A Week in the Markets: 30th November

S&P 500

5D: -2.34%, 1M: -0.04%, 3M: +2.79%, 1Y: +26.6%


It was a tough week for US equities. Despite starting positively following strong bank and energy stocks, as well as the stability provided by the renomination of Jay Powell as Fed chair, the S&P 500 started to dip midweek with rising concerns over a new virulent COVID-19 strain. By Friday, the concerns had materialised. Equities and other risk assets were hit hard in the post-Thanksgiving session, seeing the S&P 500 tumble 2.34% for the week.


Although there is some potential positive data to be released in the upcoming week, such as the Institute of Supply Management manufacturing survey, economic outlook will likely be dominated by COVID-19 news. With initial reports on the new ‘Omicron’ variant suggesting that it is more transmissible than the Delta variant, the market sentiment is bearish. Looking back to March 2020, there was a broad sell-off of everything. Investors will likely move away from riskier equities and towards safer assets such as gold. However, further data about the new variant, especially regarding the vaccine’s effectiveness against it, will be needed before investors are spooked back to 2020 levels. Moreover, some analysts suggest that there was a slight overreaction on Friday due to an exaggerated drop caused by thin volume during the shortened post-Thanksgiving holiday session. Overall, market sentiment is bearish, but more data is required to understand the extent of its potential impact.



FTSE100

5D: -2.49%, 1M: -2.88%, 3M: -1.45%, 1Y: +10.6%


The FTSE 100 spent most of the week positive before slumping on Friday. The Index was supported by commodity and financial stocks, countering fears over a resurgence in COVID-19 cases in Europe. It was up 0.4% on Monday after a four-day losing streak, aided by gains in mining and financial stocks. Marks and Spencer added 2%, after rumours surfaced that Apollo Global Management is mulling a buyout of the retailer. This is part of the broader trend we are seeing of Private Equity firms targeting UK companies. Mulberry share advanced after reporting a 34% surge in first-half revenue, showing demand for its luxury products are back at pre-pandemic levels. On Friday, the Index suffered its biggest drop in more than a year on news of a newly detected coronavirus variant that could possibly be vaccine-resistant and is being considered by scientists to be the most significant one found yet.


On the latter half of next week, we have several UK PMI data releases, corporate earnings and Andrew Bailey is also set to speak on Thursday. Pretty much all the PMI readings are forecasted to remain unchanged or fall. The service PMI is expected to remain unchanged, and since it makes the largest share of the country’s economic output it will give investors an idea of the trajectory of economic growth. If the new variant is found to be a serious concern, it could change the macro scene altogether. Central banks will need to reassess their monetary policy stance, and although many are betting on the BoE to raise rates in December, it could potentially not go ahead if restrictions and lockdowns are required to control the new variant. On the corporate side, EasyJet will be an interesting one to look out for especially in light of a resurgence of COVID-19 cases in Europe. The airline company has already warned that it might need to drop prices to attract customers during the winter period, but now with a new Covid variant and a rise in COVID-19 cases in neighbouring nations, it creates significant risk for airline companies.



USD/ PLN

5D: +0.07%, 1M: +4.42%, 3M: +7.33%, 1Y: +11.08%


The Polish zloty fell and rebounded to a similar position to last week, with USD/PLN closed at 4.161 on Friday. Polish Prime Minister Mateusz tried to defend the currency by saying, "we will do everything we can in communication and our real actions so that the zloty is stronger". Regarding the high inflation, taxes on petrol, gas and electricity are cut, and a cash transfer programme will be set up to help people deal with the inflation. Poland's central bank governor had also commented on the inflation, assured that the central bank will not allow the elevated inflation to persist and affect the sustainable economic growth.


Looking forward to next week, the surging COVID-19 infections will remain investors' concerns, especially since a new variant of coronavirus has emerged in South Africa. However, despite the rising infections and death within the country, Prime Minister Mateusz resisted introducing any new lockdowns and restrictions. On the Poland side, whether the dispute between Poland and EU over the rule of law concerns would end up withholding the EU coronavirus fund remains unknown. Next Thursday, the Advocate General of the European Court of Justice will present their legal opinion on the mechanism allowing the EU funds to be withheld from member states. For the USD next week, the employment reports, manufacturing data, and Fed Chair Powell's tone will drive the currency's movement.



USD/TRY

5D: +9%, 1M: +29.32%, 3M: +48.72%, 1Y: +58.58%


At the start of the week, President Erdogan defended the recent interest rate cut and declared that as an "economic war of independence. President Erdogan shared his view on the country's struggle, saying Turkey would not give in to "opportunists" and "global financial acrobats". The lira plunged as much as 15% on Tuesday after the statement, hitting another historic record low at 13.12 against the dollar. After the historical slide, the central bank governor had a discussion with bankers on Thursday, where he said the banking sector is very much in harmony. On Black Friday, the currency rebounded back a bit, closing this week at 12.3.


The fall of lira this week has added more concerns to investors on what direction will this lead to. With the currency depreciated by around 40% a year and inflation near 20%, how much confidence would the foreign lenders still have on Turkish currency. Last month, the foreign currency denominated debt reached 60% of the total debt; further slides on the currency would simply mean a rising debt servicing cost. On the positive side, Turkey and United Arab Emirates signed deals on investment in energy and technology this week. The United Arab Emirates announced that it was establishing a $10 billion fund to support the investments in Turkey, seeking to deeper the economic ties with Turkey. Lira rebounded after the trader expected a prospect of investment. Consensus had also been reached between Turkey and United States on lifting additional customer tax; the agreements are expected to boost the Turkish exporter's business and align with President Erdogan's vision.


Looking ahead, the discounted lira may attract more foreign tourists and increase tourism revenue. Despite the daily coronavirus cases rising steadily, authorities said they have no plan for any lockdowns in the coming period.



Brent Crude Oil

5D: -11.4%, 1M: -14.4%, 3M: +1.82%, 1Y: +50.3%


It was a steady start to the week for oil with Brent Crude stabilising at around $82/barrel midweek. However, prices collapsed on Friday to record its biggest one-day loss since April 2020. Following rising concerns regarding a new COVID-19 strain in South Africa, combined with US announcements of strategic petroleum releases, Brent Crude prices crumbled below $73/barrel to finish down 11.41% for the week.


President Joe Biden has finally achieved his wish of lower oil prices; however, tight supply from OPEC+ may no longer be the main issue. As seen back in April 2020 when oil prices hit negative, a shock demand decrease could prove catastrophic yet again. If the new ‘Omicron’ variant forces governments into resuming lockdown measures, particularly for China who have a zero-tolerance threshold, international demand will dry up. Although prices won’t sink back to the negative levels seen in 2020, demand has proven to be an extremely volatile price catalyst. For instance, Brent Crude prices broke important resistant levels of both $80 and $75, suggesting they could drop even lower. Importantly, a large enough reduction in global demand could pressure OPEC+ into suspending their planned supply additions. Thus, the actions of major oil producers in upcoming weeks will be a strong signal of demand sentiment.



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