Fundamental updates by Solid ECN

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Yen's Fall: Impact of Divergent Monetary Policies​

The Japanese yen has once again fallen below 151 per dollar, potentially heading towards its lowest value since 1990. This is largely due to the contrasting stances of the US Federal Reserve and the Bank of Japan (BOJ) on monetary policy. Earlier this week, Jerome Powell, the Chair of the Fed, suggested that additional interest rate increases might be necessary to control inflation.

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Diverging Monetary Policies​

On the other hand, Kazuo Ueda, the Governor of the BOJ, has advised caution given the current uncertainties. He recognized that the divergence in policies has contributed to the yen's depreciation but did not explicitly express support for the currency. Earlier this month, the BOJ held its policy rate steady at -0.1% and kept the 10-year JGB yield target at approximately 0%. It also made minor modifications to its yield curve control policy, loosely defining 1% as an "upper bound" rather than a strict limit and removed a commitment to uphold this level by offering to purchase an unlimited quantity of bonds.

In terms of the economy, a weaker yen can be both beneficial and detrimental. On one hand, it can boost exports by making Japanese goods cheaper for foreign buyers, which can stimulate economic growth. On the other hand, it can increase the cost of imports and potentially lead to inflation. Therefore, whether it's good or bad for the economy depends on a variety of factors, including the balance of trade, the rate of inflation, and the overall health of the global economy.​

 

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A Closer Look at the Positive Turnaround for Spanish Stocks

The Spanish stock market has recently experienced a significant upswing, with the IBEX 35 index climbing to 9,440. This rise brings the index near its two-month peak, outpacing the majority of its European counterparts. The banking sector appears to be the driving force behind this surge, as it has seen substantial gains.


The Banking Sector Spearheads the Rally

Among the banks, Banco Sabadell emerged as the top performer with a 3% increase, followed closely by Bankinter with a 2.6% rise. CaixaBank and BBVA also contributed to the rally with gains of 1.9% and 1.4% respectively. This upward trend in the banking sector has played a pivotal role in the overall performance of the Spanish stock market.


Other Sectors Join the Upward Trend

The telecommunications and real estate sectors have also seen considerable advances, following the lead of the banking sector. However, not all sectors shared in the prosperity. Acciona and Acciona Energia, for instance, experienced a slight downturn, with their stocks falling by 0.8% and 0.7% respectively.


A Broader Perspective

On a larger scale, investors seem to have brushed aside the recent downgrade of the US debt outlook to negative by Moody’s. Instead, the focus has shifted to key inflation releases due this week. The impact of these releases on the global and Spanish economy will be something to watch closely.

In conclusion, the rebound of the Spanish stocks, led by the banking sector, paints a positive picture for the country’s economy. However, it’s important to keep an eye on the broader economic landscape, including inflation rates and international credit ratings, to fully understand the potential implications for the economy.
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EURJPY

The EURJPY currency pair has recently experienced a bounce from the upper line of the bullish flag, as observed in the 4-hour chart. This significant movement has caused the Relative Strength Index (RSI) to flip below the overbought zone. Despite the bullish trend, there's a possibility that the pair might correct the recent gains to the 160.7 support level, also known as S1.

 

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The Euro’s Stagnation: Awaiting a Catalyst​

The Euro, Europe’s single currency, has been hovering around the 1.07 mark, seemingly stuck in a narrow band of fluctuation. This pattern has been observed for nearly a week, with the trading range not exceeding 50 to 60 basis points. The market appears to have fully absorbed the 1.07 price level and is now on the lookout for a catalyst that could trigger a significant shift.

In this uncertain climate, investors have understandably been hesitant to make substantial bets, resulting in the exchange rate being confined to a tight range for over a week. This prolonged stagnation carries the risk of a sudden decompression, potentially triggered by the execution of significant stop-loss orders that investors have gradually placed to capitalize on the limited fluctuation range.
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Central Banks and Interest Rates: The Unanswered Questions​

The future actions of central banks, particularly the Federal Reserve Bank of the United States, remain a topic of speculation. The key question is whether the Federal Reserve has definitively ended its cycle of interest rate hikes. Currently, there is a slim chance of another 25 basis point hike. However, today’s announcement regarding the trajectory of US Consumer Inflation could drastically alter these odds, leading to significant exchange rate volatility.
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The European Economy: A Mild Recession on the Horizon?​

The development path of the European economy is not expected to hold any surprises. Most scenarios predict a mild recession in the European economy, which undoubtedly hampers the Euro’s attempts to gain strong upward momentum.

Despite these challenges, I would advise maintaining the same strategy and attempting to purchase the Euro following significant dips. The Euro’s resilience and ability to bounce back remain promising.

In conclusion, adopting a wait-and-see approach in anticipation of important announcements is often one of the best strategies. The impact of these economic factors on the economy is a complex issue, with both potential benefits and drawbacks. Understanding these dynamics is crucial for making informed decisions.​

 

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Hong Kong Shares Reach One-Month High

On Wednesday, the Hang Seng Index soared, marking a significant rebound from its previous session's slight losses. The index jumped by 682.14 points, a notable 3.92% increase, to close at 18,079.01. This level is its highest in a month, driven by gains across all sectors.

This surge in the market was fueled by a key move from the People's Bank of China (PBoC). In an effort to stimulate the Chinese economy, the central bank injected the largest amount of cash into the banking system since 2016. This injection of funds is seen as a positive step towards economic recovery.

Additionally, there's growing optimism that the Beijing government might increase its support for the economy, especially after the mixed economic data from China for October. While retail sales and industrial output exceeded expectations, challenges remain, particularly in the real-estate sector. Despite various measures to ease property market struggles, this sector continues to be a drag on the economy.

Investors are now keenly focused on the upcoming meeting between Chinese President Xi Jinping and U.S. President Biden. The anticipation is that this high-level dialogue could lead to a reduction in tensions between the two countries.

Notable performers of the day included Wuxi Biologics, which saw a rise of 6.1%, Xiaomi Corp. with a 5.7% increase, Li Auto up by 5.0%, Tencent Holdings growing by 4.9%, and Citic Ltd. advancing by 4.2%. These gains reflect a robust and optimistic market sentiment.​

 

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Spain's Stock Market: A Steady Climb​

Spain's stock market, particularly the IBEX 35 index, has been on an upward trajectory, marking its fourth consecutive session of gains. On Thursday, it reached 9,680 points. This rise is largely attributed to a positive shift in market sentiment. Investors are increasingly optimistic, hoping that central banks may halt further rate hikes. This optimism is a sign of growing confidence in the market's stability and potential for growth.


Key Players in the Market's Rise

The rally has been led by notable companies. Cellnex Tel, a prominent telecom infrastructure company, saw a 1.8% increase in its stock value. Naturgy Energy, a major player in the energy sector, recorded a 1.6% gain. Iberdrola, another key name in the energy industry, experienced a 1.5% rise. These companies' performances indicate strong sectoral growth and contribute significantly to the overall health of the stock market.


The Other Side of the Market

However, not all companies shared in this upward trend. Repsol, an energy company, saw its stock value decrease by 0.9%, influenced by a drop in oil prices due to unexpectedly high inventory levels. ArcelorMittal, a steel manufacturing giant, also experienced a slight decrease of 0.7%. These dips highlight the market's volatility and the impact of external factors like global commodity prices.


Corporate Developments and Political Influences

In other news, ACS, a leading construction and services group, remained stable despite the announcement of a significant investment in Spain's first data center, worth 100 million euros. This development could signal a strategic expansion and diversification for the company.

On the political front, the debate in the Spanish parliament over a new term for acting Premier Pedro Sanchez is of interest. His proposal of an amnesty to Catalan separatists in exchange for support is a pivotal move that could have far-reaching implications for Spain's political stability and, by extension, its economic environment.


Economic Impact: A Mixed Bag?

The recent trends in Spain's stock market seem to be more beneficial than detrimental to the economy. The consistent gains in the IBEX 35 reflect investor confidence and could signal a strengthening economy. However, the fluctuations seen in individual stocks, influenced by global market dynamics and domestic political decisions, remind us of the inherent uncertainties in the financial markets.

In conclusion, while the overall upward trend in the Spanish stock market is a positive sign for the economy, the nuances and fluctuations within different sectors and companies underscore the need for cautious optimism. Balancing these factors is key to understanding the complex interplay between financial markets and the broader economy.​

 

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The Decline in US 10-Year Treasury Note Yield​

Recently, there has been a significant shift in the US financial market, specifically concerning the 10-year Treasury note. Its yield has dipped below 4.4%, a level not seen in the past two months. This change reflects the evolving expectations among investors regarding the Federal Reserve's monetary policy.
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Factors Influencing Investor Expectations​

Investors are increasingly of the view that the Federal Reserve might soon pause its monetary tightening measures. This sentiment is largely driven by recent economic indicators suggesting a slowdown in the US economy. For instance, the number of initial unemployment claims has unexpectedly reached a near three-month high. Additionally, the ongoing increase in continuing claims, which have hit a two-year peak, implies that people who are out of work are finding it harder to secure new jobs.

Looking at other economic indicators, there's a clear sign that inflationary pressures are easing. Measures such as the Consumer Price Index (CPI), Producer Price Index (PPI), and import prices are all indicating a deceleration in inflation. Furthermore, the consistent drop in oil prices, marking a downward trend for the fourth week in a row, strengthens the belief that inflation could remain low for an extended period.
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Implications for the Economy​

The falling yield on the 10-year Treasury note can be seen as a mixed bag for the economy. On one hand, it suggests that investors are less worried about rampant inflation, which can be good news for borrowers as it may lead to lower interest rates on loans and mortgages. On the other hand, the reasons behind this decline – such as rising unemployment claims and a general economic slowdown – are causes for concern.

The easing inflation, as evidenced by various indices, can offer some relief to consumers facing high costs of living. However, the job market data indicate potential challenges in employment, which could have a broader impact on economic growth and consumer spending.​

 

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European Market Outlook: A Steady Start to the Week

As the new week begins, European equity markets are set for a subdued opening. This calm start can be attributed to the absence of significant market-driving events. Investors are currently in a phase of evaluating the global economic landscape, particularly focusing on the future of interest rates. This cautious approach is a common reaction in the financial world when there are uncertainties or when awaiting new data.


Key Economic Indicators in Focus

The week ahead is significant for Europe's financial analysts and investors, as they await a series of important economic reports. These include manufacturing and services PMI (Purchasing Managers' Index) reports from various European countries. These reports are crucial as they provide insight into the economic activity in the manufacturing and service sectors. Additionally, the Ifo Business Climate survey from Germany is highly anticipated. This survey is a respected indicator of the business mood in Germany and, by extension, can offer clues about the broader economic health of the European region.


International Perspectives: China's Steady Rates

Looking towards Asia, China's central bank's decision to maintain its one and five-year loan prime rates at 3.45% and 4.2%, respectively, aligns with market expectations. This stability in China's monetary policy could have ripple effects in the global market, often influencing investor sentiment worldwide.


Market Movements in Early Trade

In early trading scenarios, the Euro Stoxx 50 futures showed a trend ranging from flat to slightly positive, indicating a stable yet cautiously optimistic market outlook. Meanwhile, the FTSE 100 futures in the UK indicated a minor decline, dropping by 0.2%. Such early movements in futures markets are indicative of investor sentiment and can set the tone for the trading day.​

 

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Navigating the US Stock Market: A Cautious Start to the Week​

As the week begins, investors in the United States are approaching the stock market with caution. This sentiment sets the tone for a week shortened by the Thanksgiving holiday. Interestingly, this cautious stance comes after a period of notable growth — in the previous week, stock futures had surged by nearly 2%, marking the third consecutive week of gains. Such fluctuations often reflect the changing moods and expectations of investors.
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Factors Influencing Investor Sentiment​

One key aspect that traders are closely watching is the direction of monetary policy in the U.S. The Federal Open Market Committee (FOMC) minutes, scheduled for release tomorrow, are highly anticipated. These minutes provide valuable insights into the Federal Reserve's future actions regarding interest rates and economic policy, which can significantly impact the stock market.
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Corporate Movements: A Closer Look at Microsoft​

In the corporate world, tech giant Microsoft is making headlines. The company's shares saw a rise of about 1.7% in premarket trading. This increase is linked to the recent announcement that Microsoft has brought on board Sam Altman and Greg Brockman, formerly of OpenAI, to spearhead a new advanced AI research team. Such moves by large corporations can influence investor confidence and market dynamics.
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UK Public Sector Borrowing Hits Near-Record High in October 2023

In October 2023, the UK's public sector borrowing (excluding banks) rose to £14.9 billion, a significant jump from last year's £10.5 billion in the same month and surpassing the anticipated £13.7 billion. This represents the second-highest borrowing for October since records started in 1993. There was a 7.7% increase in total spending, reaching £99.8 billion, mainly due to higher expenses like increased benefit payments, despite the end of energy price-related payments from October 2022. On the revenue side, there was a modest 3.3% increase to £85.2 billion, largely driven by a £2.7 billion increase in central government tax receipts.
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Canadian Bond Yields Stabilize Amid Economic Shifts

In November, the Canadian 10-year government bond yield stabilized below 3.7%, marking its lowest point in over two months. This trend reflects growing beliefs that both the Bank of Canada and the Federal Reserve might pause their rate hike cycles. Recent statistics reveal a drop in domestic inflation to 3.1% in October, surpassing expectations. This decline is a notable improvement from the Bank of Canada's initial projection of CPI inflation lingering around 3.5% until the latter half of 2024.

Such data reinforces the notion that the central bank may hold back on increasing its policy rate. This comes as the unemployment rate reaches its highest in almost two years, coupled with early indications suggesting a continued stagnation of the Canadian GDP throughout the third quarter.​

 

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Positive Outlook for European Markets​

European stock markets are poised to kick off Wednesday's trading session on a positive note, buoyed by an uptick in risk appetite. Market participants are still digesting the implications of the recent Federal Reserve meeting minutes. The US central bank has hinted at maintaining a tight monetary policy, with no immediate plans to reduce interest rates.


Key Events to Watch
In the UK, all eyes will be on Chancellor of the Exchequer Jeremy Hunt, who is set to present his "Autumn Statement". This important announcement will outline the government's economic strategy moving forward. Meanwhile, Russia is due to release data on producer inflation, which could influence market trends.


Market Indicators
In the premarket trade, futures for the Euro Stoxx 50 and FTSE 100 indices were seen slightly higher, both showing a modest increase of around 0.1%. This suggests a cautiously optimistic start to the trading day in Europe.​

 

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Copper Price Explained​

Copper prices recently experienced a decline, dropping below $3.75 per pound. This downturn follows a peak of $3.81 on November 21st, a two-month high. The drop is largely attributed to a strengthening dollar, as well as investors cashing in their profits before the Thanksgiving holiday in the United States.

Simultaneously, a minor decrease in the Yanshan copper premium hints at a slowdown in manufacturing purchases compared to previous weeks. This could provide some relief to the inventory levels, which have been tightening. Notably, the latest reports show a significant 45% drop in inventories at the SHFE compared to the same week in the previous month, as of November 17th.

However, the demand for copper in China is likely to remain robust. The Chinese government has committed to investing CNY 1 trillion in manufacturing and infrastructure projects, boosting prospects for copper usage. Additionally, there are indications that the People's Bank of China (PBoC) might inject another CNY 1 trillion into the nation’s beleaguered property developers, further supporting the demand for this metal.​

 

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European Markets Edge Higher as ECB Minutes Loom

In European financial circles, there was a modest uptick in stock values on Thursday. The STOXX 50 index saw a slight increase of 0.1%, reaching 4,355 points—a peak not observed since August 10th. Similarly, the broader STOXX 600 index climbed by 0.2%, marking a new two-month high. Contributing to this trend, recent PMI surveys indicated a slower contraction in Eurozone business activities for November. Notably, there was a downturn in employment for the first time since early 2021, alongside a six-month peak in input cost inflation. The financial community is now keenly awaiting the ECB's October meeting minutes.

On the corporate front, notable developments included Virgin Money's annual profits falling short of expectations, Jet2's operating profit soaring by 19%, and Endesa revising its profit forecast downwards. Outside of the immediate financial sector, political developments in the Netherlands captured attention, particularly the exit polls suggesting a significant rise in support for Geert Wilders' right-wing populist Freedom Party.​

 

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What to Expect Next Week - Nov 27th​

The US will have a busy week with many important economic indicators and events. The main ones are:​

• PCE prices, personal income and spending: These will show how much inflation, income and consumption changed in October. They are closely watched by the Fed and the markets as they reflect the health of the economy and the impact of the pandemic.​
• ISM Manufacturing PMI: This will measure the activity and sentiment of the manufacturing sector in November. A reading above 50 indicates expansion, while below 50 signals contraction. The manufacturing sector has been recovering from the Covid-19 shock, but faces challenges from supply chain disruptions and labor shortages.​
• Fed speeches: Several Fed officials, including Chair Powell, will speak at different events throughout the week. They will likely provide more insights into the Fed’s views on the economic outlook, inflation, and the tapering of its asset purchases.​

Other notable releases and events in the US include:​

• CB Consumer Confidence: This will gauge the level of confidence and optimism of consumers in November. Consumer confidence is a key driver of spending and growth, especially during the holiday season.​
• Q3 GDP growth rate (2nd estimate): This will revise the preliminary estimate of the annualized growth rate of the US economy in the third quarter. The first estimate showed a 2% increase, below market expectations of 2.6%.​
• New and pending home sales: These will report the number of new and existing homes sold in October. They are indicators of the demand and supply conditions in the housing market, which has been affected by rising prices, low inventory, and higher mortgage rates.​
• Q3 corporate profits: This will reveal the earnings of US corporations in the third quarter. Corporate profits are a measure of the profitability and performance of the business sector.​

Meanwhile, other countries and regions will also have some significant developments to watch. These include:​

• Monetary policy decisions: The central banks of South Korea and New Zealand will announce their interest rate decisions. Both are expected to keep their rates unchanged, but may signal their future policy stance amid rising inflation pressures and Covid-19 risks.​
• Speeches from ECB and BoJ officials: Several officials from the European Central Bank and the Bank of Japan will deliver speeches at various occasions. They will likely comment on the economic situation and outlook of their respective regions, as well as their monetary policy actions and plans.​
• Inflation rates: Several countries and regions will release their inflation data for October. These include Germany, the Euro Area, France, Italy, Spain, the Netherlands, Poland, and Australia. Inflation has been rising globally due to higher energy and commodity prices, supply chain bottlenecks, and pent-up demand.​
• GDP growth rates: Some countries will publish their GDP growth rates for the third quarter. These include Turkey, India, Canada, and Switzerland. These will show how their economies performed amid the pandemic and its variants, as well as the vaccination progress and the fiscal and monetary support.​
• China’s Manufacturing and Services PMIs: These will indicate the level of activity and confidence of the manufacturing and services sectors in China in November. China’s economy has been slowing down due to the Delta variant, regulatory crackdowns, power shortages, and debt woes.​
• Manufacturing PMIs: Other countries will also release their manufacturing PMIs for November. These include South Korea, India, Russia, Italy, and Canada. These will reflect the state and outlook of the manufacturing sector in these countries, which are influenced by the global demand and supply conditions.​
• Germany’s GFK consumer confidence and retail sales: These will measure the confidence and spending of German consumers in November and October, respectively. Germany is the largest economy in the Euro Area and its consumer behavior has implications for the rest of the region.​

 

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Malaysian Palm Oil Market Overview​

In recent trading, Malaysian palm oil futures were seen hovering around 3,900 MYR per ton. This movement indicates an effort to bounce back from the recent decline in prices, which had dropped to a low of 3,886 MYR. The potential recovery is spurred by positive signs in export figures.
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Export Trends​

Data from AmSpec Agri Malaysia, an independent inspection company, reveals that between November 1 and 25, there was a 7.2% increase in the export of Malaysian palm oil products, reaching 1.15 million tons compared to 1.08 million tons in the period from October 1 to 25. Similarly, Intertek Testing Services, another cargo surveyor, reported a 13.6% increase in exports during the same time frame, with figures rising to 1.26 million tons from 1.11 million tons.
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Factors Influencing Market Dynamics​

However, the upward trend in palm oil futures is being restrained by several factors. Notably, there's a decline in competing Dalian oil prices, and there are concerns about upcoming economic activity data from China for October. The uncertainty surrounding China's economic indicators and the impending rainy season are causing market caution.

Moreover, the Indian market, a significant buyer of Malaysian palm oil, is reducing its orders for December and January. This decrease in demand is attributed to the rising cost of palm oil and the negative profit margins faced by refiners, who have recently made substantial imports.​

 

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Natural Gas Futures Hit 12-Week Low: Factors Behind the Fall​

US natural gas futures have witnessed a significant drop, falling more than 5% towards $2.7/MMBtu, the lowest in twelve weeks. This decrease is attributed to factors such as high storage levels, record production, and a decrease in demand.
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Storage and Production Factors​

The US Energy Information Administration (EIA) reported a lower-than-expected withdrawal from gas storage for the week ending November 17, at only 7 billion cubic feet (bcf). This figure is substantially less than the 60 bcf withdrawal during the same week last year and below the five-year average decline of 53 bcf. Currently, gas stockpiles in the US are about 7% above the typical level for this time of year.
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Impact of Weather on Demand​

One key factor contributing to the surplus is the warmer-than-average winter weather, resulting in a reduced need for heating. Forecasts suggest a 4% decrease in heating degree days compared to the last 10-year average, leading to a 2% drop in space heating consumption from the five-year average. Additionally, average gas output in November has increased to 107.6 billion cubic feet per day (bcfd), up from the previous record of 104.2 bcfd in October.​

 

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Analyzing Yuan’s Recent Rally: PBOC Strategies and Market Responses

The offshore yuan steadied around 7.15 per dollar, hovering near its strongest levels in four months as the People’s Bank of China stressed the need to keep the currency stable in a quarterly policy implementation report. The central bank said it would “resolutely correct pro-cyclical market activities, deal with behaviors that disrupt market orders, prevent overshooting risks in the currency and avoid the formation of one-sided and self-reinforced market expectations.” The yuan rallied recently as PBOC has been setting stronger-than-expected midpoint rates, in what analysts attributed to an official attempt to support the currency. Investors now look ahead to Chinese manufacturing activity data this week for further guidance. Meanwhile, latest data showed that industrial profits in the country continued to shrink in November, but at the slowest pace in almost a year.

These support zones also offer attractive bid prices for bullish traders to establish new long positions, potentially continuing the bullish trend.​

 

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A Shift in the Dollar: Weak Data Sparks Talk of Rate Cuts

On Tuesday, the dollar index stabilized at around 103.1, marking its lowest point in three months. It's poised to close November with a near 3% decline, the most significant monthly fall in a year. This downturn follows weak economic indicators, fueling speculation that the Federal Reserve might halt interest rate hikes and possibly reduce rates next year.

Market predictions suggest a 25% likelihood of rate cuts by March 2024, increasing to 45% by May. Looking forward, investors are keenly awaiting the release of PCE prices, the Fed's preferred inflation measure, alongside personal income, spending data, and the ISM Manufacturing PMI for more clues. This week also features speeches from several Fed officials at different events. The dollar has weakened notably, especially against the yen and antipodean currencies.​

 

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Ruble Strengthens: Putin's Decree and Russia's Monetary Policy

In November, the Russian ruble strengthened to over 0.88 against the USD, reaching its highest level since late June, thanks to a stricter monetary policy and a surge in foreign currency inflows. This improvement follows President Putin's decree requiring 43 export-oriented companies to sell a portion of their foreign exchange revenues. Additionally, he imposed restrictions on Western companies trying to sell their Russian assets as they withdraw from the country.

These measures significantly boosted foreign exchange inflows, further amplified by strong commodity market activities. Notably, Russia's use of a shadow fleet has been effectively circumventing the EU’s and G7’s embargo on seaborne crude exports. On the domestic front, the Bank of Russia responded to high inflation and earlier ruble pressures by increasing its policy rate by a total of 750 basis points since July.​