2H November Global Market Recap

 

16^th November 2021 – 30^th November 2021

FULL REPORT ACCESS LINK: First Plus Market Update 2H November 2021

Macro:

U.S. job growth disappoints but the unemployment rate dropped unexpectedly. Nonfarm payrolls increased by 210,000 in November, lower than the forecast of 573,000 and is mainly affected by lower job gains in leisure and hospitality sector. Unemployment rate fell to 4.2% in November, better than economists’ forecast of 4.5%. Fed officials have raised the inflation outlook and continued to believe that economic growth will be robust in 2022 despite facing downside risks. The number of MPs who supported the rate hikes in 2022 increased to 9 from 7 during the recent meeting. Furthermore, CME’s FedWatch Tool shows that traders see a 80.6% chance the Fed will start to raise interest rates in June next year.

China’s NBS manufacturing PMI grew 0.9 to 50.1 in November, above Bloomberg’s median forecast of 49.7 and returns to the expansionary zone. The recovery in production accounted for nearly all the improvement in the manufacturing PMI index. Chinese Vice Premier Liu He’s speech on 24 November suggests that economic stabilization is still at the top of priority even though the country faces with medium- and long-term challenges.

 

Stocks:

Concerns over Omicron variant have triggered a new round of panic selling in global stock markets and investors reassessed their worst-case scenarios for the omicron coronavirus strain. In the U.S., S&P fell 0.8% and Dow Jones was down 3.7% while NASDAQ rose 0.3% in November. In other markets, Euro Stoxx 50 dropped 4.4%, FTSE 100 Index fell 2.5%, Nikkei 225 was down 3.7% and KOSPI Index dropped 4.4%.

In China, the stock market rose initially due to pro-growth policies and later retreated along with the global peers. The Shanghai Composite Index rose 0.5% while CSI 300 Index slipped 1.6% in November. The Shenzhen Component Index and ChiNext Price Index gained 2.4% and 4.3% in the month, respectively. We believe that the A-share market might be more resilient than global counterparts as China’s pandemic prevention and control measures have proven to be effective over the past 2 years and the new variant has had a lower impact on the overall Chinese economy than global peers.

 

Rates:

The 10-year U.S. treasury yield decreased by 10.8bps in the month as Fed Chair Jerome Powell indicated that the Fed is considering a faster taper and to raise rates earlier if needed. European Central Bank President Christine Lagarde called the prospect of an interest-rate increase next year unlikely but said she will quickly take action to combat elevated inflation should it become necessary. China stood pat on its benchmark lending rate LPR for the 19^th straight month at its November fixing, largely in line with market expectations. Chinese Premier Li Keqiang mentioned that the country will cut the amount of cash banks have to keep in reserve to aid smaller firms.

 

Credit:

China's property downturn is expected to continue into the first half of 2022, with home prices and sales falling as tight credit policies and a looming property tax dampen demand as reported by Reuters. Kaisa Group failed to win bondholder approval for a debt swap, putting the Chinese developer on course for a default unless it can reach a last-minute agreement with creditors to delay payment. The PBoC has pledged to establish a special relending facility of RMB200 billion (US$31.3 billion) to support the clean use of coal. U.S. junk bond and leveraged loan sales have surpassed $1 trillion in 2021, an unprecedented amount for a calendar year as corporates took advantage of the low interest rate environment to borrow while investors continue to seek for yields.

 

FX:

The Dollar Index rose by 2.0%, hitting a 16-month high, fueled by global growth and inflation concerns. The Chinese Yuan remains resilient despite the recent Dollar upswing and has gained over 2% since the beginning of the year, with one of the main domestic factors being the resilient exports growth. The British Pound slipped by 2.8%, closing at its lowest since December 2020. The Euro fell by 1.9% as well as concerns grew over new COVID restrictions in Europe. The Australian Dollar fell by 5.5% as iron ore prices continues to drop.

 

Commodities:

Brent and WTI crude oil prices fell by 16.4% and 20.8% respectively for the month as new COVID lockdowns in Austria due to the new Omicron variant sparked demand concerns just as industry players signal a return of supply. US natural gas prices fell by 18.5% as mild weather pushed residential-commercial heating demand to multiyear lows, underwhelming US gas markets. US Gasoline prices fell by 16.3% as oil prices continue to fall. The CoreCommodity CRB Index fell sharply as the new Omicron variant sparks uncertainty in the global economic recovery.