1H December Global Market Recap

 

1^st December 2021 – 15^th December 2021

FULL REPORT ACCESS LINK: First Plus Market Update 1H December 2021

Macro:

US inflation rate increased to 6.8% YoY in November, the highest level since 1982. The core inflation rate was up by 0.5% over the last month and 4.9% YoY, the sharpest pickup since mid-1991.

The Federal Reserve announced on 15 December that it will double the rate at which it is winding down its asset purchase program, from $15 billion to $30 billion per month. The Fed's "dot-plots" indicated a much faster and steeper path for interest rates, predicting three rate rises in 2022 and three more in 2023.

China's economic data in November was mixed. The fixed asset investment growth was in line with expectation while infrastructure investment fell more than forecasted. Consumption growth has slowed because of the impact of COVID-19 and the early start of Singles’ Day shopping festival, although the drag of new Covid-19 resurgence is less severe. Industrial value-added rose by 3.8% in November, mainly driven by pickup in the electricity and heat production as power supply constraints were alleviated further. Unemployment rate was 0.1% higher than market consensus and the employment pressure on young people has intensified much more. The Central Economic Work Conference defined China as currently under "triple pressures," demonstrating officials' focus on growth stabilization and accelerating fiscal spending and infrastructure investment were proposed. Furthermore, stabilizing employment is a key task, and three of the “six guarantees” were emphasized.

 

Stocks:

As the Fed’s hawkish stance in the most recent meeting was largely in line with market expectations, the markets have responded positively to the FOMC announcement, with stocks rallying into the close. All three major stock indexes registered gains in the first half of the month. S&P rose by 3.1%, Dow Jones was up 4.2% and NASDAQ increased 0.2%.

In China, both the Shanghai Composite Index and Shenzhen Component Index have gained for five weeks in a row, with market turnover increasing marginally as The Central Economic Work Conference continued to provide a signal of growth stabilization. For the first half of December, CSI 300 Index rose 3.6% and Shanghai Composite Index was up by 2.3%. The Shenzhen Component Index increased 1.6% while ChiNext Price Index fell by 0.9%.

 

Rates:

The 10-year U.S. treasury yield decreased by 6.47bps in the month as the Federal Reserve is on track to end its asset-purchase program by the middle of March 2022. The Fed also laid out a road map for a series of interest-rate increases over the coming years, starting with three hikes in 2022 and another three in 2023. The European Central Bank further cut its bond purchases but vowed to continue its unprecedented monetary policy support for the euro zone economy into 2022. The Bank of England surprised investors by raising interest rates after the surge of the Omicron variant in the country. The People’s Bank of China (PBoC) announced its second reserve ratio cut this year to shore up the economy, cutting the reserve requirement ratio (RRR) for major commercial banks by 0.5 percentage points, releasing 1.2 trillion yuan (US$188 billion) worth of long-term liquidity into the interbank system.

 

Credit:

Top-rated U.S. corporations are expected to sell less debt next year, a bright spot for a high-grade market that faces a wide array of risks in 2022 as the lower supply coupled with strong demand can help sustain valuations. Most of the biggest banks are forecasting that sales will be down about 5% to 10% from 2021’s $1.4 trillion, as reported by Bloomberg. China’s credit growth picked up in November, boosted by faster sales of corporate and government bonds and a slight easing of property-related lending. Chinese property firms face a hefty debt bill in January, with $6.1 billion of dollar bonds coming due, as reported by Bloomberg. Debt problems at the property sector have now spilled over into a vital artery of the nation's industrial engine, the steel sector, and started to ripple through to other critical parts of the world's second-largest economy.

 

FX:

The Dollar Index rose by 0.5%, hitting a 17-month high, fueled by talks of interest rate hikes by central bankers and concerns about the spread of Omicron cases. China’s yuan advanced to the strongest level since May 2018 amid bets that monetary stimulus will sustain the nation’s growth. The yuan has gained 2.4% this year, making it the best performer in Asia, thanks to inflows driven by robust exports and foreign purchase of higher-yielding onshore bonds.

 

Commodities:

Brent and WTI crude oil prices rose by 4.7% and 7.1% for the month as the US Energy Information Administration (EIA) reports that U.S. implied petroleum products demand had risen to record heights.

US natural gas prices fell by 16.5%, falling to the lowest level since August on forecasts for warmer-than-expected winter temperatures. Natural gas climbed for much of the year as inventory remained tight, and fears of a shortage in Europe lifted U.S. prices. Bitcoin fell by 13.9%, joining other risk assets under pressure with central banks taking a more aggressive tone on inflation.