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Rocky road for stocks as c-banks reduce monetary support

From 13-17/12/2021

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Stocks were lower in a week when investors digested a shift in U.S. monetary policy. The Federal Reserve announced a more aggressive plan to wind down its asset purchases, and said that it will potentially raise interest rates three times next year. The Fed wasn’t the only major central bank to announce a policy shift in response to inflation concerns. The Bank of England raised its key interest rate on Thursday, becoming the first major central bank to do so during the Covid crisis. Some central banks in Eastern Europe and Latin America also lifted rates, but their counterparts in southeast Asia left theirs unchanged.


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AMERICAS

CANADA

The benchmark S&P/TSX Composite Index, shed 0.73% in the week.

The likely economic impact of imminent interest rate hikes from the Federal Reserve weighed on the market. A sharp drop in crude oil prices hurt as well. With inflation surging, the Bank of Canada is likely to change its interest rate guidance in the new year so that it has the option to raise borrowing costs earlier than planned analysts said.

U.S.

Major U.S. stock indices retreated.

The prospect of central bank tightening sparked considerable volatility and trading was choppy throughout the week as all eyes were on the Fed. Its decision drew particular attention given the inflation environment. The central bank announced it will wind down bond purchases at a faster rate. In addition, most Fed officials now see three interest-rate increases as likely in 2022. In economic news, jobless claims rose ever so slightly last week — initial claims rose to 206,000, which is still very  low. Retail sales data showed that consumers reduced spending on an inflation-adjusted basis in November.

Nasdaq

LATAM

In Brazil, the Bovespa returned -1%.

The Central Bank (BC) projection for the negative balance of external accounts this year rose from US$21 billion to US$ 30 billion. The Copom minutes reiterated the Central Bank’s hawkish tone as long term inflation expectations inched higher. The central bank also projects for Brazil a US$30 billion deficit for external accounts in 2021.

In Mexico, the IPC Index, returned about 2.1%.

The central bank decided to raise its key interest rate by 50 basis points, from 5.00% to 5.50%. It was the fifth consecutive hike. While a rate hike was widely expected, some were surprised by the size of the rate increase.

In Chile, stocks, as measured by the S&P IPSA Index, returned -1.2% .

Chile’s central bank hiked its overnight rate by 125bp to 4% and delivered hawkish guidance. All attention is now focused on the December 19 presidential election.

ASIA/PACIFIC

JAPAN

Japanese stocks rose over the week.

Sentiment was initially hit after the prime minister mentioned possible restrictions on share buybacks. The Bank of Japan left its key short-term interest rate unchanged at -0.1% and that for 10-year bond yields around 0% during its final meeting of the year and announced that it will cut back its corporate bond holdings and increase support for small businesses. Governor Haruhiko Kuroda commented that its policy stance is contingent on Japan’s economic situation and independent of the decisions of other central banks. In other news, Japan’s exports increased by 20.5% last month from last year’s level, driven by a recovery in auto shipments
while imports surged 43.8%.

CHINA

Chinese equities fell for the week amid U.S.-China tensions.

Washington placed investment and export restrictions on dozens of Chinese companies. Early in the week, Beijing pledged economic stability in 2022 at the annual Central Economic Work Conference (CEWC). Data showed that China’s factory output grew faster than expected in November. On the data front, retail sales increased by 3.9% y-o-y, below expectations of 4.7%. Industrial production, on the other hand, was slightly better than anticipated (3.8% y-o-y vs. 3.7%).

Shanghai

AUSTRALIA

Across the week, the ASX200 was down 0.67%.

Shares in Afterpay plunged after US regulators announced a probe into it and other payment players.  Reserve Bank of Australia governor Philip Lowe reiterated that the central bank would keep interest rates at a record low next year. Morgan Stanley analysts signaled the unemployment rate will continue to fall in coming months.

EUROPE

EUROZONE

European equities fell. 

Countries tightened restrictions, central banks became more hawkish while the markets also digested data in the region. The European Central Bank (ECB) decided to scale back its emergency bond-buying program and ECB President Christine Lagarde indicated that an interest rate increase was “very unlikely” next year.

CEE/SEE

In Hungary, the BUX fell 0.37%.

Hungary has cut its 2022 budget deficit target to 4.9% of GDP from 5.9% as fiscal policy will be less supportive next year, Finance Minister Mihaly Varga. The National Bank of Hungary raised its benchmark base rate by 30 basis points to 2.4%. The central bank will raise interest rates further to combat high inflation, Deputy Governor Csaba Kandracs said.

In Romania, the BET index was off 0.43%.

However, the total trading value from the Regulated Market of the Bucharest Stock Exchange is up by 21.6% in the first 11 months of this year, to RON 17.4 billion (EUR 3.5 billion). On the macro front, Romania’s annual inflation rate edged down to 7.8% in November, from an over a decade high of 7.94% in the prior month.

REST OF EUROPE

In Russia, the MOEX was off 0.98%.

Russia’s Central Bank has raised interest rates  to their highest level in four years. Friday’s decision was the second such hike in the past six months — an indication of how serious the central Bank is taking the inflation problem.

In the UK, the FTSE 100 dropped 0.30%.

The Bank of England (BoE) surprised the market with a short-term interest rate increase, citing an acceleration in inflation and the strong labour market. The Committee continues to judge that there are two-sided risks around the inflation outlook in the medium term.

In Switzerland, the SMI rose 0.85%.

The Swiss central bank maintained its ultra-loose monetary policy in place and its key rate at -0.75%, saying inflation was lower in the country than elsewhere in Europe.

stoxx600

MIDDLE EAST

(Note: Trading 12-16/12/2021 except Turkey)

In Israel, trading in the Tel Aviv Stock Exchange (TASE) over the week was marked by a mixed trend in the leading share indices.

The TA-35 index increased 0.3%, bringing year-to-date cumulative gains to 27.5%. On the macro front, Israel’s annual inflation rate rose for the ninth straight month to 2.4% in November of 2021 from 2.3% in the previous month, below market expectations of 2.5%, CBS data showed.

In Saudi Arabia, the TASI jumped 3.41%.

The oil-rich kingdom said it expects to post its first budget surplus in nearly 10 years next year. Riyadh estimates it will achieve a surplus of 90 billion Saudi riyals ($23.99 bn), or 2.5 percent of GDP, in 2022 as it plans to restrict public spending despite a surge in oil prices that helped to refill state coffers.

In Turkey, the BIST-100 Index returned 2.41% in anticipation of more central bank interest rate cuts.

The Central Bank of Turkey slashed its one-week repo auction rate by 100bps to 14% sending the lira to a new record low of 15.5 to the dollar immediately following the news. After the central bank move, President Tayyip Erdogan announced a huge 50% hike in Turkey’s minimum wage to 4,250 lira ($275) per month next year.

AFRICA

In South Africa, the JSE Top 40 was off 1.09%.

Of note, a long list of SA companies received takeover bids from foreign firms this year. With many companies trading under cautionary, analysts expect more deals in 2022, Fin24 reported.

In Nigeria, the NSE All Share Index added 1.12%.

At the close of market on Friday, the stock exchange market value stood at N22.11 trillion from N22.10 trillion in the previous trading day. The local bourse has advanced 2,082.59 base points since the start of the year.

In Kenya, the NSE20 index returned -0.10%.

Kenya’s economy has demonstrated resilience to the COVID-19 shock, the World Bank said this week. In 2021 as a whole, gross domestic product (GDP) is expected to grow by 5%, one of the faster recoveries among Sub-Saharan African countries while overall economic performance is expected to be robust at 4.9% per year in 2022-23.


Content Disclaimer:

This page has been prepared for informational purposes only. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.


For any comments, suggestions or corrections email: kbalkoudi@worldmarketsdaily.com
Kyriaki Balkoudi is a markets editor for World Markets Daily. She has a bachelor’s degree in Balkans Studies from Aristotle University of Thessaloniki, Greece and a master’s degree in International Politics from City University London, UK.


References:
“Global Markets Weekly Update”. T. Rowe Price. Dec. 17, 2021
“Weekly market wrap”. Edward Jones. Dec. 17, 2021
“Weekly Market Recap”. John Hancock Investments. Dec. 17, 2021
“Schwab Market Update”. Charles Schwab. Dec. 17, 2021
“Market Analysis”. Edmond de Rothschild. Dec .17, 2021


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