2H December Global Market Recap
16th December 2021 – 31st December 2021
FULL REPORT ACCESS LINK: First Plus Market Update 2H December 2021
Orders for durable goods in the United States increased faster than expected. Durable goods orders rose 2.5% in November compared to October, owing in part to a 34.1% increase in commercial aircraft orders. Core capital goods orders, a proxy for private investment in equipment excluding aircraft and military gear, dipped 0.1% after rising 0.9% in October, falling short of the consensus projection of 0.7% growth.
China manufacturing activity edges up in December ahead of economic headwinds. The official manufacturing PMI rose to 50.3 in the month, which is expected to dip in January due to stricter-than-usual anti-pollution measures to ensure clear skies for the forthcoming Winter Olympics, as well as declining demand. The NBS non-manufacturing PMI increased faster than expected to 52.7 in December, even as China battles a COVID-19 epidemic in the key northern city of Xian. Industrial enterprise profit increased 9% YoY in November, down from 24.6% in October. The decline in prices, as well as the fading of contributions from fiscal subsidies and investment income contributed to the slow industrial profit growth.
Major U.S. indexes ended one of their greatest years ever thanks to accommodating fiscal and monetary policy despite the ongoing Covid pandemic together with new variations outbreaks all year. In 2021, the S&P 500 gained 26.9%, the Dow rose 18.7% and Nasdaq was up 21.4%, respectively. Vietnam stocks were the top winners for 2021, with the benchmark VN-Index rising 35.7% in the year. The trading liquidity has been rising substantially as the stock market becomes an appealing investment option against the backdrop of low bank rates, tighter government control over corporate bonds, a lack of alternatives and economic recovery in the new normal.
In the meanwhile, A-shares significantly diverged. The ChiNext index increased by 12% in 2021, while the Shanghai Composite Index increased by only 4.8% and the CSI 300 Index decreased by 5.2%. The Central Economic Work Conference sent a positive policy tone and growth stabilization will be a new dominant theme in trading for the coming months. In our view, we believe A-share market is better positioned to gain from different economic cycles and policies between China and other countries. Industrial and consumer upgrading will continue to boost stock market performance.
From March 2020 to November 2021, the Fed has bought over US$4 trillion worth of Treasuries and other securities. The U.S. central bank began tapering in November 2021, decided to double the pace from $15 billion to $30 billion each month. The People’s Bank of China (PBoC) lowered the loan prime rate (LPR) to 3.8% from 3.85% in November, despite the concern over high rising PPI. China was the only major economy to expand in 2020 despite the pandemic, but growth has slowed in 2021 owing to headwinds from a festering debt crisis in its property sector and localised Covid outbreaks. Libor, or the London Interbank Offered Rate, will no longer be used for new derivatives and loans as of 1st January 2022. The benchmark and reference rate, which had US$265 trillion linked to it globally at the start of 2021, is being scrapped in the biggest shake-up to markets since the introduction of the euro in 1999.
Companies funding acquisitions will probably help keep U.S. high-grade bond issuance relatively strong in January, even as financial companies are cutting back on borrowing in 2022. China's property developers have mounting bills to pay in January and shrinking options to raise necessary funds. China’s dollar bond market is expected to continue seeing defaults, especially in the stressed property sector. In the past year, starting from China Evergrande Group’s liquidity crunch in September, defaults at developers have accelerated. Fantasia Holdings Group, China Properties Group and Modern Land have joined China Fortune Land Development and Sichuan Languang Development on the list.
The dollar is expected to remain propped up by the Fed’s intentions to hike rate as soon as the second half of 2022, the persevering elevated inflation, supportive Fed speak and the solid performance of the US economy. The onshore Chinese Yuan posted its second straight year of gains in 2021 and gained 2.6% against the dollar to become the best performing major emerging market currency, underpinned by robust exports, a growing trade surplus, steady capital inflows into Chinese assets and ample dollar liquidity onshore. The Yuan’s rising global influence is yet another sign of China’s deepening connections across the world economy.
US oil ended the year at almost $76 a barrel, up 55.0% in its biggest rise since 2009 when the world was still recovering from the financial crisis. Europe's Brent crude benchmark climbed 50.2% to $78, its best performance in 5 years. US natural gas prices fell by 21.1% as outputs continue to rise while gas prices in Europe drop as well due to the mild weather capping demand. US Gasoline prices rose by 15.4% as gas demands returned faster than refinery productions. Bitcoin fell by 18.9% as worries over the Omicron variant increases.