Harris Fraser |
금융 시장 리포트
6 January, 2023
Weekly Insight 06/01

Weekly Insight 06/01

 ​usa ​US

US markets got off to a relatively poor start to the year of 2023, as the 3 major indices lost 0.88-1.65% over the past 4 days ending Thursday. The US Fed released the December FOMC meeting minutes during the week, minutes reflected a clear message from Fed members, that inflation remains a concern, and dissented market’s monetary policy expectations. Fed members also spoke out during the week, St. Louis Fed President James Bullard struck a dovish tone, suggesting that rates are close to sufficiently restrictive. However, other members remained hawkish, Atlanta Fed President Raphael Bostic said that the Fed has more work to do, Kansas City Fed President Esther George suggested that interest rates should rise above 5% and stay at the level throughout 2023, Minneapolis Fed President Neel Kashkari even proposed that rates to rise as high as 5.4%. At the time of writing, markets still expect Fed Fund Rates to hit 5% in May, and rate cuts to take place in 2H 2023.

As for economic data, ISM manufacturing PMI in December was 48.4, which missed market expectations of 48.5, and was the second month of contraction in a row. Labour market data surprisingly tightened, both initial and continuing jobless claims came in lower than market estimates, ADP nonfarm employment change in December was 235K, which was significantly higher than the expected 150K, the data reignited worries over the labour market. In other news, the House Speaker election surpassed 10 rounds of voting without a result, which is the highest record since 1859. Next week, the US will be releasing more data including CPI figures and NFIB small business optimism index for December, University of Michigan Sentiment Index for January, as well as the latest labour market data on initial and continuing jobless claims.

 

euro ​Europe

Contrary to the US markets, European equities performed better off in the New Year, the French CAC and German DAX gained 2.59-2.86% over the past 5 days ending Thursday, while the UK FTSE also edged 1.61% higher over the past 4 days ending Thursday. Putin offered a 36 hour ceasefire for Orthodox Christmas, but the Ukrainian side offered no responses. On the other hand, the US and Germany have announced that they are sending additional armaments to Ukraine, including armored vehicles and Patriot missile systems. It remains to be seen if the conflict would extend throughout 2023. On the economy, final European PMIs in December were revised higher, while French and German CPIs both came in lower than markets expected. Next week, Eurozone will release the unemployment rates for November, both the UK and Germany will release their industrial production data for November, and the ECB will publish the latest Economic Bulletin.

 

china​China

The reopening continued in China, sentiment was lifted by the improvement in the economic prospects. Over the week, the CSI 300 Index gained 2.82%, while the Hang Seng Index surged 6.27%. It was reported that China is considering to reduce the huge investments on homegrown chips, while the PBOC reiterated that monetary will stay targeted this year to the economy, while maintaining economic stability and limiting price pressures. On the other hand, it was rumored that China might ease the ‘Three Red Lines’, and there are plans to ease liquidity stress for ‘systematically important’ developers, this was a dramatic shift in policy. As for the economy, Caixin Manufacturing PMI was 49 in December, which was higher than market expected, but was lower than the previous value. Caixin Services PMI on the other hand was 48 in December, which has improved from the 46.7 in November. Next week, China will be releasing December data on aggregate financing, new Yuan loans, and money supply M2, as well as CPI data and exports figures.

 

0106ENG

0106ENG2

금융 시장 리포트
28 December, 2022
Weekly Insight 30/12

Weekly Insight 30/12

 ​usa ​US

Market volatility remained in the short trading week after returning from Christmas holidays, equities rebounded on Thursday on renewed expectations of an easing monetary policy, the 3 major indices gained 0.04-0.72% over the past 4 days ending Thursday. Market noise was limited as the trading week was shortened, and holiday mood kicks in. As the Ukrainian war closes in a full year, Biden signed off the 1.7 trillion funding bill, which included 47 billion in aid for Ukraine. US announced COVID testing requirements for Chinese travelers, while the reopening of the 2nd largest economy rekindled inflation fears. Later on, easing labour market data gave rise to optimism over monetary pathway in 2023, 10 year treasury yields slightly retreated from the weekly high of 3.88%.

As for economic data, the housing market in the US continued to show warning signs. Pending home sales in November fell 4% MoM, which was far greater than the market expected fall of 0.8%, this also marks the 6th consecutive months of contraction. As for the labour market, initial jobless claims were in line with market expectations of 225K, while continuing claims of 1,710K were higher than the market expected 1,686K and the previous reading of 1,669K. Markets will pay attention to whether the tightness of the labour supply be eased further. Next week will be packed with December data releases from the US, including the ISM manufacturing and services PMIs, unemployment rate, and change in nonfarm payrolls. The usual initial and continuing jobless claims will be closely monitored, and the US Fed will lease their FOMC meeting minutes for the December meeting.

 

euro ​Europe

Market sentiment improved in line with global markets, the UK FTSE, German DAX, and French CAC gained 0.58-1.13% over the past 4 days ending Thursday. After the price cap on Russian oil was enacted early in December, Russia has finally retaliated, with President Vladimir Putin signing off a ban of oil sale to countries complying with the price cap. On the other hand, Russian forces continued to fire missiles and other munitions on Ukraine infrastructure, causing huge blackouts. Belarus on the other hand reported shooting down a Ukrainian anti-air missile and summoned the Ukrainian ambassador. As the war nears its 1 year anniversary, Russia rejected the possibilities of peace talks, and energy supply disruptions could well extend into 2023. Next week, economic data releases are largely focused on the December CPI data, where Eurozone and major economies are releasing their figures over the week, the Eurozone figure is expected to further ease to 9.6% YoY. Eurozone will also release their retail sales figures for November.

 

china​China

China continued uplifting its COVID restrictions, cases were on the rise, but investment sentiment improved on restarting economic activity, and further support to the property sector. Over the week, the CSI 300 gained 1.13%, while the Hang Seng Index was also 0.96% higher in the short Christmas trading week. China announced plans to reopen borders, drop quarantine requirements by 8th Jan 2023, and reclassify COVID as a Category B disease, traffic activity data showed recovery for cities with COVID cases past its peak. Hong Kong followed the change and dropped quarantine measures for visitors, and scrapped vaccination pass requirements, Chief Executive John Lee said the current plan is to reopen the Hong Kong-China border by mid-January next year. For the economy, Chinese industrial profits YTD fell further to-3.6% in November, which further worsened from October’s -3.0%. Next week, China will release the Caxin manufacturing and services PMIs for December, as well as YoY exports data in December. It was also announced that the 14th National People’s Congress will be held on 5th March next year.

1230ENG

1230ENG2

 

금융 시장 리포트
28 December, 2022
Weekly Insight 23/12

Weekly Insight 23/12

usa ​US

Markets have not made up their mind on the economy and monetary policy path, worries over more potential tightening from the Fed led to markets correcting further. Over the past 5 days ending Thursday, the 3 major indices were down 0.52-3.09%. The US Senate passed a 1.7 trillion bill and is sent over to the House in bids of clearing it before services have to shut down over Christmas. The bill mainly comprised of domestic spending and military spending of around 770 billion and 850 billion respectively, and included a roughly 45 billion aid package to Ukraine, where Russia claims will further raise tensions in the region. In other news, Oil prices posted some recovery, the WTI gained 4.31% over the past 5 days ending Thursday, as expectations for China to return to normalcy outweighs recession fears.

On the economic front, Consumer Board consumer confidence index was 108.3 in December which was much higher than the expected 101.0, and the previous month’s 101.4. Existing home sales in November fell 7.7% MoM, a much larger fall than the expected 5.4%, the actual sales figure in the month was also the lowest since June 2020. Building permits in November was only 1.342 million, also missed expectations of 1.485 million, hitting a new low in 2.5 years. Contrary to the weak housing market, labour market remained tight, with initial and continuing claims coming in lower than market expected. Next week, the week will be shorter due to Christmas holidays, and we will only see sparse data releases. The US will publish the latest pending home sales data for November, as well as the usual labour market data on initial and continuing jobless claims.

 

euro ​Europe

European equities were mixed over the week, markets remained split over the economic and monetary outlook. Over the past 5 days ending Thursday, the French CAC and German DAX were slightly down 0.07-0.52%, while the UK FTSE was up 0.58%. After the rate hike decision in the previous week, ECB Vice President Luis de Guindos echoed the sentiment this week, stating that monetary tightening will continue despite recession overhang, and 50 bps hikes will be the new normal. As for the economic data, IFO business climate was 88.6 in December, which was better than the expected 87.4, and was a further improvement from the 86.4 in November. Eurozone consumer confidence on the other hand slightly missed expectations with the -22.2 in December, which was lower than the expected -22.0, but the figure continued the improvement since the trough back in September. With most of Europe having holidays over Christmas, next week will be a very quiet week on Euro data, with only the latest Economic Bulletin coming from ECB.

 

china​China

China equities were softer as COVID continued to spread in the country, while Hong Kong markets gained. The CSI 300 index was down 3.19% over the week, whereas the Hang Seng Index was up 0.73%. After the pivot in COVID policy, cases continued to mount in China. It was reported that workers with mild cases of COVID are requested to return to work, but traffic data suggest that economic activity across major cities could have fallen. On the policy side, the latest 1 Year and 5 Year Loan Prime Rates (LPR) were kept unchanged. The State Council instructed the further rollout of the stimulative policies, and suggested a more positive outlook for the economy in the coming year. This was also echoed by the PBOC, Governor Yi Gang states that the Bank will support consumption recovery, and assist M&A activity in the property sector. Furthermore, it was reported that China will remove quarantine requirements for travelers in the coming month. Next week, China will be releasing the manufacturing and non-manufacturing PMIs for December, as well as industrial profits data for November.

 

 

금융 시장 리포트
22 December, 2022
EM – Short Term Dollar Weakness Could Cushion Downside Risks

  Into the last month of the year, emerging markets edged lower in line with global markets. Over the month of December, the FTSE ASEAN 40 lost 0.30% over the month, ending the year with a 2.36% gain, while the MSCI emerging markets index lost 1.64% in December, ending 2022 with a 22.37% loss, in line with the losses in the China market.


Given the global economic slowdown and chances of recession, there are multiple sources of headwinds for EM economies, including high inflation, weak currency, tight monetary and financing conditions, as well as weaker external demand. Furthermore, the weak balance sheets and the risks of inflation rules out strong fiscal stimuli, higher financing costs weakens investment sentiment, drawing capital away from EM economies, further impacting longer term economic growth. According to World Bank, EM economic growth is expected to decelerate to 2.7% in 2023, far lower than the long term average.


For ex-China EM economies, Latin America led by Brazil will likely experience higher volatility ahead as uncertainty mounts following Lula’s win, both politically and financially. Asian markets on the other hand would suffer due to the fall in external demand, but with China’s recovery and the reopening across the region, the renewed demand could possibly offset some impact on the economy. Emerging Europe would likely underperform, as there is still no signs of resolution on the Ukrainian conflict. All in all, while market is skewed to the downside, given that short term softness in the US Dollar is expected, this could possibly limit the risk in EM equities, one could consider a small allocation to Asian EM if opportunity arises.

0120EM1

 

금융 시장 리포트
22 December, 2022
Japan – Mixed Outlook for the Economy

While global investment sentiment has improved, but Japanese equities had a muted month. Over the month of November, the Yen has gained 7.72% against the Dollar over the month, despite the dovish BOJ, the Nikkei 225 gained 1.38% (8.11% in US$ terms), while the TOPIX was up 2.91% (9.74% in US$ terms).

Overall, the economy is Japan remains mixed, manufacturing PMIs in particular slip further amidst global economic slowdown. Inflation remains one of the biggest points of concern, where the CPI in October rose to 3.7% YoY, which was the highest figure in more than three decades. However, the high figure was largely driven by rises in input prices, the more important wage inflation remains muted. The gap between wages and inflation puts extra pressure on households, lower disposable income results in weaker confidence and expenditure, hitting the economy.

Externally, while it is expected that the continued reopening could help support the services sectors in Japan, the slowdown in the global economy would limit the upside available. Internally, imported inflation eating into household consumption is an unresolved issue, and it remains to be seen to what extend the fiscal package could alleviate the situation. As reopening gains have likely been priced in, the impending recession is unfavourable for the Japanese economy, and monetary policy normalisation might take place in the coming year, all these factors put a further cap on the upside, our outlook for the Japanese equity market remains conservative.

금융 시장 리포트
22 December, 2022
Fixed income – Overweighing Investment Grade Bonds

Markets anticipate easing in monetary policy tightening, fixed income saw renewed demand across the board. Over the month of November, Bloomberg Global Aggregate, US investment grades, US high yields, and Emerging Markets US dollar bonds gained 4.71%, 5.18%, 2.17%, and 6.63% respectively.

Moving toward the end of the year, we see signs of inflation peaking or close to the peak across major economies, the high base effect is also expected to bring inflation lower for the coming year. Expectations on the tightening monetary policy has been dialled down over the month, with major central banks expected to slow down, or even pause on hikes. We too expect the rapid rate hiking cycle to gradually ease in the short to medium term. Although there are still ways to go before terminal rate is reached, long end yields tend to peak before the rate hike cycle ends.

Henceforth, we do see opportunities begin to emerge in the fixed income markets. We still prefer investment grades over high yields given the looming recession risks, as they are less affected by widening spreads. On the other hand, we are turning positive on duration, as the long end yields have likely peaked. Further bond buying in the market due to the weaker economy, as well as the yield curve normalisation, could offer further upside in the long duration IG space. Looking forward to 2023, we would avoid high yields, while overweighting on short and long term IGs as we expect the economy continue to slip.

금융 시장 리포트
22 December, 2022
EM – Unfavourable Macro Backdrop

As optimism continues to build in global equity markets, sentiment improved on hopes for easing monetary tightening from the Central Banks. EM equities rebounded over the month, and diverging from the previous month, Chinese equities led the way, contributing to the outperformance of EM markets in November. Over the month, the MSCI EM index gained 14.64%.

The latest data suggest that the global inflation situation is showing signs of easing, market expects that this could pave the way for easing in the tightening monetary policy. While we agree that rate hikes could slowdown, we do not see the case for a complete halt, or even a pivot in the trajectory. Although inflation could have peaked, it remains at an elevated level, central banks leaving rates at a restrictive level should be the base case for the coming year. The tighter financing conditions in global investment markets reduces valuation levels, and further amplifies economic hardships.

Apart from headwinds in form of a restrictive monetary landscape, the overall economic backdrop is also unfavourable to EM. Global economic slowdowns effect exports, the weaker balance sheets of EM economies is also less capable of supporting economic compared to DMs. In short, although EM equities have held up reasonably well this year, we do not see good grounds for further upside in EM equities for the coming year given the headwinds. Henceforth, we would remain conservative over EM equities in the short term.


 

금융 시장 리포트
22 December, 2022
Europe – Downside Risks Not Fully Priced In

Riding on the back of renewed optimism over the inflation outlook and monetary policy path, European equities continued the rally in November, despite no material shift in the macroeconomic backdrop. Over the month, the Euro appreciated 5.30% over the Dollar, and the European STOXX 600 index gained a further 6.75% (11.38% in US$ terms).

PMIs slightly improved over the previous month, although they remain in the contraction zone. The headline CPI has also recorded MoM fall, which could be a sign that inflation has finally peaked, but the figure itself is still very elevated. Overall, we don’t see a material shift in the economy itself, as key risk factors remain in place. Moreover, the ECB will likely continue its ongoing monetary tightening plans, higher interest rates hit both the physical economy and valuation levels, putting more downward pressure on the equity market.

Other than the climbing rates, there are still a few sources of risks that market have not sufficiently priced in. Recession is one, given the significant slowdown in the economy, the ECB minutes have acknowledged that recession is a definite possibility from Q4 2022 onwards throughout 1H 2023. Provided that corporate earnings have yet to be downward revised, equities could fall further. Furthermore, quantitative tightening will likely rollout somewhere down the road, reducing liquidity from the market further pressures equity valuations. Given unchanged headwinds, current valuations are unattractive, downside risks outweigh upside potential, and we maintain our underweight call on European equities in the meantime.


 

금융 시장 리포트
21 December, 2022
China – An Unexpected Pivot in Policy

After 2 months of underperformance, both Hong Kong and China markets mounted a huge rebound in November, expectations on additional policy support and COVID policy relaxations drove the rapid improvement in investment sentiment. Over the month of November, CSI 300 was 9.81% higher (13.11% in US$ terms), the Hang Seng Index even surged a whopping 26.62% (27.31% in US$ terms).

Economic data this month continued to disappoint, as all PMIs and sector indicators showed continued weak trends. The economic slowdown in China due to confidence issues, which could be attributed to 2 main causes, the COVID restrictions due to the ‘Zero COVID’ doctrine, and the property crisis after active deleveraging. The former has dampened both investment and consumption due to the strictness of the rules, while the latter has large direct and indirect impacts on the economy itself, and further hits disposable income due to the reverse wealth effect.

To deal with the issues, the Chinese government has finally relaxed COVID restrictions. Although the relaxation is relatively limited in scale, it was viewed as a step forward to reopening. Optimism over the COVID policy outlook lifted economic expectations, which could possibly kick-start consumption recovery. Regarding the property crisis, a 16 point plan was released, providing more financing support to the sector, potentially limiting the contagion risk in the economy. With the government starting to address the core issues of the economy, the medium term outlook for Chinese equities would likely start to turn more positive, we hold a relatively neutral view after the recent surge, and see more upside available if the market corrects.


 

금융 시장 리포트
21 December, 2022
US – ‘Soft Landing’ is not Our Base Case

Although the overall economy continued to slowdown, and inflation remains elevated, the global investment market continued the strong rally on the back of optimism over monetary policy tightening. Over the month of November, the Dow, S&P 500, and the NASDAQ gained 5.67%, 5.38%, and 4.37% respectively.

Investment sentiment was buoyed by dovish expectations, although fundamentals have not shown much improvement over the previous month. In our view, while a slowdown in the pace of rate hikes is likely, it shouldn’t mark a pivot in the monetary policy. We still consider inflation elevated, even Fed’s preferred measure of core PCE is far higher than the target level, there is insufficient grounds for a near term pivot until the figures are low enough. With interest rates remaining at high levels, expect continued pressure on both the economy and the stock market.

Given the weak economy and high inflation, ‘soft landing’ is not our base case for 2023. Recession is possible, expect corporate earnings to take a further hit, driving equity markets lower. Even if the economy does manage to achieve a ‘soft landing’, current valuations are relatively unattractive considering the conservative estimated terminal risk free rate of 5% in 2023, the ongoing quantitative tightening progress will also put a cap on valuation in the equity market. Therefore, despite the recent rebound in the market based on optimism, we do not think it is sustainable, and would remain conservative on US equities before market reflects the downside risks appropriately.


 

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