President Joe Biden was reported to have contracted COVID, but he will continue to carry out his duties as President. The market paid great attention to the earnings season, where 71.9% of the 96 reporting S&P constituents beat market expectations. The energy sector had the lowest percentage of earnings beats among all sectors at 33%. According to Bloomberg data, among the 96 reporting companies, the average earnings were down 5.9% YoY.

Large banks were the first to report earnings, apart from Morgan Stanley and JPMorgan Chase, both which reported YoY earnings drops, Bank of America and Goldman Sachs also reported the same. Goldman Sachs' investment banking business reported a decline, and the bank will slow down hiring in an effort to control expenses. Sources said that investment banking in Europe and the US might see a new wave of layoffs unless trading activity rises sharply in September. Despite the banking sector's disappointing results, Tesla reported better-than-expected second-quarter earnings and kept its annual production growth target of 50% unchanged, it also announced that it had converted around three quarters of its bitcoin to fiat currency. Focus next week will be on quarterly results from several Big Tech companies, alongside the release of US Q2 GDP, as well as the Fed's interest rate meeting.

 

euroEurope

The ECB's surprise 50 bps rate hike and heightened political uncertainty in Italy did not deter European stocks from following the rebound in US stocks, as the UK, French, and German stock indices rebounded 1.56% to 2.97% over the past five days ending Thursday. The ECB unexpectedly raised interest rates by 50 bps in one go and introduced a new anti-fragmentation tool called the Transmission Protection Instrument (TPI). ECB President Christine Lagarde said that the absence of forward guidance would give the ECB more policy flexibility, and that countries in the region would have to comply with EU debt rules to use the tool. On the other hand, Italian Prime Minister Mario Draghi officially resigned and the country's snap election will be held on September 25. Next week, the Eurozone will release important data including the Q2 GDP and CPI for July.

 

chinaChina

The Hong Kong and Chinese stock markets stabilised this week, with the Hang Seng Index up 1.53% and the CSI 300 Index flat for the week. China's economic outlook was under pressure as the number of new cases confirmed remained high. Premier Li Keqiang said that preserving employment and stabilising prices were key, and that deviations in economic growth would be acceptable, reiterating his cautious stance on large-scale stimulus packages. In addition, the China Banking Regulatory Commission (CBRC) said it would support local authorities in "guaranteeing the delivery of properties" to maintain stable and orderly real estate financing. Next week, China will release industrial profits data.

 

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금융 시장 리포트
19 July, 2022
Japan – Concerns over Currency Volatility

In line with global investment markets, the Japanese equity market also fell in June. Inflation continued to pose as a threat, and fears of recession resulted in deterioration of the market sentiment.

The Japanese Yen further depreciated against the Dollar, over the month of June, the Nikkei 225 lost 3.25% (8.33% in US$ terms), while the TOPIX index was 2.19% lower (7.32% in US$ terms).

Monetary policy in Japan remains one of the loosest globally, the widening interest rate differential between the Yen and the rest continued to exert pressure on the currency itself. The Yen depreciated 5.19% against the Dollar, which will have impact on the Japanese economy. Due to the weaker currency, inflation is felt in Japan, with the YoY CPI figure hitting a 7 year high. The drop in household expenditure is also reflects this very issue, as the rising prices eat into the buying power, which will in turn weaken the economic growth.

Certainly, exporters do benefit from the cheaper currency, the consumer discretionary sector could also perform relatively well as Asia reopens after COVID, and tourism is revitalised. However, the overall market will still likely face more external headwinds as corporate margins continue to be compressed and domestic spending is muted. More importantly, despite the continued monetary support from the Bank of Japan, due to the depreciation of the Yen, total return in foreign currencies such as the Dollar will be compressed. With the conflicting forces present, we continue to stay relatively neutral on the market’s outlook.

금융 시장 리포트
19 July, 2022
Fixed income – Negative Outlook Persists

Fixed income indices resumed the slide in June, as the market remain under the two pronged pressure of rising rates, as well as reducing liquidity, bond yields continue to go higher, and the trajectory is expected to stay unchanged in the short term.

Over the month of June, Bloomberg Global Aggregate, US Investment Grades, US High Yields, and Emerging Markets US Dollar Bonds Indices fell 0.88%, 2.80%, 6.73%, and 4.57% respectively.

We see no change in the global macro outlook, as the overarching problem of high inflation remain in place. Not only did energy costs surge, other items ranging from services to food also rose as a knock-on effect. Due to width of the issue, it would take longer before the supply and demand balance could be restored. In response, the ongoing monetary tightening could stay around for longer. Markets expect rates to continue its rise, putting more pressure onto the bond market. Bonds with longer duration, especially investment grades, are expected to take further hits to their performance.

Other than the interest rate risks, we are also concerned about the economic outlook. With high inflation and a slowdown in the global economy, recession probability has risen to considerable levels. As credit spreads tend to widen significantly during economic downturns, we also encourage investors to stay light on credit exposure. Given no change in the external risk factors, we maintain our underweight suggestion on fixed income. If one really needs to invest in bonds, the only option is to get short duration high quality bonds.

금융 시장 리포트
19 July, 2022
EM – Risk-Off Pressures Market

EM equities have experienced quite a bit of correction over the month, largely due to concerns over supply chain issues, the high inflation, tightening monetary policy, as well as the risks of a global recession.

Market sentiment soured, emerging markets were also hit hard in the risk off environment, as capital flows back to safe haven assets. Although Chinese markets gained over the month of June, the MSCI emerging markets index still posted a 7.15% loss.

Global inflation remains severe, and there is no sign of abating. We do not expect the issue of high inflation to be resolved in the short term, and could further worsen. Monetary tightening in EM will continue in response before authorities see a clear resolution to the inflation problems, and the rapid pace of the hikes will likely induce business hardships and worsening fiscal conditions. The shrinking liquidity also limits asset valuations, putting more pressure onto the equity market.

In the face of both a deteriorating marketing condition, and well as the risks of recession, market is shifting towards a risk off sentiment, which would likely increase fund outflows from EM equities. Moreover, prices surges on fuel and food will have a disproportionate impact on EM economies due to their larger share of the consumer’s basket. As the monetary policy is already tightened in response to inflation, EM economies do not have much visible upside potential in the short to medium term, we keep our view of underweighting EM equities unchanged barring China.

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금융 시장 리포트
19 July, 2022
Europe – More Risk Factors

Similar to other major global markets, European equities also experienced a heavy correction. Worries over inflation, more restrictive monetary policies, the Ukrainian conflict, as well as recession, haunted markets. Over the month of June, STOXX 600 index lost 8.15% (10.28% in US$ terms).

Inflation remained an issue in Europe, as the June Eurozone CPI print came in at 8.6%, setting another record high in history. In order to reign in the inflation, ECB president Christine Lagarde noted that the Bank is ready to move rates at a faster pace if the situation calls for it. At the moment, markets are pricing in a total of 75 bps in rate hikes before September, which will bring the European interest rates back to positive territory for the first time since 2014. The drastic shift in the monetary policy will likely put pressure on both valuation levels, as well as corporate fiscal health, hindering future economic growth.

As for fundamentals, European economic conditions appears to be at the worst in recent years. According to Markit, manufacturing output fell for the first time since the start of the epidemic, hitting a 24-month low. Given the Russian oil sanctions will likely be in effect by the end of the year, Europe could face the further threat from Russian gas being cut off. With recessionary risks higher, while continue monitoring other recessionary indicators, investors should also avoid adding exposure to this market as the downside risks far outweigh the upside potential.


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금융 시장 리포트
19 July, 2022
China – With Upside Potential

China equites were one of the few markets that had logged in positive returns for the month. Market sentiment supported equities, and fundamentals have started to show signs of a rebound.

The CSI 300 index gained a whopping 9.62% (9.17% in US$ terms) over the month of June, while the Hang Seng Index also posted a smaller 2.08% gain (2.07% in US$ terms).

Riding off from the improved sentiment after the supportive policies came out in late May, Chinese equities had a strong rally over the month as valuations recovered. With COVID under control, economic activity have started to pick up pace, both manufacturing and services PMIs have also further rebounded to the expansion zone, reflecting the improvement in business sentiment. However, other indicators have still yet to show a clear bottoming out, which would warrant further monitoring before we can determine there is a complete recovery.

Housing market data also showed positive signs, as home sales in first and second tier cities picked up MoM, which is a good sign for the physical economy outlook. Moreover, given the limited inflation, China has more tools at hand to deal with the uncertainty arising from recessionary risks in external markets, as there is more room for monetary and fiscal loosening. As the valuation levels are relatively lower, we see China is one of the only few markets where its upside potential outweighs the downside risk. Henceforth, we are relatively optimistic on the market in the short to medium term.

 

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금융 시장 리포트
19 July, 2022
US – ‘Soft Landing’ Unlikely

US equities underperformed in June, ending the first half of the year with the worst performance in over 50 years.

Focus in the market returned to the glaring issues of high inflation, monetary tightening, and the risks of recession. Poor sentiment in the market drove the wide market lower, with the Dow, S&P 500, and the NASDAQ falling 6.71%, 8.39%, and 8.71% respectively over the month of June.

According to Fed President Jerome Powell, it has become increasingly difficult to achieve ‘soft landing’ for the economy. As inflationary pressures remain elevated, monetary tightening is expected to continue, and rates are expected to hit 3.50% by the end of the year. However, economy is also starting to slow down, with surveys finding deteriorating confidence for both corporates and consumers, company executives noted that consumers are growing more cautious on expenditure due to higher prices and the increased uncertainty, companies have also scaled back on their expansion plans. At the moment, we still see the recessionary risks higher.

That said, as not all indicators are negative, recession is not yet at the doorstep. Although short term rebounds are still possible, the equity market is still firmly down trending. We believe that this is not the time to re-enter the US equity market, as recession risks have yet to be fully priced in, given that earnings estimates in the market have yet to be downward revised. If there is further correction, we could then reassess if it presents an investment opportunity.

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금융 시장 리포트
18 July, 2022
Weekly Insight July 15

Weekly Insight July 15

  usaUS

A further rise in US inflation to its highest level in more than 40 years sparked fears of a straightforward 1% interest rate hike in July, and together with the International Monetary Fund's lowered forecast for economic growth, market sentiment took a hit, with the three major US stock indices falling by 2.40% to 3.19% in the past five days to Thursday. The US Consumer Price Index (CPI) rose 9.1% year-on-year in June, a further record high since 1981 and above market expectations. US President Joe Biden said that the inflation report was out of date and did not adequately reflect the decline in gasoline prices. Nevertheless, the market raised expectations for a 100 basis point rate hike in July and the President of the Atlanta Fed hinted that a 1% rate hike in July was not out of the question. This was followed by the worst inversion in the spread between 2-year and 10-year US bond yields since 2000, suggesting that a recession may be imminent.

 

Indeed, the International Monetary Fund (IMF) has cut its growth forecast for the US this year and next to 2.3% from 2.9% and 1% next year from 1.7%, with the head of the IMF saying that a global debt crisis is brewing after a wave of interest rate hikes following the epidemic and war. The U.S. Federal Reserve Releases Beige Book showed that price inflation was significant in all jurisdictions, while demand showed signs of slowing and recession fears were rising. In addition, the US is entering a peak earnings period, with quarterly net profits down 28% year-on-year at Morgan Stanley and 28% year-on-year at JP Morgan Chase, and the market is concerned about the performance of US stocks this quarter. The US manufacturing PMI for July will be released.

 

euroEurope

The euro has fallen to 1:1 against the dollar for the first time in 20 years, but this has not helped European stocks to rally, with inflationary pressures leading to concerns about growth, with UK, French and German stocks down between 1.95% and 3.81% in the last five days to Thursday. In the face of the euro's decline, the ECB said it needed to be concerned about the impact of the exchange rate on imported inflation. In addition, the EU cut its economic growth forecast for the eurozone next year to 1.4%, while expecting the impact of inflation to last longer. Italian Prime Minister Mario Draghi said he would not continue to lead the government if the Five Star Movement left the ruling coalition. The Eurozone will release manufacturing PMI, the UK will release CPI and other data, and the ECB will meet in July.

 

chinaChina

Chinese equities continued the weakness seen since July, with the CSI 300 index down 4.07% and the Hang Seng index down 6.57% for the week. China's GDP fell 2.6% sequentially and narrowed to 0.4% year-on-year in the second quarter of the year due to the impact of the epidemic. Aggregate financing rose, to RMB5.17 trillion in June, while the amount of new RMB loans rose to RMB2.81 trillion over the same period. Premier Li Keqiang said the economy has stabilized and rebounded, but a new round of epidemic prevention and control may have a greater impact and consumption may recover more slowly in the second half of the year. China will announce 1-year and 5-year LPR rates.

 

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