A Week in the Markets: 22 Nov

Nasdaq100

5D: +1.24%, 1M: +6.41%, 3M: +9.13%, 1Y: +35.6%


It was another volatile week for US equity indexes, but they started slowly, dropping fractionally on Monday. On Tuesday the technology-focused Nasdaq led the way and closed up 0.8% after retail sales data showed a rise of 1.7% in October, beating expectations of 1.5%. This proved that, regardless of consumer sentiment, people kept spending last month. However, the Nasdaq slipped 0.3% on Wednesday amid further inflationary concerns but then gained again on Thursday and closed at a record high. This followed Nvidia posting solid third-quarter results which saw a stock price rally of 8.3%, encouraging investors to buy into other chipmaking companies. Moreover, investors broadly moved into the technology sector as US Treasury yields dipped roughly 2 basis points. The Nasdaq ended up 1.24% for the week.


Analysts predict a favourable 2022 outlook for the technology sector, especially in the run-up to Thanksgiving as well as being the only sector to recently hit a 52-week high. Moreover, investors could also be moving towards tech equities in wake of recent COVID-19 spikes across Europe. Companies such as Google, Amazon and Apple, which persevered and even gained during the height of the pandemic, have risen recently. This could potentially allude to a reversal of market sentiment, with investors awaiting a resumption of pandemic measures over the winter period. For the week ahead, US politicians are due to vote on Biden’s $2 trillion (approximately) economic plan, while the President himself is set to pick the next Fed chair nominee. Although the assumption is that the incumbent Jerome Powell will remain, if Lael Brainard is named chair then a more dovish central bank is expected. Analysts predict this would create some volatility in the markets, as Brainard may be less aggressive in fighting against inflation.



Hang Seng Index

5D: -1.10%, 1M: -4.12%, 3M: +0.81%, 1Y: -5.30%


On Friday, the Hang Seng Index finished lower at HKD 25049.97, decreasing by 1.07% from the previous closing. This is a 1.10% decrease Week on Week and a 4.12 % decrease Month on Month, continuing the negative spiral around Greater China Stocks. The decrease comes from a trend over Asia-Pacific where there’s an expectation from central banks to be more hawkish to curb inflation, with Covid-19 coming back as a concern with growing cases worldwide. The slow economic growth in China due to the pandemic, higher energy costs, and supply chain bottlenecks have decreased Chinese companies' earnings. This has led to a sell-off with Alibaba dipping by 10%, Meituan reducing by 1.61%, Baidu by 3.26% and Tencent by 0.16% - the worst earnings for Chinese companies since 2018. Early this week, the Biden-Xi video summit had little to no effect on the HSI, which shows that the market has priced the geopolitical risk between both countries.


Looking forward and despite the recent decrease, Hang Seng has announced an index reshuffle with the addition of NetEase and JD.com in the benchmark. This is positive news for Chinese technology companies since the HSI has avoided tech giants from the regulatory overhang since early 2021. Other firms included China Resources Beer, ENN Energy Holdings and Innovent Biologic, which diversified the sectors added into the index. On the other hand, the heavily indebted Evergrande Group was removed after an 80% drop in its share earlier in the year. This removal has increased in shares of the rest of the Chinese real estate developers, especially for Chine Resources Land and Country Garden Holdings, both rising by 5.5%. An increase in the sector was developed by speculations around Chinese Banks being asked to increase developer loans through clear window guidance from the PBOC and regulators. This reshuffle increased 60 to 64 firms with the goal to reach 80 companies by mid-2022. The previous shuffle included BYD, Xinyi Solar and Li Ning. This reshuffle has allowed diversifying the risks, but investors will need to analyse each company’s sector to manage the antitrust, cybersecurity and data usage risks from the regulatory overhang before investing in them.



USD/TRY

5D: +12.0%, 1M: +17.0%, 3M: +32.2%, 1Y: +47.1%


On Thursday, Turkey central bank cut its one-week repo by 1% to 15%, a third straight month of an interest rate cut from 19% at the start of September 2021. Although the policymakers said they would consider ending the easing cycle next month, the lira fell to 11.1 against the dollar on the same day, marking a more than 30% drop in currency value this year. A lower rate and weaker currency tend to lead to higher inflation, where the consumer price growth has already reached an annual pace of nearly 20% in October 2021. Turkey central bank commented on the inflation by pointing out the "transitory effects of supply-side factors" is expected to continue to the first half of 2022. The depreciation of lira continued on Friday after a short-lived rebounded in the morning, closing this week at 11.23.


It is clear that Turkey central bank is hoping the lower interest cost of borrowing would stimulate economic growth, which can overcome the inflation risks. President Erdogan defended his action of battling interest rates before the rate cut, saying, "If you are a businessman you are on the side of investment, so here are you go: loans with low interest", betting on businesses will increase production, raise exports and provide more employment after the cheap loans offered. For businesses, the production cost keeps rising due to energy prices and a weakened currency, where the producer price index rose 46% year on year in October. The combination of depreciation and high inflation are expected to be eaten into the business' earnings instead. The "battle against interest rate" campaign is unlikely to be reversed by Erdogan; thus, the strengthening of dollar and the selling off of lira are expected to continue next week.



USD/ PLN

5D: +2.54%, 1M: +5.30%, 3M: +6.25%, 1Y: +10.4%


The Polish zloty fell to a more than 10-year low this week, with USD/PLN closed at 4.158 on Friday. The fell of zloty was mainly due to investor concerns over rising Covid-19 cases and the strong US dollar. In addition, the migrants gathered at its border with Belarus increased geopolitical risks in holding zloty, which is expected to continue in next week until the issue is solved. In contrast to Turkey, Poland's central bank has hiked the interest rate in November amid the rising inflation in the country, with year-on-year inflation of 6.8% last month. Nonetheless, they both suffer a deprecation that they have not experienced in a decade.


Looking forward to next week, the main factors affecting zloty will be the dollar performance and the border crisis. The dollar is expected to rise further as Europe is starting to reimpose a lockdown amid surging Covid-19 infections, with Austria being the first in Western Europe. Other European countries had also tightened the restriction for the unvaccinated citizens, where another Christmas lockdown is signaled by the governments. In comparison, the dollar is seen as a safe haven for investors. For the USD next week, the quarter 3 GDP report released next Wednesday will show the outlook of US economy. On the Poland side, Belarus, with the support of Russia, keep assisting migrants who attempt to cross into Poland. On the other hand, EU and UK are sending more troops to reinforce the Polish border. Fear for the incident turning into a more significant political crisis is adding additional concerns to investors.



WTI Crude Oil

5D: -5.68%, 1M: -9.37%, 3M: +22.3%, 1Y: +80.5%


Despite slipping slightly on Monday, WTI crude was back up above $81/barrel on Tuesday following news that US inventories were now 60 million barrels below the beginning of the year. However, the big news of the week favoured the bears, with President Joe Biden determined to quell global energy prices. It was reported on Wednesday that the Biden administration had asked the largest oil consuming nations to release crude stockpiles, representing a huge uptick in pressure towards OPEC+. Alongside this, the US may also be set to release some of its own strategic reserves. This inevitably saw prices fall and even break beneath the $80 level towards $77/barrel on Wednesday before stabilising at around $79/barrel on Thursday. Friday then saw prices cascade back down again as COVID-19 concerns re-emerged, seeing WTI crude finish -5.68% for the week.


The latter stage of last week rekindled oil demand concerns. While supply has been the main driver of crude prices recently, Europe’s COVID-19 uptick demonstrated on Friday that demand is still highly salient. As seen during the height of the crisis, lockdown measures severely impact oil prices and so news of rising cases have provided a more bearish outlook for oil. Supply is also still a driving factor. With the Biden administration mounting greater pressure on the likes of China and Japan to help quell energy prices through releasing their reserves, oil prices will tumble more if OPEC+ agree to increase their output. This has also been furthered by the potential release of US strategic petroleum reserve. However, Goldman Sachs analysts suggest that while a strategic petroleum reserve release would provide a short-term fix, it has already been priced in and could create clear upside risk in 2022.



Thanks to Ben Turner, Sadia Saeed, Sam Perrett, Marco Tarchoune and Thomas Lee for your in-depth analysis!


All images sourced from TradingView.com

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