Europe
European markets have remained on the back foot today after the latest China trade numbers for November saw both imports and exports fall off a cliff.
The surprise wasn’t in the fact that the numbers were weak, it’s how weak they were, exports plunging -8.7%, with some of the reasons well documented, the unrest at the Foxconn plant on Zhengzhou being one such example.
Imports also plunged by more than expected at -10.6%, the worst month since May 2020, as Chinese domestic demand continued to struggle in the face of over 2 years of perpetual restrictions and lockdowns.
The weakness in the latest Chinese numbers has prompted a pullback in the push higher in the basic resource and energy sectors, which is acting as a drag, on the wider market, although the FTSE100 is outperforming due to a strong performance in health care.
This is due to strong gains from GSK, Sanofi and Haleon after a Florida judge threw out claims that the Zantac drug caused cancer. The judge ruled that there is no consistent or reliable evidence that ranitidine increases the risk of any cancer. The companies aren’t out of the woods yet when it comes to claims as there are others in the offing, but in terms of precedent the ruling is significant.
It is important to note that at the companies have consistently refuted the claims on every level since the reports came out in the summer.
AstraZenecashares are also higher after its Japanese partner Daiichi Sankyo said their breast cancer drug Enhertu reduced the risk of death by 36%.
With oil prices hitting their lowest levels this year, Shell and BP shares have been the main laggards on the FTSE100, however the decline in energy prices also raises a wider question with respect to smaller energy producers in respect of the windfall tax.
Harbour Energy one of the UK’s smaller oil and gas providers shares hit a one year low today, as it gets set to drop out of the FTSE100 this month, with the industry calling for a minimum floor price for the tax under which it would not be levied, as their margins and profits get squeezed.
US
US markets opened modestly lower against a backdrop of a weaker economic outlook and uncertainty over the interest rate outlook.
Southwest Airlines shares have slipped lower after the airline announced it was reintroducing the dividend three years after it last made a pay-out, with the next payment due to be made on 31st January.
Apple shares have slipped back on concerns over weaker demand for its iPhone 14. Combined with supply problems at some of its suppliers in China it seems likely that what tends to be Apple’s strongest quarter may well fall short of expectations.
FX
The US dollar has slipped back today after rebounding from 5-month lows on Monday, against a backdrop of uncertainty about the next moves for central bank interest rate policy over the next few months. While no one is expecting anything other than 50bps rate hikes next week when we get the Federal Reserve, European Central Bank and the Bank of England all set to meet within 24 hours of each other, it is what comes after that which is causing increased speculation.
The Canadian dollar edged higher in the wake of the Bank of Canada raising rates by 50bps to 4.25%, in a move that could be considered dovish given it came with the caveat that the central bank was only considering the need for further rate rises.
Commodities
The weakness in yields, alongside reports that the Chinese central bank bought 32 tons of gold worth $1.8bn has seen gold prices rise sharply as they look to retest the highs of earlier this week, above $1,800 an ounce.
Brent crude oil prices hit their lowest levels this year earlier today as rising recession risks outweighed any optimism over a reopening of the Chinese economy. Today’s China trade numbers served to reinforce the idea that while Chinese authorities are going to be more pragmatic about their current covid policy, the Chinese economy faces a long road back to a more stable growth trajectory. Any downside on US prices is likely to find itself limited to the US topping up the SPR on any significant weakness, .
Volatility
Several US Banking stocks found themselves struggling on Tuesday as fears of an economic slowdown mount. Bank of America was very much at the forefront here, with news that it would slow hiring adding to downside pressures. The share price has now fallen close on 10% since the start of the week, with daily volatility advancing to 70.88%, well up from the one month reading of 40.62%.
Cannabis stocks remain in focus although sentiment continues to soften across the sector here. Hopes that President Biden was pushing through legal reform for the sector had been buoying sentiment but yesterday saw something of a reversal and CMC’s proprietary basket of marijuana growers is now down around 20% from the highs seen at the start of the week. One day vol came in at 132.46% against 95.9% on the month.
Wheat prices moved lower again on Tuesday, heading towards levels seen in the summer and on towards the lows posted back before the Russian invasion of Ukraine. Southern hemisphere harvests are very much in focus with Australia eyeing bumper yields, although the news out of South America may be less impressive. One day vol on US Wheat came in at 37.22% against 36.03% for the month and as those crop reports come in, further movement could be seen here.
Disclaimer: CMC Markets Singapore may provide or make available research analysis or reports prepared or issued by entities within the CMC Markets group of companies, located and regulated under the laws in a foreign jurisdictions, in accordance with regulation 32C of the Financial Advisers Regulations. Where such information is issued or promulgated to a person who is not an accredited investor, expert investor or institutional investor, CMC Markets Singapore accepts legal responsibility for the contents of the analysis or report, to the extent required by law. Recipients of such information who are resident in Singapore may contact CMC Markets Singapore on 1800 559 6000 for any matters arising from or in connection with the information.
