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Market Monday

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November 28, 2022

In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

Chinese stocks drop after zero-Covid protests add to the uncertainty.

Global stocks and oil prices dropped last week after protests in China against the government’s Covid-19 policies weighed down on market sentiment and added to uncertainty about the outlook for the world’s second-largest economy.

In Hong Kong, the Hang Seng China Enterprises index dropped as much as 4.5 per cent before pulling back to 1.5 per cent.

The decline on China’s CSI 300 index of Shanghai and Shenzhen listed shares was as great as 2.8 per cent before it was trimmed to about 1.1 per cent.

Europe’s regional Stoxx 600 slid 0.8 per cent in mid-morning trading on Monday, while London’s FTSE 100 dropped 0.5 per cent. The S&P 500 was set to shed 0.9 per cent.

Oil dropped sharply,  the international benchmark, down 2.8 per cent to trade at $81.31 a barrel, and US marker West Texas Intermediate shedding 2.8 per cent to hit $74.12.

The unrest weighed down on equities elsewhere in Asia, with Japan’s benchmark Topix down 0.7 per cent, while South Korea’s Kospi and Taiwan’s Taiex were both off 1.5 per cent

Gold at more than one-week high as dollar slips

Gold prices rose last week due to the weakened US dollar and ongoing protests in several Chinese cities about the country’s strict Covid-19 restrictions.

Spot gold was down 0.4% at $1,749.00 per ounce, as of 0314 GMT. U.S. gold futures fell 0.2% to $1,749.90.

The dollar index was up 0.4%, making the greenback-priced bullion more expensive for buyers holding other currencies.

Spot silver also slipped 1.8% to $21.21, platinum fell 0.3% to $978.00 and palladium declined 0.3% to $1,846.94.

UK house-buying demand drops 44% in wake of ‘mini-Budget

Housing demand in the UK has almost halved in the wake of Liz Truss’s September “mini” Budget.

Home hunters respond to higher mortgage rates by scrapping plans to buy and turn to the rental market instead.

Demand is down 44 per cent since the day of the “mini” Budget, with the sharpest falls in south-east England and the West Midlands.

Plummeting demand has raised expectations that prices will fall next year, with the Office for Budget Responsibility now forecasting a 9 per cent drop.

November 21, 2022

In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

UK house prices are expected to fall by almost 10% over the next couple of years, the Office for Budget Responsibility has predicted.

Following Jeremy Hunt’s autumn statement last week, housing prices are expected to fall and mortgage interest rates are expected to increase.

A drop of 9% is expected between now and autumn 2024, the Office for Budget Responsibility (OBR) has said.

The cost of a mortgage is also likely to stay much higher than homeowners have become accustomed to during the last decade. 

A typical two or five-year fixed-rate deal currently has an interest rate of just over 6%.

It is forecast that there will still be an average increase in property prices this year of 10.7% despite the recent slowdown.

That will be followed by two years of falls, with house prices down by 1.2% next year, and 5.7% in 2024.

Then the OBR suggests that property prices will start to rise again at a rate slightly faster than people's incomes - up by 1.2% in 2025, 3% in 2026 and 3.5% in 2027.

US inflation rate drops to 7.7%

US inflation was lower than forecast last month, a welcome sign that the surge in prices may be fading.

The US consumer prices index rose by 7.7% in October, down from 8.2% in September, a bigger fall than expected.

That’s the lowest annual inflation reading since January 2022.

There are signs that inflation is cooling off. Gas prices are down about $0.10 over the past month.

But the inflation rate remains far above the Fed's 2% target, meaning aggressive actions by the central bank are likely to continue.

China’s property sales are set to plunge 30%

China’s property sales will likely drop by about 30% this year - nearly two times worse than their prior forecast.

Such a drop would be worse than in 2008 when sales fell by roughly 20%.

Now with the mortgage strikes, the recovery of China’s real estate sector has been delayed  to next year rather than this year.

The suspended mortgage payments could affect 974 billion yuan ($144.04 billion) of such loans - 2.5% of Chinese mortgage loans, or 0.5% of the total loan.

Although the number of mortgage strikes increased rapidly within a few weeks, analysts generally don’t expect a systemic financial crisis.

November 14, 2022

In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

London loses its status as the biggest European stock market to Paris

Britain's stock market has lost its position as Europe's most-valued stock market to Paris, as economic growth concerns weigh on UK assets.

France has taken the top spot as the combined value of its companies' shares has been boosted by currency movements and demand for French luxury goods.

It is the first time Paris has overtaken London since records began in 2003.

The gap between the UK and French stock markets has been narrowing since Brits voted to leave the European Union in 2016.

The combined value of British shares is now around $2.821 trillion, while France's are worth around $2.823 trillion.

London's FTSE 250 share index - which lists medium-sized companies - has slumped by almost 17% in the last 12 months.

By contrast, the UK's FTSE 100 index, which is made up of bigger companies is down just 0.2% this year, versus the 17% plunge for the FTSE 250.

Currency movements have also worked in Paris’ favour, as the pound has tumbled 13 per cent against the US dollar this year, while the euro has lost only 9 per cent. 

One company which boosted sales was Louis Vuitton, as it had a surge of a 22% increase in the last six months as China eased lockdowns and its shoppers returned to pre-pandemic habits.

Will US inflation rates keep rising?

Americans grew more worried about inflation in October, with fears coming from an expected rise in gasoline prices.

Inflation expectations for the year ahead rose to 5.9%, up half a percentage point from September to the highest level since July.

Three-year expectations also accelerated to 3.1%, while the five-year outlook rose to 2.4%, respective increases from 2.9% and 2.2%.

Respondents think gas prices will increase by 4.8% over the next year, up from 0.5% in September for the biggest one-month increase in survey data that goes back to June 2013

Metaverse could pump $1.4 trillion a year into Asia’s GDP

The metaverse’s contribution to gross domestic product in Asia could be between $800 billion and $1.4 trillion per year by 2035. That would make up roughly 1.3% to 2.4% of the overall GDP.

The metaverse can be loosely defined as a virtual world where people live, work and play with cryptocurrency. 60% of the world’s youths live in Asia. On top of that, there are 1.3 billion mobile gamers in Asia, making up the world’s largest player base.

November 7, 2022

In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

Chinese exports fall for the first time since 2020

China’s exports unexpectedly fell in October, with a drop in the value of goods sold to the U.S. and the EU.

Surging inflation and rising interest rates hammered global demand while new COVID-19 curbs at home disrupted output and consumption.

The drop marked a sharp decline from a 5.7% year-on-year increase in September, and the first year-on-year drop since May 2020

Last month, imports fell in October by 0.7% in U.S.-dollar terms, also missing expectations for slight growth of 0.1% and down from a 0.3% increase in September.

China’s exports to the European Union fell by 9% in October, after growing in September.

In the three months to the end of September, China’s economy grew just 3.9 per cent year on year, below a 5.5 per cent target that was already the lowest in three decades.

Lockdowns of big cities to contain small outbreaks have weighed on consumer demand, with retail sales adding just 2.5 per cent in September.

China on Friday launched its fifth International Import Expo in Shanghai, a vast conference that hosts thousands of foreign and domestic companies.

October 31, 2022

In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

Wheat prices soar as Russia threatens global supplies

Wheat and corn futures soared on world markets after Russia pulled out of a deal to allow grain exports from Ukraine through the Black Sea.

The most-traded wheat contract on the Chicago Board of Trade jumped as much as 7.7% to $8.93 a bushel at the open on Monday, the highest since 14 October, and later traded at $8.79.

Corn prices rose as much as 2.8% to $7 a bushel and soybean oil gained 3%.

Data is expected to show eurozone inflation hitting a new record high of 10.3% in September, partly because of higher food prices.

The European Central Bank whose primary target is to control inflation, on Thursday confirmed further rate hikes in the coming months in an attempt to bring prices down.

Will UK tax prices increase?

All earners in the UK, not just the wealthiest, will need to pay higher taxes if public services like the NHS are to improve, an ex-Chancellor has warned.

The pound fell to a record low against the dollar at the end of September and government borrowing costs rose in the wake of then-Chancellor Kwasi Kwarteng's mini-budget, where he announced major tax cuts without detailing how they would be paid for.

Jeremy Hunt, who replaced Mr Kwarteng as Chancellor, needs to find billions of pounds of savings to keep the UK's debt under control

Chancellor Jeremy Hunt will set out his tax and spending plans for the UK on 17 November, two weeks later than originally expected.

Sri Lanka Inflation Slows for First Time in Year in October

Sri Lanka’s key inflation rate slowed to 66% in October after hitting 69.8% in September

The surge in the Colombo Consumer Price Index (CCPI) was led by an 85.6% jump in food prices and a 56.3% climb in the non-food group

The country battles its worst economic crisis since its independence in 1948

Canada’s economy gearing down

Canada’s growth rate fell by half in the third quarter from its pace in the first six months of the year, ahead of what’s expected to be an even sharper downturn later this year.

The pace of monthly gains was enough to produce annualized growth in the third quarter of 1.6 per cent.

A preliminary estimate from Statistics Canada, versus a 3.3 per cent pace in the second quarter and 3.1 per cent during the three first months of the year.

October 24, 2022

In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

China’s GDP rose 3.9% in the July to September quarter but remains on track to deliver among the weakest growth in almost four decades

China released a set of economic figures which had been postponed from the previous week.

Their economy expanded faster than economists expected in the September quarter. Still, the poor performance of the nation’s property market and weak retail and import data underscored the nation’s ongoing growth challenges.

Official figures showed that China's economy grew 3.9% in the July to September quarter from the same time last year, beating estimates.

That marked a pick-up from the 0.4% increase in the second quarter when China’s economy was battered by widespread Covid lockdowns. Shanghai, the nation’s financial centre and a key global trade hub, was shut down for two months in April and May.

But the newly released 3.9% growth rate was still below the annual official target that the government set earlier this year.

Japan made a second intervention this month to stop the Yen from falling

Japanese authorities are likely to have spent more than $30bn last week in their second intervention to stop the Yen from falling any lower.

The intervention took place on Friday after the yen hit ¥151.94 to the dollar, causing it to briefly surge to ¥144.50 during a typically quiet time of the week for trading.

The yen closed around ¥147 on Friday.

The Bank of America estimated after last month’s intervention that the Japanese government, which has $1.3tn in foreign reserves, could execute up to 10 more interventions by selling liquid assets.

The Pound gains as Rishi Sunak leads the race to become Prime Minister

Rishi Sunak, the former chancellor is on course to become Britain’s new prime minister, after Boris Johnson quit the contest on Sunday night.

The Sterling rose on Monday after the risks of further immediate political and economic upheaval receded.

The pound gained 0.3 per cent against the dollar to reach $1.1336 in morning trading in London and advanced 0.6 per cent against the euro to €1.1525.

Is the US heading for a recession?

Most economists now expect the world’s largest economy to tip into a recession in 2023 as job losses mount.

So far this year, monthly job growth has averaged 420,000 positions. Still a healthy clip, which is down from 562,000 a month in 2021.

Inflation, meanwhile, continues to run rampant with volatile items such as food and energy up to 6.6 per cent.

October 17, 2022

In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

Consumer prices in the US rose more than expected last month in a sign that the inflation fight in the world's largest economy is far from over.

 

Inflation in the US is being closely watched as the US central bank's efforts to tame the problem push up the dollar and global borrowing costs.

 

The rate is well above the central bank's 2% target and means the Federal Reserve is likely to continue to keep raising interest rates in an attempt to combat the rising prices.

 

Inflation in the US has dropped back since hitting 9.1% in June, helped by a fall in fuel prices at the pump. This was also supported by costs for clothing and used cars dipping over the last month.

 

But the issue continues to affect other parts of the economy. Grocery prices have jumped 13% over the past 12 months, and housing and medical costs are also rising sharply.

 

Excluding food and energy, inflation has jumped by 6.6% - the fastest rate since 1982.

 

The Federal Reserve has already raised interest rates five times since March, opting for unusually large hikes in recent months that have unsettled financial markets and led to sharp slowdowns in sectors like housing.

By making borrowing more expensive, the Federal Reserve is hoping to reduce demand, especially for big ticket items such as cars and homes, and ease the pressures that are pushing up prices further.

 

But by slowing activity, this also risks tipping the economy into a recession. Analysts see that outcome as increasingly likely, since inflation has proven stubbornly resistant to the efforts introduced so far.

 

With midterm elections looming in November, President Joe Biden has tried to make the case that the slowdown in economic activity is a healthy shift from the growth surge that followed the pandemic, pointing to robust job creation and low unemployment.

September 12, 2022

In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

The UK economy grew by 0.2% in July, according to official data, following a sharp drop in the previous month.

 

The Office for National Statistics said the services sector was the biggest contributor to growth, helped by the UK hosting the Women's Euro Championship. However, while the economy expanded in July, the growth was slower than the 0.3% expansion analysts had expected.

 

Gross domestic product (GDP) fell by 0.6% in June because of two fewer working days.

 

Analysts have said the bank holiday for Queen Elizabeth's state funeral on 19 September, as well as the 10 days of national mourning, could impact economic growth and push the UK into recession sooner than originally expected.

 

Last month, the Bank of England said it expected the UK to fall into recession by the end of this year.

 

A recession is defined as two consecutive quarters, or three-month periods, of shrinking output and between April and June, the UK economy contracted by 0.1% compared with the previous quarter.

 

In July, the economy was helped by the Women's Euro Championships, which was won by England, and the Commonwealth Games, with second-hand car sales also adding some strong impetus.

 

However, there was evidence elsewhere that consumer spending remained under pressure because of rising prices, as inflation reached a four decade high of 10.1% in July.

 

The ONS said that between May and July, economic growth was flat compared with the previous three months.

 

The production and construction sectors both shrank in July. Production was hit by a fall in demand for energy such as electricity.

 

Other economists estimated the UK might see some growth following the government's decision to limit the rise in gas and electricity prices, as well as new Prime Minister Liz Truss's pledge to reverse a 1.25% rise in National Insurance.

September 5, 2022

In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

Germany has announced a €65bn (£56.2bn) package of support to ease the threat of rising energy costs, as Europe struggles with scarce supplies after Russia's invasion of Ukraine.

The package, much bigger than two previous ones, will include one-off payments to the most vulnerable and tax breaks to energy-intensive businesses.

 

Energy prices have soared since the February invasion, and Europe is trying to wean itself off Russian energy.

 

The stand-off with Russia has forced countries like Germany to find supplies elsewhere, and its stores have increased from less than half full in June to 84% full today.

 

German Chancellor Olaf Scholz told journalists that Germany would get through the winter, adding that Russia was "no longer a reliable energy partner" with further disruption forecast.

 

The package announced by the German government would involve one-off payments to pensioners, people on benefits and students and further caps on all energy bills.

 

Some 9,000 energy-intensive businesses would receive tax breaks to the tune of €1.7bn as a swooping set of changes look to ease the burden faced by individuals and businesses alike.

 

A windfall tax on energy company profits would also be used to mitigate bills, Mr Scholz said.

 

The latest package brings the total spent on relief from the energy crisis to almost €100bn, which compares to about €300bn spent on interventions to keep the German economy afloat during the Covid-19 pandemic.

 

Countries all across Europe are considering similar measures, with EU energy ministers due to meet on 9 September to discuss how to ease the burden of energy prices across the bloc.

 

A document released about the meeting says the agenda will include price caps for gas and emergency liquidity support for energy market participants.

August 8, 2022

In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

The governor of the Bank of England has defended its decision to raise interest rates, saying there is a major risk that soaring prices may become embedded.

Interest rates rose to 1.75% - the biggest rise in over 27 years - with inflation values now set to hit more than 13%.

 

The UK is forecast to fall into recession this year, with the longest downturn since 2008 predicted. Increasing interest rates is one way to try and control inflation as it raises borrowing costs.

 

This in turn should encourage people to borrow and spend less. It can also encourage people to save more. However, many households will be pressured further following the interest rate rise, including some mortgage-holders.

 

UK inflation - the rate at which prices rise - is currently at 9.4%, which is the highest level for more than 40 years.

 

But the Bank has warned it could peak at more than 13% and stay at ‘elevated levels’ throughout much of next year, before slowly returning to the Bank's 2% target in 2024.

 

The main reason for the high inflation and low growth is soaring energy bills, which have been driven by Russia's invasion of Ukraine.

 

Households have also been hit by higher petrol, diesel and food costs, with real post-tax household incomes forecast to fall this year and into the next.

 

At its current rate, the economy is forecast to shrink in the final three months of this year and keep shrinking until the end of 2023.

 

The expected recession would be the longest downturn since 2008, when the UK banking system faced collapse, bringing all lending to an abrupt halt.

 

The slump is not set to be as deep as 14 years ago, but may be prolonged for a similar amount of time.

August 1, 2022

In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

Gas prices jumped after Russia further cut gas supplies to Germany and other central European countries after threatening to earlier this week.

European gas prices rose by almost 2%, trading close to the record high set after the Russian invasion of Ukraine.

 

Russia has been cutting flows through the Nord Stream 1 pipeline to Germany, with it now operating at less than a fifth of its normal capacity.

 

Before the Ukraine War, Germany had imported over half of its gas from Russia through the Nord Stream 1 pipeline - with the rest coming from land-based operations. By the end of June, this capacity had reduced to just over a quarter.

 

Russian energy firm Gazprom has sought to justify the latest cut by saying it was needed to allow maintenance work on a turbine.

 

The German government, however, said there was no technical reason for it to limit the supply.

 

The UK would not be directly impacted by gas supply disruption, as it imports less than 5% of its gas from Russia. However, it would be affected by prices rising in the global markets as demand in Europe increases.

 

European wholesale gas prices closed at €204.85 (£172.08) per megawatt hour - the third highest price on record. The all-time high was achieved on 8 March when prices closed at €210.50 (£176.76) per megawatt hour.

 

However, this time last year the wholesale gas price in Europe was at just above €37 (£31.08) per megawatt hour.

 

UK gas prices rose 7% on Wednesday with the price now more than six times higher than a year ago. However, it is still well below the peak seen in the aftermath of Russia's invasion of Ukraine earlier this year.

 

UK energy bills rose by an unprecedented £700 in April, and are expected to rise again with a stark warning that a typical energy bill could hit £3,850 a year by January.

 

The latest reduction in flows puts pressure on EU countries to reduce their dependence on Russian gas even further, and will likely make it more difficult for them to replenish their gas supplies ahead of the upcoming winter months.

 

Since the invasion of Ukraine European leaders have held talks over how to reduce its dependence on Russian fossil fuels.

 

 

 

 

 

 

July 25, 2022

In our Market Monday insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.

The European Central Bank (ECB) has raised interest rates for the first time in more than 11 years as it tries to control soaring eurozone inflation levels.

The ECB increased its key interest rate by 0.5 percentage points to 0.0% and plans further hikes this year. The rate has been negative since 2014 in a bid to boost the region's economy after years of continued weak growth.

 

But consumer prices rose at a record 8.6% in the 12 months to June as food, fuel and energy costs soared, well above the bank's 2% target. 

 

This rise comes after the Bank of England and the US Federal Reserve also put up their rates to try and rein in the rising prices.

 

The Ukraine war and Covid supply chain issues have dramatically driven up everyday costs across the world, putting pressure on households and businesses alike.

 

The eurozone is particularly vulnerable because it relies heavily on Russia for its oil and gas supplies. This week it urged member states to begin rationing supplies amid fears Moscow will halt gas deliveries this year, causing yet further price spikes.

 

Explaining its decision to raise rates, the ECB justified that slowing economic activity is directly linked to Russia's unjustified aggression towards Ukraine, which has become an ongoing source of drag on growth.

 

Experts are predicting inflation to remain undesirably high for some time owing to continued pressure from energy and food prices alongside pipeline pressures in the pricing chain.

 

However, there are concerns about how these higher borrowing costs will affect highly indebted European nations, including Italy and Greece.