Market Update – 30th November 2022.

6th December 2022

China’s football fans are feeling a little left out as the rest of the world comes together mask free, to cheer on their respective teams at the World Cup in Qatar. The sporting event has highlighted the disparity between China and the rest of the world, as whilst restrictions in China have been significantly reduced since the start of the year, the government remains committed to their zero-COVID policy.

The country has seen protesters this week calling for an end to COVID-19 restrictions with some directly calling on President Xi Jinping to stand down. Although protests on this scale are a rarity in China, the government are yet to acknowledge them. With Xi Jinping facing unprecedented political upheaval this could be a pivotal moment for China as it is evident the population has lost their patience after enduring 3 years of mass testing and lockdowns.

On Monday investors appeared to be focusing on the short-term uncertainty in the region, however they more than recovered their losses on Tuesday as sentiment was boosted after the National Health Commission announced a campaign to ramp up vaccinations. The Hang Seng index is currently up 7.52% since Monday whilst the Golden Dragon index (New York-listed Chinese companies) is up 37% since late October. Whilst an end to the zero-COVID policy is unlikely to be overnight, pressure is mounting (both globally and domestically) on the government, which could mean an increase in the rate at which restrictions are reduced.

German inflation fell in five states in November, suggesting cost pressures eased in Europe’s largest economy – a positive development for the European Central Bank but the news is unlikely to change the course of their fight against inflation. As western sanctions continue to mount on Russia, the redistribution of resources accelerates between nations. Both Germany and China have secured LNG gas deals with the world’s largest producer, Qatar. China, the world’s largest consumer of LNG gas, has secured a 27-year deal (the longest ever seen). Uncertainty surrounding energy supplies has seen countries looking to strengthen their ties with alternative global producers.

UK mortgage approvals fell to 59,000 in October 2022, the lowest level since June 2020. The lending figures point to cooling in the economy as rising interest rates amidst high inflation dampens demand for property after rapid growth during the pandemic. As we have said previously, the BoE is not able to raise rates as aggressively as say the US, and signs of a slowing property sector will need to be taken into consideration at their next monetary policy meeting on the 15th December.

Markets will be hanging on every word of Fed chair Jerome Powell’s speech later today. Investors will be looking for any hints about the size of future interest rate hikes. The economy has shown signs of slowing in recent weeks; markets are expecting a smaller 50bp move at their next meeting on the 14th December.

The US consumer confidence fell to a four-month low in November. As the index is an indication of consumer health, this provides further reason for the Fed to slow the pace of their interest rate rises. With that being said it was a successful week for online retailers as consumers searched for the best deals and discounts. US cyber Monday broke history as sales reached $11.3bn making it the biggest online shopping day in the history of the US.

US employment data is due on Friday (2nd December) (non-farm payrolls; unemployment rate; participation rate; and average earnings). Also this week we have Eurozone inflation, US PCE price Index, Chinese PMI and Japanese industrial production.

Investment Management Team