Daily Dose of financial insights for investors and traders; retailers not exposed to China surge 20%, those pegged to Chinese demand crumble
Summary: Six minute video insights for investors and traders; retailer shares not exposed to China surge 20%, while those pegged to Chinese demand such as Jd.com crumble. Here is what to watch this week that could be the next catalysts for equities from PCE data to jobs. Plus why commodities could be at risk with iron ore shipments falling ahead of the latest China lockdowns.
S&P500 is out of a bear market; retailers outperform, China exposed stocks cop a blow. Nasdaq 100 still in the bear woods, down 40%The S&P 500 rose 1.6% last week with retailers shares rising the most; Best Buy rose 12%+, Ross Stores followed), while China’s Jd.com fell 12%. All in all; the S&P500 is up 12% from its October low and 16% away from its all-time high (meaning it’s officially out of a bear market). While the Nasdaq 100 is still in a bear market, down over 40% from its high, and up just 10% from its October low after gaining 0.7% last week. This shows tech investor are concerned as Chinese covid cases are rising and forward earnings is likely to be diminished again. A lot of tech companies are pegged to Chinese consumer demand, and a lot of tech companies make their products in China (Apple makes most of its iPhones in China). As for what to watch this week that could cause market volatility; America’s ADP employment data, GPD estimates, consumer confidence and the closely watched Personal Consumer Expenditures (PCE) are released. Given the Fed meets in just three weeks it will be watching for further clues inflation is slowing and that employment is waning (which is expected), as that gives it impetus to be less aggressive with hikes.
The Australian share market is just 5% off its all time high; but seems vulnerable
The Aussie share market has gained 12% from its October low, after rising 1.5% last week; with Virgin Money was up the most last week, about 23%, on upgrading its outlook, while gold company Ramelius Resources rose 15% on maintaining its production outlook. This week stocks exposed to China are vulnerable of a pullback given forward earnings are likely to be downgraded following further China lockdowns and protests. So be mindful investors could be looking to take profits or write options for downside protection on China concerns. It also means commodities, oil – iron ore, copper, lithium may see demand slow down and their prices fall – that’s important as its underpin some of our largest companies profits. Fresh data on Friday showed the major iron ore companies, BHP, Rio, Fortescue, will be shipping almost 6% less than last year in the final quarter of this year. So the risk is the situation in China worsens, iron ore shipments could continue to fall and hurt iron ore majors earnings and shares. Early Monday morning, iron ore trades 0.6% lower. Inversely; note that stocks not exposed to China could likely continue to rally given it’s the first Christmas with no global lockdowns (excluding China). Consider looking at retailers doing well following Black Friday sales and ahead of the likely Santa rally; Shares in JB Hi Fi, Harvey Norman, Premier Investments (owner of Jay Jays and Peter Alexander) are all trading up 20% from June. So they could be worth watching as examples.
Asian markets are on notice this week
All eyes are on Hong Kong’s Hang Seng and China’s CSI 300 which could be vulnerable of pulling back and trimming their 20% and 8% respective gains from their October lows, amid new lockdowns and unrest.
Commodities in focus; demand likely to slow from China, production increases
Oil (WTI) trades 0.3% lower in early trade Monday at $76.01 after falling 2% on Friday, losing almost 5% in total over the week. The bottom line is oil prices almost back at January levels on forward demand likely slowing, while production is rising. BP is restarting its Rotterdam refinery. Iraq plans to start increasing oil export capacity from its southern ports from 2023, adding up to 250,000 barrels a day next year and as much as 1.5 million by 2025. This is good for consumers and inflation though, and it also gives room for the share market to be supported higher as the Fed has ammunition to be less aggressive with rates (if inflation pressures from oil remain contained).
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.