Global Markets News Round-up: 28/02/23

The UK’s post-Brexit trade deal with the EU is being met with skepticism from Northern Irish politicians, who need to be convinced to back the “Windsor Framework.” Prime Minister Rishi Sunak and European Commission President Ursula von der Leyen are spearheading the effort, with the next stage of the process involving attention to detail and political negotiations. This trade deal between the UK and Northern Ireland may not be enough to revive investor interest in UK assets, according to some asset managers such as BlackRock, Abrdn, and Invesco. Despite this deal, Invesco’s Paul Jackson said he remained underweight on UK equities.

Meanwhile, as inflation continues to rise, European Central Bank Governing Council member Boris Vujcic has called for continued monetary-policy tightening. However, bankers are facing criticism for making too much money rather than losing it, as high interest rates on loans are causing banks to generate large profits at the expense of savers. 

The energy crisis is encouraging Japan to reconsider nuclear power, despite the country’s nuclear disaster in 2011. 

The US dollar is increasingly being seen as a hedge against systematic risk, with its correlation to the S&P 500 index at a two-decade high. The correlation with gold is also the strongest on record, indicating that the outlook for the dollar is for more strength, and for stocks and commodities, more volatility.

Market volatility is looming as trend-following quants appear to be preparing to offload stocks if the S&P 500 index falls below a significant technical threshold, according to JPMorgan’s trading desk. If the benchmark gauge drops below its 200-day moving average, commodity trading advisors could be forced to sell around $50 billion of equities. In the last two weeks, CTAs have already pulled $40 billion from global stocks, says Nomura.

Zoom Video saw a 7.4% post-market rally due to cost cuts that offset a sales slowdown. Zoom is trying to retain corporate clients by offering non-video offerings such as internet phone and contact center features.

In the UK housing market, buyers are getting the best discounts in over five years, as sellers cut their asking prices to get deals done, according to Zoopla. The average discount to the asking price was 4.5% this month, up from 0.4% in 2022, with discounts averaging £14,100 per sale.

Bayer’s guidance will be vital when it reports earnings as it faces a more challenging year. The consensus is that sales will stagnate at about €50.8 billion this year, while adjusted Ebitda may slip.

Japan’s Yoshimasa Hayashi is unlikely to attend the G-20 foreign ministers meeting in India, instead prioritizing parliamentary business, which risks angering host India.

Markets yesterday:

Stocks in Asia took a hit as the dollar and Treasury yields increased, causing investors to reevaluate the global economy’s outlook. The MXAP, an Asia equity benchmark, lost 0.5% as most gauges in the region came off their highs. The Hang Seng Index and Chinese gauges traded lower after the mid-day break, following an earlier rise as Hong Kong dropped its mask mandate. 

US contracts were rangebound, following the S&P 500’s 0.3% advance and the tech-heavy Nasdaq 100’s 0.7% gain on Monday. 

Traders are now pricing US rates to peak at 5.4% this year, compared with about 5% just a month ago, after a series of hawkish Fed speak this month trimmed January’s gains across markets.

The Bloomberg Dollar Spot Index climbed after falling 0.3% on Monday. All of G-10 currencies traded weaker versus the dollar, with the Australian dollar giving up its earlier strength. 

US data on Monday further outlined the challenge facing the central bank, with pending home sales increasing in January by the most since June 2020. 

Durable goods orders fell, but after accounting for a drop in transportation equipment, rose more than expected. Orders placed with factories for business equipment also rose.

Traders are not confident in the current rally as the economy still looks too strong for disinflation trends to resume. Edward Moya, a senior market analyst at Oanda, wrote in a note that the Fed has a lot more work to do, and that should be a difficult environment for stocks. 

The Fed has been firm in its 2% inflation goal, and Federal Reserve Governor Philip Jefferson stood by that goal on Monday.

Investors are keeping a close eye on Adani Group (ADE) shares as the conglomerate continues an investor roadshow in the region. The company has enough money to repay debts for the next three years in addition to an $800 million cash pile. 

Meanwhile, developer China Evergrande Group has yet to reach an agreement with major creditors on a debt restructuring framework as key deadlines loom. The company, which is at the epicenter of China’s real estate crisis, has said it wants to get support from noteholders by early March and faces a March 20 court hearing in Hong Kong on a winding-up petition.

Oil was set for a fourth straight monthly decline as concerns about tighter monetary policy and swelling stockpiles in the US eclipsed optimism about rising demand in China. Gold was also heading for its worst month since the middle of 2021.

Investors are now pricing in a more challenging environment for stocks due to higher interest rates, a strong economy, and a lack of confidence in the current rally. The market will likely continue to experience volatility in the coming months as the Fed navigates its inflation goals, and companies like Adani and China Evergrande face significant financial challenges. As always, investors should stay informed and keep a close eye on global economic developments to make informed decisions about their investments.

Global indices at 7:00am UKT:

Dow Jones: 32,889.09 (+0.22%)

NASDAQ: 11,466.98 (+0.63%)

FTSE100: 7,935.11 (+0.72%)

CAC40: 7,295.55 (+1.51%)

Sensex: 59,233.48 (-0.09%)

Nifty50: 17,379.95 (-0.07%)

Nikkei225: 27,445.56 (+0.08%)

Disclaimer: The information provided in this summary is based on sources believed to be reliable and accurate. However, the accuracy and completeness of the information cannot be guaranteed. The opinions and views expressed in this summary are for informational purposes only and do not constitute investment advice. This summary should not be relied upon as the sole source of information when making investment decisions. Any decisions made based on information contained in this summary are the sole responsibility of the reader and may not be in the reader's best interest. The author and publisher assume no liability for any errors or omissions in this summary.
MSc Finance graduate from the London School of Economics and Political Science (LSE)
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Ria V Vaghela is an M&A Executive at RSM UK and an MSc Finance graduate from the London School of Economics and Political Science (LSE). She has worked at Jefferies, Dial Partners and 7i Capital prior to RSM UK gaining an experience of about 1.5 years. She has also worked as an Editor and Content Writer for The Representative Media. Apart from finance, she is interested in reading books on psychology and economics and also likes to paint and play lawn tennis

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