Global Markets Update Monday, 28 November 2022

President Xi Jinping and President Joe Biden signalled a desire to improve US-China ties at a meeting ahead of the G20 summit in Indonesia. Beijing moved to ease some pandemic curbs.

Global stocks and bonds rallied amid growing hopes that easing inflation may mean central banks start to temper their rate increases.

UK

The FTSE 100 advanced 2.3% over the two-week period to close at a three-month high.

Chancellor Jeremy Hunt announced a £55bn fiscal squeeze, including £30bn of spending cuts and £25bn of tax rises (the biggest in 30 years), saying such measures were needed to restore Britain’s credibility and tame inflation. He also acknowledged the economy was in recession, increased windfall taxes on the profits of oil and gas companies from 25% to 35% and extended them until 2028.

The flash S&P Global/CIPS UK composite purchasing managers’ index (PMI) was largely unchanged in November at 48.3.

UK headline inflation surged to a 41-year high of 11.1% in October, from 10.1% in September due to rising energy and food prices. Core inflation, which excludes volatile food and energy prices, held steady at 6.5%.

US

The S&P 500 rallied 1.7% over the two weeks.

Minutes from the Fed’s November meeting suggested a majority of policymakers were prepared to slow the pace of future rate rises “soon” as they assess how the aggressive tightening in rates so far this year is impacting the economy.

The S&P Global US Composite PMI dropped to 46.3 in November from 48.2 in the previous month, signalling the sharpest pace of contraction in the private sector since August and among the quickest since 2009.

US retail sales rose by a higher than expected 1.3% in October.

US producer prices rose 0.2% over the month of October, a lower-than-expected increase. On an annual basis, wholesale inflation eased to 8.0% from 8.4% in September.

Amazon became the latest big-tech company to announce job cuts, saying it would cull 10,000 employees. Meta, Twitter and Stripe have also announced significant job losses.

Activision Blizzard fell on news that the FTC was planning to file an antitrust lawsuit to prevent Microsoft from acquiring the videogame publisher.

Europe

The FTSEurofirst 300 gained 2.1% over the two weeks, closing around a three-month high.

S&P Global’s flash eurozone composite PMI rose to a 47.8 in November. The result was better than expected but was still the second-biggest decline in economic activity for nine years excluding coronavirus lockdown periods. Manufacturers reported a sixth successive monthly fall in factory output but said supply chain delays eased and cost increases were slowing. Services companies said their monthly output declined for the fourth consecutive month.

Germany’s PMI showed the steepest contraction in activity in the eurozone in November, although its PMI score rose to a three-month high of 46.4. Meanwhile, the contraction of French business activity deepened as its PMI score dropped more than expected to a 21-month low of 48.8.

German producer prices fell 4.2% in October, the first month on month fall in more than two years.

The Ifo index of German business confidence rose to 86.3 in November from 84.5 in October, boosting investors’ hopes of a milder slowdown in the eurozone’s largest economy.

Sweden’s Riksbank raised rates by 75bps to 2.5%, the highest level since 2008, and hinted that further rate increases were likely.

Japan

The Nikkei 225 closed the two-week period unchanged.

Pacific ex Japan

Civil unrest erupted in several major cities in China, including Shanghai, as citizens protested against the government’s strict zero-COVID policy which was said to have led to the death of 10 people in a fire. China is currently seeing the highest daily rate of COVID cases since the start of the pandemic.

Huawei and ZTE have been banned from selling equipment in the US due to national security concerns.

Profits at China’s industrial firms declined by 3.0% year on year in the first ten months of 2022.

New Zealand’s central bank raised rates by 75bps to 4.25%, the highest level since 2008.

Property shares in China rallied after regulators issued a 16-point plan for boosting the real estate market. Emerging Markets

Russia’s economy entered a recession. After contracting 4.1% year-on-year in the previous quarter, GDP fell 4% year-on-year in the third quarter amid sweeping sanctions following the invasion of Ukraine.

Bonds

The yield on the 10-year US Treasury fell 10bps over the two weeks to close at 3.72%. The two-to-10 year spread rose to its widest level since 1982. Credit markets saw the highest month-to-date inflows since July 2020 amid hopes that US inflation may have peaked.

The yield on the 10-year German Bund fell 18bps over the two weeks to close at 1.97%. Germany’s yield curve inverted for the first time in 29 years in early November.

10-year UK Gilt yields fell 23bps to 3.12%.

Commodities

Oil prices slid more than 10% over the two weeks, with Brent Crude closing under $85 a barrel, amid concerns over the outlook for China’s economy. Saudi Arabia “categorically” denied a report that Opec was weighing an increase in output that would help to counteract a loss of Russian crude supplies.