Global Economy & Markets, Weekly Roundup 29/11/22
Euro area equities bounced back by +9% in November
Key Takeaways
Euro area equities are up by 9% month-to-date, due to reduced business pessimism and expectations for a deceleration in the pace of interest rate hikes by the ECB. Technology (+14%) and Banks (+8%) have led the increase. Investors’ attention now turns to inflation data for November. CPI flash is expected at +10.4% yoy from +10.6% in the previous month.
Regarding business expectations, the German IFO business climate index rose by 1.8 pts in November, to 86.3, posting a 3-month high, surpassing consensus estimates for 85.0, and rebounding from the lowest level since May 2020 that was recorded in September.
The expectations component (business conditions in the next six months) was up by 4.1 pts to 80.0 (also a 3-month high), as pessimism regarding the coming months reduced due to i) the slight easing of supply chain disruptions; (ii) better-than-expected real GDP growth in Q3:2022 (+0.4% qoq vs consensus of -0.2% qoq); and (iii) full natural gas storage levels (99%) that curbed concerns regarding energy supply.
Furthermore, export expectations rose to +0.4 points in November (a 5-month high), from -4.6 points in October. On the contrary, the component regarding the assessment of current conditions continued to weaken for a 6th consecutive month, falling by 1.1 pts to 93.1, its lowest level since February 2021. Sector-wise, improvement of confidence was broad-based with manufacturing, services, construction, and trade sectors posting a 3-month high in November.
Following significant gains north of +20% in November, the MSCI China index recorded losses of -3.1% in the past week and by -0.9% on Monday, as the daily Covid-19 cases reached their highest level since the beginning of the pandemic, surpassing 40k new cases on November 27th and posting a new record for a 5th consecutive day.
Authorities imposed restrictions to control the spread of infections, weeks only after the easing of some Covid-related policies, including reduced quarantine requirements for international arrivals. Additional curbs on mobility now covers 48 cities that comprise almost 1/5 of Chinese GDP, jeopardizing China’s economic rebound in 2023 (+4.6% from +3.3% in 2022, OECD)
On Tuesday however, the MSCI China index rebounded sharply (+5.5%), following the first decline in daily cases since November 19th and speculation that a relaxation of restrictions could be announced in the near future.
At the same time, the PBOC decided to lower the Required Reserve Ratio by 25 bps to 11% (its lowest level since 2007) for major banks in the past week (effective from December 5th), aiming to accelerate the supply of credit to the real economy, via liquidity release of c. RMB 500 bn ($70 bn) or 0.4% of Chinese GDP.
Moreover, as far as the real estate sector is concerned, China Securities Regulatory Commission (CSRC) lifted a ban on equity refinancing for listed companies, following several supportive measures for the sector announced earlier in the month. Following the announcement, the CSI300 Real Estate index rose by 9.4% on Tuesday and the Hang Seng Mainland Properties index by 8.1%.
Key Takeaways
Euro area equities are up by 9% month-to-date, due to reduced business pessimism and expectations for a deceleration in the pace of interest rate hikes by the ECB. Technology (+14%) and Banks (+8%) have led the increase. Investors’ attention now turns to inflation data for November. CPI flash is expected at +10.4% yoy from +10.6% in the previous month.
Regarding business expectations, the German IFO business climate index rose by 1.8 pts in November, to 86.3, posting a 3-month high, surpassing consensus estimates for 85.0, and rebounding from the lowest level since May 2020 that was recorded in September.
The expectations component (business conditions in the next six months) was up by 4.1 pts to 80.0 (also a 3-month high), as pessimism regarding the coming months reduced due to i) the slight easing of supply chain disruptions; (ii) better-than-expected real GDP growth in Q3:2022 (+0.4% qoq vs consensus of -0.2% qoq); and (iii) full natural gas storage levels (99%) that curbed concerns regarding energy supply.
Furthermore, export expectations rose to +0.4 points in November (a 5-month high), from -4.6 points in October. On the contrary, the component regarding the assessment of current conditions continued to weaken for a 6th consecutive month, falling by 1.1 pts to 93.1, its lowest level since February 2021. Sector-wise, improvement of confidence was broad-based with manufacturing, services, construction, and trade sectors posting a 3-month high in November.
Following significant gains north of +20% in November, the MSCI China index recorded losses of -3.1% in the past week and by -0.9% on Monday, as the daily Covid-19 cases reached their highest level since the beginning of the pandemic, surpassing 40k new cases on November 27th and posting a new record for a 5th consecutive day.
Authorities imposed restrictions to control the spread of infections, weeks only after the easing of some Covid-related policies, including reduced quarantine requirements for international arrivals. Additional curbs on mobility now covers 48 cities that comprise almost 1/5 of Chinese GDP, jeopardizing China’s economic rebound in 2023 (+4.6% from +3.3% in 2022, OECD)
On Tuesday however, the MSCI China index rebounded sharply (+5.5%), following the first decline in daily cases since November 19th and speculation that a relaxation of restrictions could be announced in the near future.
At the same time, the PBOC decided to lower the Required Reserve Ratio by 25 bps to 11% (its lowest level since 2007) for major banks in the past week (effective from December 5th), aiming to accelerate the supply of credit to the real economy, via liquidity release of c. RMB 500 bn ($70 bn) or 0.4% of Chinese GDP.
Moreover, as far as the real estate sector is concerned, China Securities Regulatory Commission (CSRC) lifted a ban on equity refinancing for listed companies, following several supportive measures for the sector announced earlier in the month. Following the announcement, the CSI300 Real Estate index rose by 9.4% on Tuesday and the Hang Seng Mainland Properties index by 8.1%.