Weekly financial market update - 28th of November 2022
Written and accurate as at: Nov 28, 2022 Current Stats & Facts
Solid +1.5% weekly gain for the S&P/ASX 200, with month to date gains +6.2% and the Australian market now at its highest levels in almost 6 months. FOMC minutes released this week covered little new ground but reinforced likely slowing of pace of US rate hikes, and that the risk of over tightening had risen. More than a fifth of China's GDP is currently under lockdown as daily cases reach record levels. The PBOC cuts the required reserve ratio by 0.25%, releasing US$70b of liquidity.
The S&P 500 was +1.6% in a Thanksgiving shortened week, with the NASDAQ +0.7%. The S&P 500 was essentially flat on Friday, with the S&P/ASX 200 futures pointing -0.1% lower.
Broader Market Moves:
- S&P/ASX 200 +1.5% for week ended 25 November, MTD +6.2%, calendar 2022 YTD +1.8%
- S&P/ASX Resources +0.4% (CYTD +21.7%), S&P/ASX 200 Industrials +1.9% (CYTD -3.5%)
- S&P/ASX Small Ordinaries +0.9%, MTD +4.3%, calendar YTD -15.8%
- S&P 500 +1.6%, MTD +4.2%, calendar YTD -14.3%. NASDAQ +0.7%, calendar YTD -27.7%
- S&P 500 Value +2.0% v S&P 500 Growth +1.0%. CYTD Value -2.2% v Growth -25.1%
- US 10 yr bonds -13 b.p. to 3.69% (CYTD +217 b.p.), Australia -4 b.p. to 3.58% (CYTD +191 b.p.)
- US 2 yr yield -2 b.p. at 4.48% (CYTD +375 b.p.), Australian 2 year bonds +7 b.p. at 3.19%
- USD Iron Ore -0.2%, Oil -4.7%, Copper +0.3%, Zinc -2.7%, Nickel +3.0%, Thermal Coal +1.7%,
- Gold +0.1%, AUD +0.9% ($0.675), Bitcoin -0.1% to $16,512
Key Market Drivers:
- Solid +1.5% weekly gain for the S&P/ASX 200, with month to date gains +6.2% and the market
now at its highest levels in almost 6 months. Rate sensitive sectors outperformed again this
week amid the latest fall in bond yields, as markets dial back peak rate forecasts amid growing
odds of a global recession. Mining and energy producers lagged the broader market as China's
Covid outbreak plays into broader concerns about growth and commodity demand. - FOMC minutes released this week covered little new ground but said that a “substantial majority
of participants” thought that slowing the pace of hikes would be appropriate, although the
terminal fed funds rate may end up higher than previously expected, whilst “some” participants
observed that the risk of overtightening had increased. - Markets were cautiously watching China’s Covid situation unfold, with record case numbers late
in the week and indications of rising public pushback to curb measures. Some reports suggest
that more than one fifth of the country’s GDP is currently under lockdown. - GS Global research during the week expressed a view that the bear market is not over, with the
conditions typically consistent with an equity trough yet to be reached. GS expects lower
valuations (consistent with recessionary outcomes), a trough in the momentum of growth
deterioration, and a peak in interest rates before a more sustained recovery begins.
Macro / Economic newsflow:
- In a speech during the week, RBA Governor Lowe reaffirmed that the RBA ‘expects to increase
interest rates further’, is ‘resolute’ in containing inflation, and that ‘a strong nominal anchor (for
inflation) is more important than ever’. - The Governor also explained that the RBA ‘is not on a preset path’ and that future decisions
would be made in consideration of a wide range of factors, including ‘developments in the global
economy, the evolution of household spending and wage and price setting behaviour.’ - Governor Lowe also touched on several developments in the global economy that “are likely to
create more variability in inflation”, including: i) the reversal of globalization, ii) slowing growth
in working-age population, iii) more extreme weather and climate events, and iv) more volatile
energy prices during the transition to renewable energy. - Finally, on the lags of monetary policy, Governor Lowe noted the RBA’s models suggested it took
18-24 months for higher rates to show their full effect. - The People's Bank of China cut the required reserve ratio by 0.25% effective 5 Dec, which should release CNY500 billion of liquidity (US$70b), as the economy continues to be dragged down by the rising number of Covid cases and real estate crisis.
- As expected, the RBNZ raised the official cash rate (OCR) by a record 75 bp to 4.25% at its 23-
Nov policy meeting. However, the policy statement and updated forecasts were more hawkish
than anticipated as the central bank flagged a stepped up effort to return inflation to the 1-3%
target. Economic projections suggest a stagflationary environment in New Zealand with the
economy contracting, inflation remaining high and interest rates continuing to rise in 2023. - Updated forecasts show the RBNZ is prepared for the economy to fall into recession next year asit attempts to reduce inflation. The central bank now forecasts the economy will contract 0.8%,
spread across several quarters, as high interest rates force spending down. Upgraded CPI
forecasts see inflation at 7.5% in 2023, and not expected to return to the 1-3% target until 2025.
Domestic Sector Performance:
- Outperformers: Utilities +5.0%, REITs +2.5%, Industrials +2.5%, Financials +2.0%, Health Care
+1.8%, Consumer Discretionary +1.6% - Underperformers: Information Technology +0.1%, Materials +0.5%, Energy +0.9%,
Communication Services +1.2%, Consumer Staples +1.2%
Major share price moves, S&P/ASX 200:
Chart of interest:
