Harris Fraser |
금융 시장 리포트
19 September, 2022
Weekly Insight September 16

Weekly Insight September 16

usa ​US

The much anticipated inflation print came out stronger than expected, reinforcing expectations of a larger rate hike in the next Fed interest rate meeting, sending US equities lower for the week. Over the past 5 days ending Thursday, the 3 major indices were 2.56-2.62% lower. The World Bank warned on Thursday that the global economy is heading towards a recession, as global central banks ‘simultaneously hike interest rates’ due to inflation. However, the Bank suggested that even at the current trajectory of rate hikes, it would be insufficient to bring the global core inflation back to the targeted level, suggesting that central banks might have to raise interest rates by another 2% to achieve their goal.

On the economic front, August CPI came in at 8.3% YoY, higher than the market expected 8.1%, and also logged a 0.1% gain MoM, surpassing expectations of a 0.1% contraction. The PPI in August on the other hand was 8.7%, which was both below the market expected 8.8% and July’s 9.8%. The Core PPI though was 0.4% MoM, suggesting that inflation is still not out of the window yet. Retail sales were also strong, with a 0.3% MoM growth in August, beating both market expectations and the previous month figure. More importantly, the labour market remains tight, with both initial jobless claims and continuing jobless claims lower than expected. It remains to be seen whether there will be continued easing in prices. Next week, the US will release the Markit manufacturing and services PMI, while the Fed will also hold the September interest rate meeting.

 

euro ​Europe

European equities retreated later in the week as the prospect of further monetary tightening emerged. Over the past 5 days ending Thursday, the UK, French, and German indices only edged 0.28-0.52%. ECB board member Isabel Schnabel reiterated that the Bank will be further raising interest rates to ensure inflation returns to the medium term target level of 2% in a timely manner. ECB Vice-President Luis de Guindos acknowledged that the European economy is slowing, but emphasised that monetary policy must be focused on price stability, and the Bank is determined to keep inflation expectations anchored. The European Commission proposed an emergency intervention to control electricity prices, but left out price caps on nautral gas, Dutch TTF Gas Futures remain in the 200 Euro range. On the Economic front, German ZEW economic sentiment fell to -61.9, missing expectations of -60 and the previous month figure of -55.3. The UK August CPI came in at 9.9% YoY, surprisingly lower than market consensus of 10.2% and the July figure of 10.1%. Next week, the Eurozone manufacturing and services PMIs will be released. The Bank of England will also hold its September interest rate meeting on 22nd September after delaying it due to Queen Elizabeth II’s death.

 

china​China

Although August economic data have showed some signs of life, both China and Hong Kong equities remained under pressure over the week, with the CSI 300 Index down by 2.60%, and the Hang Seng Index losing 0.49%. Due to COVID restrictions, domestic tourism was hit over the Mid-Autumn Festival, tourism revenue is 22.8% lower. As for the FX, the US Dollar to Chinese Yuan broke through the 7 mark for the first time in over 2 years. President Xi Jinping made his first state visit in more than 2 years, and attended the Shanghai Cooperation Organisation Summit, meeting Russian President Vladimir Putin there. In other news, SEC Chairman Gary Gensler mentioned that inspectors from the Public Company Accounting Oversight board will fly to Hong Kong, and start the review on Chinese companies listed in the US on Monday onwards. Chinese economic data released this week were decent, with fixed investment, industrial production, and retail sales all better than markets expected. Next week, China will release the latest 1-Year Loan Prime Rate.

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금융 시장 리포트
16 September, 2022
Weekly Insight September 9

Weekly Insight September 9

usa ​US

Economic data diverged, market volatility continued over the week, but US equities did somewhat stabilise after the recent drawdown. Over the past 5 days ending Thursday, the 3 major indices were 0.39-1.29% higher. US Fed president Jerome Powell reiterated the Fed’s determination to act against inflation, citing the experience of persistent inflation in the 70s and 80s showed the need for Fed action, Powell also mentioned the tight labour market as another point of concern. Many firms are now predicting a 75 bps rate hike in the September interest rate meeting, which is echoed by the market, as Bloomberg interest rate futures currently imply roughly 80% chance for a 75 bps hike at the time of writing.

According to the latest economic Beige Book released by the Fed this week, the labour market stays very tight, wages are rising, and price levels remains elevated, although most aspects have showed some degree of easing, the report also noted weakness in the residential real estate market. In other news, OPEC+ held a meeting on 5th September, announcing a cut of 100,000 barrels per day in October, citing concerns over China demand and the Iran deal. For economic fundamentals, the final Markit Services PMI for August was further revised downwards to 43.7 from the preliminary figure of 44.3, while the final ISM Services PMI in August was revised up to 56.9 from 55.1, reflecting further divergences amongst corporations. Next week, the US will release the CPI, PPI, and retail sales figures for August, as well as the University of Michigan Sentiment Index for September.

 

euro ​Europe

Following the earlier correction, European markets slightly rebounded, with the UK, French, and German indices gaining 1.52-2.17% over the past 5 days ending Thursday. The European Central Bank (ECB) held its interest rate meeting on Thursday, announcing a rate hike of 75bps, which was the largest single rate hike since the formation of the Bank. After the meeting, ECB president Christine Largarde suggested that more rate hikes are on the way, but reassured that the 75 bps hike will not be the norm. In the UK, Queen Elizabeth II has passed away on Thursday at the age of 96, after appointing Liz Truss as the new Prime Minister on Tuesday. Nord Stream 1 have yet to resume operations after Russia announced maintenance earlier, energy security in the region remains as a main concern for investors. As for economic fundamentals, the final services PMI in the Eurozone was revised down to 49.8, missing market expectations and entering contraction zone for the first time since March 2021. Next week, the Bank of England will hold its interest rate meeting, the UK will release its August retail sales data, while Eurozone will publish the ZEW survey expectations for September.

 

china​China

Over the week, the Hang Seng Index fell by 0.31% while the CSI 300 Index rose by 1.74%, the overall market sentiment remains under pressure. The Chinese government is actively providing impetus to the economy. During the State Council meeting on Wednesday, Premier Li Keqiang announced policies to support employment and entrepreneurship, as well as supporting the platform economy. However, markets remain on the side-lines before solid economic data is observed. On the economic front, Chinese CPI and PPI both came in lower than expected, August exports saw a mere 7.1% growth YoY, which was much lower than the market expected 12.8% and the previous month’s figure of 18.0%. In particular, Chinese exports to the US recorded the first YoY contraction since August 2020; though Caixin Services index for August came in at 55.0, which was better than market expected. Next week, China will be releasing the August data on fixed asset investment, industrial production, and retail sales.

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금융 시장 리포트
14 September, 2022
Weekly Insight September 2

Weekly Insight September 2

usa ​US

The decline in US stocks continued after the Jackson Hole meeting as the market became more wary of the risk of interest rate hikes, with the three major indices falling between 4.91% and 6.76% over the past 5 days ending Thursday. Neel Kashkari, the Fed's most hawkish official, was "pleased" with the fall in US equities, saying that it reflected the market's recognition of the Fed's resolve to tackle inflation. However, there were widespread concerns over the US economy in the face of expectations of interest rates remaining high. US Senate Republican Leader Mitch McConnell believes that interest rate hikes could lead to a recession and that the Republicans will keep Mr Joe Biden in check. According to UBS, the US credit market has grossly underestimated the risk of recession, with the bank estimating a 55% chance of recession. Morgan Stanley also predicted that the S&P 500 would fall further this year.

Economic data was mixed, with the ISM manufacturing index coming in at 52.8 in August, higher than the expected 51.9; the US ADP Nonfarm employment change was only 132,000 in August, lower than the expected 300,000. Next week, the US will release the ISM Services Index and other data for August, as well as the economic Beige Book.

 

euro ​Europe

European equity markets continued the slide this week, with the UK, French, and German equity indices losing 4.32-5.44% over the past 5 days ending Thursday. Over the week, more ECB members commented on the outlook ahead of the monetary meeting on 8th September. ECB board member Isabel Schnabel and Bank of France Governor François Villeroy de Galhau called for larger rate hikes in the coming meeting, Bundesbank President Joachim Nagel also echoed them, arguing that a larger frontloaded hike could help anchor inflation expectations. ECB chief economist Philip Lane however stood behind ‘steady pace’ of rate hikes, so as to allow more adjustments on the fly. European gas prices slightly retreated this week, as the European Commission announced that they are looking at an emergency intervention on the electricity market. On the economic front, Eurozone CPI hit a new record high of 9.1% YoY in August, surpassing the expected 9.0%. Labour market however stays tight, with the unemployment rate in July at 6.6%, remaining at the historic low. Next week, Eurozone retail sales and German factory orders for July will be released, the ECB will also hold the interest rate meeting on 8th September.

 

china​China

Markets are watching the latest developments at the 20th National Congress of the Chinese Communist Party (CCP) closely, but both China A-shares and Hong Kong equities remain under pressure due to expected rate hikes from the US, with the CSI 300 Index falling by 1.55% and the Hang Seng Index by 2.84% over the past 5 days ending Thursday. At an earlier session of the Central Political Bureau, it was proposed that the 20th National Congress of the CCP should be held on 16th October. A new Central Committee and a Central Disciplinary Committee will be elected at the Congress. The Vice-Chairman of the China Securities Regulatory Commission (CSRC), Mr Fang Xinghai, announces three new initiatives to expand pragmatic cooperation between the Chinese and Hong Kong capital markets, including expanding the range of stocks available through the Stock Connect, supporting the launch of a Renminbi stock trading desk in Hong Kong, and supporting the launch of Chinese government bond futures in Hong Kong. The market will be watching the developments at the G20 meeting and the Fed's rate hikes. Next week, China will release the PPI and CPI for August, as well as the Caixin China Services PMI and export data.

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금융 시장 리포트
29 August, 2022
Weekly Insight August 26

Weekly Insight August 26

usa ​US

Equity markets experienced larger swings over the week, as economic data posted more disappointments, and attention shifted to the Jackson Hole meeting, where Fed President Jerome Powell will give an opening speech. Over the past 5 days ending Thursday, the 3 major equity indices lost 1.98-2.51%. Powell’s scheduled speech likely carries much weight, but markets were unsure of the direction, volatility increased over the week. Other Fed members continued to give hawkish signals, St. Louis Fed President James Bullard suggested that inflation could be more persistent, Minneapolis Fed President Neel Kashkari emphasised the need to keep the monetary policy tight, and Kansas City Fed President Esther George also agreed that the Fed has more work to do regarding rate hikes.

On the economic data front, August Markit Manufacturing PMI in the US was 51.3, missing market expectations of 52 and came lower than July’s 52.2. Markit Services PMI posted a larger surprise, plunging to 44.1 in August, which was much lower than the consensus of 49.2 and the 47.3 of the previous month. Labour market on the other hand stayed tight, with initial and continuing jobless claims both lower than market expectations. In other news, the US administration has signalled that the US will agree to an Iran deal if it would benefit the country, raising hopes that the supply shortage could see further easing. Next week, the US will be releasing conference board consumer confidence index, ISM manufacturing index, as well as non-farm payrolls data.

 

euro ​Europe

After the earlier gains, European markets retreated this week, with the UK, French, and German equity indices losing 0.82-3.11% over the past 5 days ending Thursday. ECB released the minutes for the July meeting during the week, revealing that most members backed a 50 bps hike. Members also indicated their concern over the weak Euro further contributing to the high inflation levels. The Euro further depreciated against the US Dollar during the week, falling below parity for the first time in 20 years. Natural gas prices in Europe rose further during the week, with Dutch TTF Gas Futures passing the 300 Euro per megawatt hour mark, as Gazprom announced another unscheduled maintenance for Nord Stream 1. On the economic front, Eurozone manufacturing PMI was 49.7, beating market expectations, while services PMI of 50.2 slightly missed the market estimates of 50.5. Eurozone consumer confidence and German IFO Business Climate in August on the other hand were both better than expected. Next week, Eurozone will release the unemployment rate in July, as well as the CPI data for August

 

china​China

Hong Kong and Chinese equity markets were mixed this week. The CSI 300 index lost 1.05%, while the Hang Seng Index gained on the back of positive rumours over the Sino-US audit spat, and ended the week 2.01% higher. The State Council announced a policy package of 19 measures during the week, unveiling plans including infrastructure projects, totalling 1 trillion yuan in bids to stabilise the economy. It was rumoured that an audit deal between US and China was reached, which could prevent the Chinese companies from delisting from US markets, tech heavyweights surged, driving the Hong Kong equity market higher. China announced cuts to the Loan Prime Rates (LPR) as expected, cutting the 1Y rate to 3.65% from 3.7%, and the 5Y rate was also reduced to 4.3% from 4.45%. Markets will continue to monitor if the rate cuts will bring further easing of financing conditions. Next week, China will announce the Manufacturing PMI and Caixin Manufacturing PMI for August.

 

 

 

금융 시장 리포트
22 August, 2022
Weekly Insight August 19

Weekly Insight August 19

usa ​US

Anticipating a smaller rate hike in the September meeting, market sentiment have turned more optimistic. US equity markets continued the rally, with the 3 major equity indices 1.45-1.99% over the past 5 days ending Thursday. The Fed meeting minutes were released during the week, participants were quoted saying ‘it likely would become appropriate at some point to slow the pace of policy rate increases’, further raising expectations for ease in rate hikes. St. Louis Fed President James Bullard calls for a 75 bps for next meeting, while Kansas City Fed President Esther George pushed back the idea, saying that the Fed have to watch carefully before acting as data tends to lag. According to Bloomberg interest rate futures data, markets are split regarding the September interest rate meeting, with an implied 2.5 rate hikes priced in at the moment.

On the economic front, retail sales in July was flat, slightly missing market expectations of a 0.1% gain MoM. On the other hand, industrial production in July were positive, the MoM growth of 0.6% was higher than both market expectations and the previous month figure. Employment data continue to suggest a tight labour market, with initial and continuing jobless claims coming in lower than market expectations. However, a recent survey on hiring done by PwC showed around half of the surveyed companies are freezing hiring, with plans to reduce headcount. Markets will continue to pay attention to relevant data for the next rate hike decision. Next week, preliminary Markit PMIs for both manufacturing and services in August, initial jobless claims, as well as University of Michigan sentiment for August will be released.

 

euro ​Europe

European equities had a relatively flat week, the UK FTSE gained 1.02% over the past 5 days ending Thursday, while the French CAC and German DAX only edged 0.02-0.19% higher. Droughts continued due to the heat and dry weather, water levels are down affecting shipping traffic, hydroelectric power output has also fallen around 20% YoY, raising the demand for natural gas. European gas prices have further rose over the week, hitting a record high of 241 Euros per megawatt-hour on Thursday. Costlier fuel forces some industrial activity to a halt, raising further concerns over the European economy. As for fundamentals, UK inflation continued to worsen, July CPI hit double digits, and the 10.1% YoY figure was the highest in 40 years reflecting the higher energy prices. German ZEW economic sentiment for August came in at -55.3, worse than both market expectations and the previous month figure. Next week, August Eurozone manufacturing and services PMIs, as well as Eurozone consumer confidence will be released.

 

china​China

With weaker sentiment, and disappointing data, Hong Kong and Chinese equity markets continued the weaker form. Over the week, the CSI 300 lost 0.96%, while the Hang Seng Index was down 2.00%. Earlier, 5 Chinese state owned enterprises including Sinopec announced plans to delist from the US exchange, further raising concerns over the clash between China and the US over audit matters. The Chinese property sector remains under pressure, Fitch downgraded Country Garden to non-investment grade status, and the management warns of a sharp fall in earnings. To further support the economy, China’s Premier Li Keqiang asked local governments to roll out more supportive policies. Expect a cut in the Loan Prime Rates (LPR) announcing next week to further support both the property sector and the economy as a whole. As for economic data, fixed asset investment, industrial production, and retail sales figures released this week all came in weaker than market expectations. Next week, China will publish the latest 1-year and 5-year Loan Prime Rates (LPR), as well as the industrial profits figure.

 

 

 

금융 시장 리포트
19 August, 2022
EM – Expect Relative Underperformance

EM equities had a mixed month amidst divergences in market performances. Markets are optimistic that monetary tightening could have peaked, and recession could be avoided. However, due to the poor performances of the Chinese market, the MSCI emerging markets index was still slightly down by 0.69% over the month of July. Major commodities prices have retreated, markets were hopeful that global monetary policy tightening could ease. That said, as PMI breakdowns have shown that inflationary pressures arising from wages and input costs remain significantly higher than pre-pandemic levels, more time is needed before the inflation problem eases. In addition, although food prices have somewhat moderated from earlier highs with the latest, they remain very elevated on a historic level. Considering the heavier weighting of food prices in the inflation basket for EM economies, fundamentals should remain under more pressure when compared to developed markets. Furthermore, expect the US dollar to retain its strength due to the interest rate differential. A strong dollar has been negative for EM equities, as capital outflows from EM hurts valuations, the shift to risk adverse sentiment due to concerns over possible recession also affects the outlook for EM equities. As fundamentals and money flow continue to pressure EM, and the lack of fiscal and monetary stimulus provides no catalysts to the market, we would maintain our view of underweighting EM equities in the short to medium term.

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금융 시장 리포트
19 August, 2022
Fixed income – IG Bonds might offer opportunities

As with other global investment markets, fixed income indices also rebounded. Anticipating that inflation might peak, market sentiment improved as expectations on monetary tightening have eased somewhat. Over the month of July, Bloomberg Global Aggregate, US Investment Grades, US High Yields, and Emerging Markets US Dollar Bonds gained 2.13%, 3.24%, 5.90%, and 2.11% respectively. Although markets have partially recovered, inflationary pressures remained at multi-decade highs. We expect rate hikes and quantitative tightening to continue before inflation returns to the long term target. That said, according to interest rate futures data, there is more confidence that global central banks can bring inflation down, rates are expected to peak as early as Q1 in 2023, and could even see some rate cuts afterwards. The slowdown in hikes will reduce the downside for the asset class, and could even offer potential upside as yields change in direction. Interest rates aside, global economic growth have visibly slowed down, with the possibility of recession in the next 12 months higher. We maintain our call to minimise credit risk, while moving neutral on duration. High yield bonds will face more headwinds given the weak economy, spreads widening could further pressure asset prices. Investment grade bonds on the other hand are traditional beneficiaries in economic downturns as investors seek to reduce their equity exposure, alongside the potential price appreciation off rate cuts. With lower further downside and potential risk hedging benefits, we are now positive on IG bonds in the US and Asia.

금융 시장 리포트
18 August, 2022
Europe – More Uncertainties Arose

Despite the increasing recession risks due to the fallout from the Ukrainian conflict, European equities followed peripheral market and gained on the back of improvement in investment sentiment. In the month of July, the European STOXX 600 index gained 7.64% (4.70%in US$ terms). Although inflation in Eurozone is at a new record high, markets are anticipating a gradual easing of the situation. The ECB have announced a 50 bps rate hike in the July meeting, which was larger than expected. The frontloaded monetary tightening was welcomed by markets, the absence of forward guidance from the ECB retains more flexibility in future monetary adjustments. In our view, there is no change in the faster monetary tightening, which will likely exert downward pressure onto the investment market, as financing conditions worsen and valuations compress. Additional economic risks arose from other sources, including the political instability in Italy, as well as the risk of energy crisis due to Russia. Italian Prime Minister Mario Draghi resigned and the President was forced to call an early election, delaying the budget as well as EU Recovery Fund items, additional political uncertainties hits the confidence for both businesses and consumers in the region. To further add fuel to the fire, natural gas supply from Russia have been further cut, raising concerns over the risk of complete cuts in supply in the future, which would threaten the economy in the dependent countries. Both latest developments further increases the risks of a recession in Europe, we would continue suggest investors to underweight the market.


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금융 시장 리포트
18 August, 2022
Japan – Fundamentals Stabilising

Japanese equities rebounded in July as global market sentiment briefly recovered on the back of optimism over inflation and monetary tightening, alongside decent data from the local economy. Over the month, the Japanese Yen stabilised against the Dollar, the Nikkei 225 gained 5.34% (7.20% in US$ terms), while the TOPIX index was 3.71% higher (5.55% in US$ terms). Early in the month, former Prime Minister Shinzo Abe was assassinated, the unfortunate event though enabled the Liberal Democratic Party to go ahead and win a supermajority in the House, which will help stabilise the political landscape, supporting the Japanese economy outlook. As for the epidemic front, Prime Minister Fumio Kishida said that the government will not re-impose COVID restrictions. Borders are now open to most countries, though the necessity for inbound tourists to be fully guided was a big turnoff for many. Further easing on this front could act as another catalyst for the Japanese economy. Fundamentals too are positive, with decent PMIs and household spending data. However, CPI figures continue to stay above the 2% long term target, partly driven by the depreciation of the Japanese Yen. While the weak currency is somewhat beneficial for exporters, it could put additional pressure onto households’ spending power. At the moment, Japan’s economic outlook is relatively positive, though the weak currency could erode total returns for non-Japanese investors. We remain neutral on the Japanese equity market for the time being, pending further lifting of restrictions, which might offer further upside potential.

금융 시장 리포트
17 August, 2022
China – Outlook Depends on Policy Direction

Reversing the trend in the previous month, China equities have moved in opposite directions to the rest of the world. Market sentiment worsened as worries over economic fundamentals re-emerged. Over the month of July, the CSI 300 index lost 7.02% (7.64% in US$ terms), whereas the Hang Seng Index lost 7.79% (7.82% in US$ terms). COVID cases seemingly rebounded, casting a shadow over the economic recovery with possible renewed restrictions, the mixed bag of data also reflects the deterioration in sentiment. Although the overall data have seemingly bottomed out in April, Chinese PMIs of both manufacturing and services sectors have deteriorated in July, the official NBS manufacturing PMI in particular have returned to contractionary zone, other sector indicators such as retail sales figures have also remained on the weak end. Apart from the softer fundamentals, the situation in the property sector is another big issue in China. After a series of credit events, property sales figures have fallen significantly. Even though policy support including mortgage rate cuts were rolled out, effectiveness were limited. The situation is further worsened by the rise of mortgage payment boycotts, further hitting confidence and pressuring developers. Considering that the property has high levels of direct and indirect impacts on the GDP, the unresolved issue remains a threat to the economy. That said, given the low valuation levels, as well as the supportive monetary and fiscal policies, further downside is relatively limited, we’ll take a wait-and-see approach on China in the short to medium term.

 

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