GLOBAL CAPITAL MARKETS OVERVIEW:
The Dow and S&P 500 fell near flatlines in Monday afternoon trading after San Francisco Fed President Mary Daly warned of excessive tightening ahead of Wednesday's FOMC meeting minutes. May cause unnecessary pain to the economy. Meanwhile, the Nasdaq fell nearly 1%, weighed down by Tesla, Amazon, and Apple. Concerns were raised over further restrictions at the trade fair on Monday after China reported its first death from the coronavirus in six months over the weekend. On the positive side, Disney shares jumped more than 5% after it was announced that Bob Iger would return as CEO. The U.S. bond market will be closed on Thursday for Thanksgiving and Friday morning. European shares were little changed on Monday, with the Stoxx 600 closing at 433 points after its fifth weekly gain on Friday. Oil and gas companies across the Old Continent fell nearly 3 percent, with crude oil markets falling sharply for a fourth session amid rumors that OPEC will discuss raising production at its next meeting. Mining stocks fell 1.5 percent, among the worst in Europe, weighed down by concerns over slowing demand in the world's second-largest economy. British lender Virgin Money reported higher full-year profits on the corporate front due to rising interest rates. At the same time, Swiss bank Julius Baer said it was on track to meet its 2022 profit target, and French steel pipe maker Vallourec reported a 55% rise in quarterly core profit. Elsewhere, contract catering company Compass Group expects profit growth of more than 20% in 2023, with margins exceeding 6.5%, after reporting a profit surge in fiscal 2022. On Monday, the CAC 40 index fell about 0.2% to close at 6,635 points, in line with regional peers, as investors continued to assess the global economic outlook and interest rate trends. Meanwhile, an outbreak of coronavirus cases in China has derailed recent speculation that Beijing will abandon its strict zero-COVID-19 policy to stimulate the economy. On the corporate front, TotalEnergies was the biggest loser, falling 3.1 percent, tracking a plunge in oil prices. Schneider Electric (-1%), Alstom (-1%), and ArcelorMittal (-0.7%) were also among the worst performers. In contrast, Pernod Ricard improved the most (+1.7%), followed by Thales (+1.6%), Bouygues (+1.5%), and Danone (+1.5). The FTSE MIB index fell 1.1% to close at 24,350 on Monday, wiping out the previous week's gains, as stocks continued to be pressured by higher interest rates amid an increasingly slowing economy. At the same time, investors waited for Italy's new government to settle after the close. Approve its budget law. Prime Minister Giorgia Meloni's new budget, totaling more than 30 billion euros and aimed at helping households and companies avoid soaring energy costs, would lead to a budget deficit of 4.5 percent of GDP next year and follow the EU's proposed budget, the report said. frame. Energy producers led losses among companies, with Eni down 5.2 percent after OPEC signaled a production increase. Meanwhile, Saipem shares fell 5 percent, and trading was temporarily suspended after Algeria's Supreme Court rejected the company's appeal over a gas contract with the country. The ruble-based MOEX Russia index fell 1.8% on the day to close at 2,166 points on Monday, its lowest level in more than two weeks, as investors continued to assess the possible impact of a shutdown of Russian energy in foreign markets on the domestic economy and the fiscal health of the federal government. Impact. The EU will stop seaborne oil imports from Russia from Dec. 5 and set price caps for using European tankers and insurance services for oil transport. Meanwhile, EU countries continue to consider price caps on Russian gas. Oil majors Rosneft and Tatneft fell more than 3 percent, while gas producer Novatek fell 2.9 percent. Metallurgists also continued to fall, erasing gains from earlier in the month. Shares of Mechel and Polyus were down more than 3% each. The FTSE 100 was little changed at 7,380 on Monday after gaining 0.5% in the previous session, with losses in commodity-linked shares offsetting a more than 14% rise in Virgin Money shares after the last session. Banks posted upbeat results. Britain's energy sector fell 3%, while industrial metals miners fell more than 2%. Global sentiment was hit by renewed fears of more restrictions and lockdowns in China after a report showed OPEC was discussing increasing production at its Dec. The trading day continued to decline. In corporate headlines, Virgin Money reported a 43% jump in full-year profit as interest rates rose. The S&P/TSX composite index fell more than 0.5% on Monday, hovering at 19,850, weighed down by commodity-backed stocks. At the same time, investors continued to assess North American central banks' prospects for monetary tightening. Toronto-traded energy producers and miners posted sharp losses after the death from Covid-19 in China fueled fears of a strict and prolonged lockdown in the country, weighing on commodity prices. Oil majors Suncor and Cenovus Energy fell 3.5 percent and 4.6 percent, respectively, while gold miner Barrick gold fell 1.5 percent. Meanwhile, policy-sensitive technology stocks fell on the Nasdaq, down 1%. On the other hand, bank stocks were flat for a second session, outperforming the broader market index, as producer inflation surged more than expected in October, and investors continued to brace for more aggressive interest rate hikes by the People's Bank of China. Hong Kong's Hang Seng fell 336.63 points, or 1.87%, to 17,655.91 on Monday, its fourth day of losses, as China's worsening novel coronavirus outbreak dampened hopes of early easing measures. The index pared sharp losses of about 3 percent in the previous session after China's central bank and regulators said banks should step up credit support for the economy. Meanwhile, the People's Bank of China kept its key lending rate unchanged for a third month. It also injected 3 billion yuan through a seven-day reverse repurchase agreement. With Rmb5bn worth of such loans maturing on the same day, there was a net return of Rmb2bn. The drop was almost huge amid sharp losses in Budweiser (-6.3%) and JD.com (JD). Com (-5.2%), Meituan (-4.9%), Xiaomi (-2.7%) and Tencent (-1.6%). The New Zealand stock market rose 59.79 points, or 0.53%, to close at 11440.40 points on Monday, the highest closing point in nearly a month, the second trading day, supported by gains in consumer durables, productive manufacturing, and transportation. Investors are anticipating the minutes of the latest Federal Open Market Committee (FOMC) meeting later this week for signs that the Fed may reduce the pace of tightening. Traders are also awaiting the outcome of the Reserve Bank of New Zealand's monetary policy decision, which is expected to raise rates again as it continues to combat price surges. In China, the People's Bank of China left its key lending rate unchanged for the third month amid downward pressure on the yuan amid a recent slowdown in economic activity due to the coronavirus outbreak. According to local data, spending on credit cards in New Zealand rose 24.8% in October from a year earlier, following a slight correction to a 34.0% rise in September. Auckland Intl. rose 2.8 percent, Fisher & Paykel rose 1.4 percent, while Mercury NZ and Ebos Group were each up about 1 percent. Japan Nikkei 225 rose 0.1% to around 27.920 on Monday, while the broader Topix added 0.4% to 1,975 on Monday. Still, caution capped gains as investors grappled with rising global interest rates and heightened recession risks. increase. Domestically, Bank of Japan Governor Haruhiko Kuroda recently stressed the need to maintain an ultra-loose monetary policy to support the economy after data showed Japan's annual core consumer prices surged to their highest level in 40 years October. Index heavyweights such as SoftBank Group (0.3%), Tokyo Electron (0.9%), and Japan Yusen (0.6%) posted notable gains. In corporate news, Warren Buffett's Berkshire Hathaway increased its stake in Japan's five largest trading houses, Mitsubishi Corporation (3%), Mitsui Corporation (0.7%) ), Itochu Corporation (1.4%), Marubeni Corporation (2.7%) and Sumitomo Corporation (1.8%). The Baltic Dry index, which measures the cost of shipping goods globally, fell about 1% to 1,177 on Monday, falling for the eighth straight day to its lowest level since Sept. 8, as demand for smaller ships dwindled. The Panamax index, which tracks coal and grain cargoes of about 60,000 to 70,000 tonnes, fell for a third straight day, falling 2.8% to a more than a 10-week low of 1.549; the Supramax index fell to 1,164, its lowest in more than a year. Meanwhile, the Capesize index, which tracks 150,000 tonnes of iron ore and coal cargoes, snapped a six-day losing streak of 0.6% to 1,129.
REVIEWING ECONOMIC DATA:
Looking at the last economic data:
- US: In October 2022, the Chicago Fed's national activity index fell to -0.05 from an upwardly revised +0.17 in September, the lowest in four months, indicating a slowdown in the country's economic growth. The contribution of production-related indicators was -0.05, slightly lower than -0.02 in September; the gift of sales, orders, and inventories. Categories also fell from +0.07 to -0.01; the gift of employment-related indicators was -0.02 instead of +0.10. On the other hand, grants from the personal consumption and housing categories rose to +0.03 from +0.02. Meanwhile, the three-month moving average of the index, CFNAI-MA3, which provides a more consistent picture of national economic growth, fell to +0.09 from +0.19, which was also the three-month moving average, which fell from +0.25
- SW: In October 2022, house prices in Sweden fell by 3.0% from a month earlier, the largest drop in 30 years, after falling by more than 2.8% in September. It was the seventh month in a row that house prices fell, as soaring inflation and higher borrowing costs hit demand. The largest declines were reported for detached homes, particularly vulnerable to soaring electricity prices. Apartment prices fell in Stockholm (-1.7%), Gothenburg (-2.4%), and Malmö (-3.2%). House prices also fell in Stockholm (-3.0%), Gothenburg (-4.6%), and Malmö (-2.5%). The latest data comes as the Riksbank prepares to tighten monetary policy further in the coming months. However, the continued rapid decline in house prices should be worrisome and could lead to a slowdown in central bank action next year.
- SW: In the third quarter of 2022, Sweden's industrial production accounted for 90.3% of its production capacity, compared to a decline of 91.2% in the previous quarter. Capacity utilization fell in manufacturing (90.2% in Q2 vs. 91.2% in Q2) but remained unchanged in mining (93.6%). Considering the same period last year, the capacity utilization rate fell by 0.5 percentage points from 90.7%.
- GE: Germany's annual producer inflation rate fell to 34.5% in October 2022 from a record 45.8% in September and August, compared with market forecasts of 41.5%, the lowest level since June. Energy prices remained the biggest contributor (85.6% vs. 132.2% in September), namely the distribution of natural gas (125.6%) and electricity (90.3%). Excluding energy, producer prices rose 11.7% year over year. Other notable increases were also seen in the prices of intermediate goods (15.9%), notably metals (21.0%) and basic chemicals, fertilizers, and nitrogen compounds (32.8%); non-durable consumer goods (19.0%), such as food (25.1%); Consumer durables (11.1%); capital goods (7.8%), mainly machinery (9.5%) and vehicles (5.6%). As a result, monthly producer prices unexpectedly fell 4.2%, the first drop since May 2020, missing consensus for a 0.9% rise and fluctuating from September's 2.3% rise.
- TR: The number of foreigners visiting Turkey increased 38.4 percent year-on-year to 4.8 million in October 2022, with arrivals growing mostly from Saudi Arabia (up 6311 percent), Malaysia (up 1506.2 percent), South Africa Republic (up 939.8 percent), Singapore (up 1154 percent), South Korea (up 672.2 percent) and Argentina (up 493 percent). Meanwhile, arrivals declined from Ukraine (down 68.7 percent), Qatar (down 29.1 percent), Bahrain (down 23.7 percent), and Russia (down 15.2 percent). On the other hand, the number of arrivals by sea jumped 1143.3 percent, while land and by air went up 99.1 percent and 21.8 percent, respectively. Considering the first ten months of the year, tourist arrivals rose 88.14 percent to 39.6 million.
Today, investors will receive: the following
- USD: Richmond Manufacturing Index, FOMC Member Mester Speaks, FOMC Member George Speaks, and FOMC Member Bullard Speaks.
- EUR: Current Account, Consumer Confidence, and German Buba President Nagel Speak.
- GBP: Public Sector Net Borrowing.
- CAD: Core Retail Sales m/m, Retail Sales m/m, NHPI m/m, and Gov Council Member Rogers Speaks.
- JPY: BOJ Core CPI y/y.
- AUD: RBA Gov Lowe Speaks.
KEY EQUITY & BOND MARKET DRIVERS:
- US: U.S. futures began shortening the holiday week, with Dow futures contracts down nearly 100 points, while the S&P 500 and Nasdaq fell 0.3% and 0.7%, respectively, as investors fled to safety on fears of further restrictions in China. It comes after China reported its first death from the coronavirus over the weekend, the first in six months. Meanwhile, traders remained cautious ahead of Wednesday's Federal Open Market Committee (FOMC) meeting minutes, which could provide further clues on the pace of Fed rate hikes. On the corporate front, shares of Disney jumped more than 8% in premarket trading after the company announced that Bob Iger would return as CEO. The U.S. bond market will be closed on Thursday for Thanksgiving and Friday morning.
STOCK MARKET SECTORS:
- High: Utilities, Consumer Staples, Health Care, Industrials.
- Low: Energy, Consumer Discretionary, Information Technology, Materials.
TOP CURRENCY & COMMODITIES MARKET DRIVERS:
- CAD: The Canadian dollar weakened to 1.35 against the U.S. dollar, moving further away from an eight-week high of 1.325 set in November, as investors moved away from risky assets as a new wave of new coronavirus containment measures in China reignited concerns about the global economic outlook. Adding insult to injury, crude oil, Canada's main export, hit a nine-month low, putting additional pressure on the currency. Meanwhile, the latest CPI data showed inflation remained close to 7%, not far from the 39-year high of 8.1% in June, suggesting the Bank of Canada will keep raising interest rates. At the December meeting, money markets were divided between 25 and 50 basis point hikes. Bank of Canada Governor Steve Macklem said he understands many Canadians' pain as the central bank begins a tightening cycle. Still, building price stability in the Canadian economy is a top priority.
- GBP: Sterling fell to a one-week low of $1.18 as investors sought safety amid concerns about a weakening global economy and the prospect of China reimposing tougher restrictions. Still, sterling remained close to a three-month high, with strong inflation data putting pressure on the Bank of England to keep raising rates despite signs of an economic downturn. Meanwhile, Chancellor of the Exchequer Jeremy Hunt outlined a £55bn plan of tax hikes and spending cuts in his autumn budget statement to reassure markets that the government is serious about inflation. However, the chancellor also said the UK was already in recession, with the OBR predicting the economy would shrink by 1.4% in 2023, compared with a 1.8% growth forecast released in March. On the monetary policy front, UK money market futures point to the Bank of England raising interest rates to 4.65% next August from 4.59% before Hunt's comments.
- EUR: The euro fell to $1.02, its weakest since Nov. 11, as investors sold riskier currencies amid fears of slowing global growth and the reimposition of tougher restrictions in China. Still, the common currency held near its highest level in more than five months. The European Central Bank was seen tightening monetary policy further to curb stubbornly high inflation despite fears of an economic slowdown. European Central Bank President Christine Lagarde said last week that the central bank would keep raising rates even if a recession was unlikely as eurozone inflation hit an all-time high of 10.6% in October, well above its 2% target. It was possibly easing price pressures and allowing the ECB to hit the brakes. Since July, the central bank has hiked interest rates by an unprecedented 200 basis points, and investors are now divided on pricing in December hikes of 50 and 75 basis points. In addition, the ECB is expected to start reducing EUR 5 trillion in debt in the first half of 2023.
- US: U.S. 10-year Treasury yields were around 3.8% in the fourth week of November, well below the 4.2% hit earlier this month, as traders awaited the minutes of Wednesday's Federal Open Market Committee (FOMC) meeting for a chance of the Fed's next rate hike. More clues. Fed policymakers have been pushing back against the market's dovish tone, with many officials saying rates will be higher than expected in September. Most investors are now betting on a 50 basis point hike in the Fed funds rate to 4.25%-4.50% in December, following four consecutive 75 basis point hikes. Still, most people saw higher peak rates. The U.S. bond market will be closed on Thursday for Thanksgiving and Friday morning.
- CNY: The offshore yuan weakened to 7.20 per dollar, moving further away from a six-week high, as coronavirus-related deaths and rising virus cases in China stoked fears that authorities would impose broader COVID-19 restrictions. Meanwhile, some analysts are optimistic about the country's policy direction in COVID-19 management and real estate, two of the biggest drags on the economy. The yuan fell even after the People's Bank of China kept its benchmark lending rate unchanged for the third straight month in November, as currency depreciation and persistent capital outflows left little room for policy easing. In addition, the People's Bank of China recently warned that inflation might accelerate due to the expected increase in demand.
- JPY: The yen fell to 141 yen to the dollar, its weakest level in a week, dragged down by a rebound in the dollar, which benefited from safe-haven demand from a new coronavirus outbreak in China hawkish news from the Federal Reserve. Bank of Japan Governor Haruhiko Kuroda also stressed the need to maintain an ultra-loose monetary policy to support the economy after inflation spiked. Japan's annual core consumer prices surged to a 40-year high of 3.6 percent in October, as high global commodity prices and a weak yen pushed up import costs. Elsewhere, the latest data showed that China's trade deficit widened more than expected in October as import costs soared faster than export growth, while the economy unexpectedly contracted in the third quarter.
- AUD: The Australian dollar slipped below $0.67, retreating further from a two-month high, as lockdown concerns in top trading partner China and the prospect of further rate hikes by the U.S. Federal Reserve weighed on sentiment. The Australian dollar weakened despite an unexpected drop in Australia's unemployment rate, supporting bets on further monetary tightening. Meanwhile, minutes from the latest Reserve Bank of Australia policy meeting showed officials were willing to pause the tightening cycle or resume rate hikes depending on incoming data. The RBA announced a smaller-than-expected 25 basis point hike earlier this month, increasing the cash rate by 275 basis points since May.
- USD: The U.S. dollar index rose above 107 on Monday, near its highest level in more than a week, as concerns in China over issues related to the coronavirus prompted investors to dump risky assets and rush for the safety of the greenback. Hawkish comments from Fed officials also supported the dollar. St. Louis Fed President James Bullard said last week that policy rates could reach 5% to 7% to lower inflation, higher than markets are currently pricing. As a result, investors are betting on a more dovish 50 basis point rate hike from the Fed in December, followed by a 25 basis point hike next year. Markets are now looking ahead to the minutes of the central bank's November meeting and a slew of U.S. economic reports, including consumer confidence, durable goods, and new home sales.
- WTI: WTI crude futures pared losses to above $79 a barrel after falling more than 5% to their lowest level since January after Saudi Arabia denied news that it might increase oil production. Earlier, the Wall Street Journal reported that Saudi Arabia and other OPEC producers were discussing increasing crude output. The report suggested that an increase of up to 500,000 barrels per day was being discussed at the OPEC+ meeting on Dec. 4. Oil prices have been falling for the past four sessions on demand worries over China's tightening containment of the coronavirus outbreak and concerns that major central banks will keep raising interest rates. China reported its first coronavirus-related death in nearly six months over the weekend.
- GAS: U.S. natural gas futures rose nearly 8% to $6.8 per million British thermal units on Monday, extending last week's 7% gain, as attention turned again to weather patterns. Recent forecasts point to very cold weather in the first week of December, increasing demand for natural gas-intensive heating. On the other hand, more gas is expected to be available for domestic use after the Freeport LNG export facility announced it would have around 2 Bcf/d of production capacity by January as it continues to repair damage from the June explosion. Meanwhile, EIA data showed that U.S. utilities added 64 billion cubic feet of natural gas to storage in the week ended Nov. 11, in line with expectations, and that inventories were near the five-year average for this time of year of 3.651 tcf.
- SUG: ICE sugar futures were at 20 cents a pound, down slightly from a seven-month high of 20.3 cents hit on Nov. Yield crushed sugar. Still, prices were more than 10 percent higher than at the beginning of the month as authorities in top sugar producer India reduced export quotas for the 2022/23 marketing year. As a result, the country will issue 6 million tonnes of sugar export licenses by May 2023, almost half of the previous year's quota. At the same time, investors continued to assess supply expectations for top producer Brazil amid the possibility that president-elect Lula could lift the country's fuel price cap in January, further supporting prices.
- PAL: Palladium futures fell to $1,900 an ounce, near a five-month low of $1,800 hit on Nov. 3, in line with other commodities as a worsening Covid-19 situation in China and more lockdowns dampened an already weak demand outlook worsened. Palladium prices are 40% below their March peak amid rising interest rates, slower economic growth, and the substitution of palladium for platinum. The Fed, the world's most influential central bank, is expected to raise the federal funds rate by 50 basis points in December after raising rates four times in a row by 75 basis points. Also, demand for palladium, used in gasoline-powered auto catalysts, has yet to return to pre-pandemic levels, with surging prices and supply chain disruptions continuing to weigh.
- COP: Copper futures fell to $3.70 a pound from a five-month high of $4 hit on Nov. 11, as signs of weak demand and a rebound in the dollar outweighed concerns about supply shortages. Data from top consumer China showed industrial production slowed more than expected in October, while house prices fell for the sixth month. Meanwhile, China reported its first COVID-19 death in six months as rising cases in Beijing raised the prospect of economic restrictions. Still, copper is up 6 percent since early November amid looming supply concerns. Commodity trader Trafigura warned that global copper inventories have fallen to record lows, and current stocks are only enough to supply global consumption for 4.9 days. Freeport-McMoran was also outspoken about the risk of shortages.
- IRO: Prices for steel cargoes containing 63.5% iron ore bound for Tianjin rose to $99.50 a tonne in November, the highest in eight weeks and up 22% since the start of the month on expectations that top consumer China Demand will increase. The National Bond Administration expanded a key financing program for private developers by 250 billion yuan to support bond sales in the sector after a period of defaults sharply increased credit costs for homebuilders. Meanwhile, non-developer new building starts rose 30% year-on-year in the first three quarters of 2022, all but offset the poor performance of the debt-laden private residential real estate sector. Still, iron ore prices remain 37% below their 2022 peak hit in March as recession fears and supply concerns for Ukrainian exports eased.
CHART OF THE DAY:
The ruble-based MOEX Russia index fell 1.8% on the day to close at 2,166 points on Monday, its lowest level in more than two weeks, as investors continued to assess the possible impact of a shutdown of Russian energy in foreign markets on the domestic economy and the fiscal health of the federal government. Impact. The EU will stop seaborne oil imports from Russia from Dec. 5 and set price caps for using European tankers and insurance services for oil transport. Meanwhile, EU countries continue to consider price caps on Russian gas. As a result, oil majors Rosneft and Tatneft fell more than 3 percent, while gas producer Novatek fell 2.9 percent. Metallurgists also continued to fall, erasing gains from earlier in the month. Shares of Mechel and Polyus were down more than 3% each.
- MOEX Russia index - D1, Resistance around ~ 2261 & 2507, Support around ~ 2106 & 1772.