Please see below, the ‘Markets in a Minute’ article from Brewin Dolphin, providing an update on the latest markets and economic news. Received late yesterday afternoon – 29/11/2022.
Stocks rise on hopes of slower rate hikes
Stock markets rose last week on positive US earnings reports and hopes of a slower pace of interest rate hikes.
In the US, the S&P 500 finished its holiday-shortened trading week above the 4,000 level for the first time in two months, rising 1.5% from the previous week. Technology and retail stocks performed particularly strongly after several earnings reports beat expectations.
The prospect of less aggressive interest rate increases boosted indices in Europe, with the STOXX 600, Dax and FTSE 100 rising 1.7%, 0.8% and 1.4%, respectively. This was despite business activity in the eurozone and the UK shrinking in November.
In China, the Shanghai Composite edged up 0.1% as investors weighed expectations of further monetary stimulus in China against the prospect of tighter Covid-19 restrictions.
China protests dent investor sentiment
Stocks started this week in the red as anti-lockdown protests in China dented investor sentiment. The Shanghai Composite and the Hang Seng shed 0.8% and 1.6%, respectively, on Monday (28 November) and the Chinese yuan tumbled against the US dollar. Oil futures dropped to new lows for the year before reclaiming around half of their earlier losses. Stock markets in other regions also fell, with the S&P 500 and the FTSE 100 down 1.5% and 0.2%, respectively.
In economic news, UK retail sales slumped in November, according to a survey by the Confederation of British Industry. The reported sales balance – the weighted difference between the percentage of retailers reporting an increase in sales and those reporting a decrease – declined to -19 from +18 in October.
Stocks bounced back on Tuesday, with the Hang Seng closing 5.2% higher and the Shanghai Composite gaining 2.3% as China reported a rise in the number of over-80s getting Covid-19 boosters and a new push to get more elderly people further vaccinated.
Fed officials see slower rate hikes
Last week, investors were cheered by the release of the Federal Reserve’s November policy meeting minutes. The minutes stated that a “substantial majority” of policymakers judged that slowing the pace of interest rate increases would likely soon be appropriate.
“A slower pace in these circumstances would better allow the [Federal Open Market] Committee to assess progress toward its goals of maximum employment and price stability,” the minutes said. “The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited regarding why such an assessment was important.”
In the Fed’s November meeting, interest rates were increased by 0.75 percentage points for the fourth time in a row. Following the release of the minutes, it is now expected that rates will be lifted by 0.5 percentage points in December.
The case for slowing the pace of rate hikes was supported by signs of a weakening US economy. S&P Global’s flash composite new order index fell to its lowest level in over two years in November, while initial claims for unemployment benefits for the week ending 19 November were the highest since mid-August. In contrast, new home sales unexpectedly rebounded in October, rising by 7.5% from the previous month.
Business activity shrinks in the UK…
Business activity in the UK contracted for the fourth month in a row in November, while new orders decreased at the fastest pace for almost two years. The headline seasonally adjusted S&P Global / CIPS flash UK composite output index measured 48.3 in November, up only fractionally from 48.2 in October and registering below the crucial 50.0 no-change value for four consecutive months.
On a more positive note, business expectations for the year ahead rebounded from the 30-month low seen in October. Many survey respondents commented on recession worries and increasingly challenging economic conditions, but there were fewer comments citing domestic political uncertainty.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said the data added to growing signs that the UK is in recession. “If pandemic lockdown months are excluded, the PMI for the fourth quarter so far is signalling the steepest economic contraction since the height of the global financial crisis in the first quarter of 2009, consistent with the economy contracting at a quarterly rate of 0.4%,” he said.
Despite the slowdown, Bank of England chief economist Huw Pill said last week that more interest rate hikes will likely be needed to return inflation to the bank’s 2% target.
…and the eurozone
The eurozone also saw business activity shrink in November, for the fifth month in a row. The composite PMI rose from 47.3 to 47.8, but was still below the 50.0 mark. S&P Global said data for the fourth quarter so far puts the eurozone economy on course for its steepest quarterly contraction since late 2012, excluding the pandemic lockdown months.
Manufacturing continued to lead the downturn, with factory output dropping for a sixth successive month. Service sector output also fell, down for a fourth consecutive month. One upside of weaker demand and alleviating supply constraints was a cooling of price pressures, most notably in the manufacturing sector. Firms’ costs rose at the slowest rate for 14 months, in turn allowing selling price inflation to moderate.
“Most encouragingly, supply constraints are showing signs of easing, with supplier performance even improving in the region’s manufacturing heartland of Germany,” said Williamson. “Warm weather has also allayed some of the fears over energy shortages in the winter months.”
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Alex Kitteringham
30th November