Daily Dose of financial insights for investors and traders; retailers not exposed to China surge 20%, those pegged to Chinese demand crumble

Jessica Amir
Market Strategist

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). 


For a weekly look at what to watch in markets - tune into our Spotlight.

For a global look at markets – tune into our Podcast.



 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.