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Weekly Market Review (21-11-2022)

Key headline

  • On Thursday it was the release of U.K.’s fiscal statement – “take 2”! Chancellor of the Exchequer Jeremy Hunt announced a series of proposals as follows; personal income tax will incorporate the top threshold rate of 45% for those who earn GBP125k or above, this threshold was reduced from GBP150k; stamp duty cuts will remain in place until 2025; electric vehicles will no longer be exempt from excise duty, however, a reduced rate will be applicable; the education budget will increase by GBP2.3 billion p.a.; windfall tax on energy companies will be increased from 25% to 35% until 2028 and electric producers will face a 45% levy. This replaces a plan announced by PM Rishi Sunak’s predecessor Liz Truss, to cap the revenue of renewable and nuclear power producers from next year; Hunt stated that the employment rate is not sufficient and therefore those receiving the benefit, universal credit, will have to meet with a work coach; in healthcare, GBP1 billion will be spent on adult care and this will grow to GBP1.7 billion by 2024; there will be increased funding for social care, GBP2.3 billion in 2023, GBP4.7 billion in 2024; the NHS budget will be increased by GBP3.3 billion in each of the next 3 years; there will be 1 new nuclear station built in collaboration with EDF which will create over 10,000 jobs. Sterling was very reactive as cable fluctuated from 1.1805 to 1.1854 as the speech was being delivered, before closing at 1.1864 for the day. The proposed measures are designed to reduce the U.K.’s annual public borrowing by GBP55 billion.

  • Nancy Pelosi, the House Democratic Leader has announced that she is stepping down from the post after leading the House Democrats for almost 20 years. She has been a speaker under 4 presidents and was the first female to serve as a speaker. Some have welcomed the news as they believe her exit “creates an opening for caucus rule changes” that many have been pushing for. Hakeem Jeffries appears to be a popular replacement option and if successful, will be the first African-American to lead a party in congress.

  • As the FTX saga continues, John J. Ray III has labelled the company’s corporate control a complete failure. Ray, who assisted energy trading firm Enron in the aftermath of its collapse in 2001, has said that the corporate disfunction at FTX is the worst he has ever seen; “from compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.” Ray is the acting CEO and Chief Restructuring Officer for FTX, which is now being valued at just $659k compared to $5.5 billion last week. The bankruptcy filing splits FTX’s business into two major units, and notes anomalies such as; the inability to get a complete list of who worked for the group or their terms of employment; the fact that the company didn’t maintain centralised control of its cash and the omission of customer liabilities in its financial statements, to name but a few.

  • It was a series of high October inflation numbers released last week, as the U.K. has now reached a 41-year record and Japan, a 40-year high; consumer prices in the U.K. increased to 11.1% YoY, which far exceeded the BOE’s forecast of 10.9% and economists’ forecast of 10.7%. Inflation is now 5 times the Central Bank’s target despite 8 key rate hikes this year. Energy prices were the key contributor with gas prices up almost 37% MoM and electricity 16.9%. In Japan, consumer prices rose to 3.6% in October YoY driven largely by processed food prices, rather than energy prices. This was slightly greater than the 3.5% forecasted and despite the reading being above the BOJ’s 2% target for the 7th month in a row, BOJ Governor Kuroda stated “I believe price growth will fall below 2% next fiscal year onward.”

Treasuries & Rates

  • Post its split from Yeezy, Adidas AG raised EUR1b in a two-part deal, each worth EUR500m with tenors of 3 years and 7 years respectively. Listed in Luxembourg the deal will settle today 21st November and is the company’s first issuance since 2020.

  • The U.K.’s Debt Management Office (DMO) is targeting the country’s bond sales towards shorter maturities in order to alleviate a collateral shortage. Almost 40% of the planned bond sales out to April 2023 will be short-dated bonds.

Interest Rates Last Rate 31.12.21 bp 1w bp 3m
3m EIBOR 4.429 0.364 0.021 3.399
3m LIBOR 4.665/td> 0.209 0.021 3.703
6m EIBOR 4.760 0.700 0.138 3.212
6m LIBOR 5.143 0.339 0.039 3.673
5Y AED swap 4.125 1.750 0.032 1.338
5Y USD Swap 4.027 1.370 -0.012 1.504
10Y AED Swap 4.130 2.175 -0.035 1.174
10Y USD Swap 3.774 1.581 -0.073 1.368
  • There has been a demand for such instruments since the recent turmoil after ex-Chancellor of the Exchequer Kwasi Kwarteng announced a budget that didn’t define how it would be funded, and led the U.K. gilt market to all but default. Robert Stheeman, the DMO’s Chief Executive noted that the collateral shortage has in fact been distorting the country’s money markets.

  • Rating Agencies Fitch, Moody’s and S&P, reaffirmed a number of sovereign credit ratings on Saturday, including; Turkey B and Sweden AAA by Fitch; revision of Ireland’s outlook by S&P to positive; and the revision of Malta’s outlook to stable by Moody’s. Whilst Fitch has highlighted Turkey’s outlook as negative, both Moody’s and S&P have confirmed it as stable.

Commodities

  • Despite a milder winter in Europe slowing demand for oil, inventories in developed nations are at their lowest level since 2004, and are expected to continue to deplete with ongoing sanctions on Russia and OPEC+ cuts. The IEA describes diesel supplies as exceptionally tight and that prices may need to rise to curb demand. Stockpiles have declined by 177m barrels YTD.

  • A United Nations’ brokered grain deal between Russia, Turkey and Ukraine, which was originally agreed in July, has been extended for 120 days. The pact enables Seaborne exports from Ukraine to pass through the Black sea after Ukrainian ports were blocked by Russia.

  • A Swedish investigation into the damage caused on the Nord Stream 1 and 2 pipelines has concluded it was “grievous sabotage,” However, the report has not named any suspected parties but instead the country’s security service will continue their investigation to analyse the sections damaged, in an attempt to establish who is responsible and hold them accountable.

Commodities USD Last Price 31.12.21 %1w %3m
ENERGY
ICE Brent 86.79 72.88 -6.82 -7.83
NYMEX WTI 79.22 69.83 -7.74 -11.59
METALS
Spot Gold 1746.5 1829.2 -1.41 -0.03
LME Copper 8076.00 9720.50 -3.57 -0.03
DCE Iron Ore 735.00 918.00 2.37 8.01
LME Aluminium 2430.00 2807.50 -0.92 1.84
LME Nickel 25385.00 20757.00 -11.98 14.05
AGRICULTURE
ICE Cotton 81.91 89.42 -2.04 -27.41
ICE Sugar 20.05 18.43 1.11 11.14
CBT Soyabeans 1421.5 1269.25 -1.32 0.76
CBT SRW Wheat 824.25 771.75 -1.67 4.67
  • On Friday gold was headed for its 1st weekly decline of the month after 2 Fed officials, James Bullard and Neel Kashkari, rebuked any suggestions of a pause in the Fed’s monetary tightening. Both noted that the central bank still needs to go further with rate hikes.

Equities

  • Brera Holdings Plc, a company based in Ireland is set to issue an IPO in the U.S., the first U.S. IPO for a company based in Ireland since Dole Plc 16 months ago. Brera is a start-up company that’s building a portfolio of amateur football clubs, in an attempt to tap into the transfer market by focusing on players that may be overlooked by the larger football clubs, in particular those from disadvantaged backgrounds or communities.

  • Abu Dhabi Ports Group has bought Spanish logistics company Noatum for $680m, a second acquisition for the group this month. The group is managed by Abu Dhabi’s sovereign wealth fund and the deal with Noatum offers access to maritime and logistics opportunities in the Mediterranean as well as port facilities in Spain. Noatum also has a presence in Turkey, the U.S., U.K., China and Southeast Asia.

  • Taaleem Holdings PJSC, which is a private school operator in Dubai has raised AED750m in an IPO selling 250 million shares at AED3 per share. The company received over $3.7 billion in orders, which was an over subscription by 18 times and the shares are due to commence trading on 29th November. Overall the Middle East region is set to mark its second best year in IPO’s, following 2019, which had Saudi Aramco’s record $29 billion listing.

UAE Stock Market AED Last Price 31.12.21 %1w %3m
BOS 0.50 0.62 6.38 -5.66
ENBD 13.15 13.55 0.00 -3.66
FAB 17.66 18.62 -4.02 -10.54
ADCB 9.60 8.53 -0.52 1.59
EMAAR 6.17 4.89 -2.22 4.40
AIR ARABIA 2.12 1.45 -0.47 -6.61
Aramex 3.65 4.10 0.55 -5.19
Etisalat 25.46 31.70 -1.70 -5.35
DEWA 2.38 - -3.25 -7.75
DU 5.67 6.62 0.00 -8.40
Equities Last Price 31.12.21 %1w %3m
NASDAQ 11146.06 15644.97 -0.45 -12.27
S&P 500 3965.34 4766.18 0.20 -6.22
EURO STOXX 50 3924.84 4298.41 0.96 5.21
FTSE100 7385.52 7384.54 0.00 -2.18
DAX 14431.86 15884.86 0.83 6.55
NIKKEI 27908.4 28791.71 -0.20 -3.53
ADX 10466.15 8488.36 -1.45 3.80
DFM 3352.16 3195.91 -1.24 -1.98

Currencies

  • Q3 GDP for Japan reported on Tuesday, shows the economy unexpectedly contracted by 1.2% YoY Vs an expected expansion of 1.2% YoY. JPY fell 0.3% against USD after appreciating by 0.8% a day earlier.

  • Analysts are noting the narrowing of German-Italian bond yield spreads as a key indicator to the euro’s performance against USD. Noting that as long as Italian bonds continue to outperform, EURUSD should continue on an upward trajectory. The next major event is the ECB’s monetary policy meeting on the 15th December. If the ECB decides to slow the pace of rate hikes this could support Italian bonds, also known as Buoni Poliennali del Tesoro (BTPs).

Currencies Last Price 31.12.21 %1w %3m
EURUSD 1.0286 1.1370 -0.36 2.52
GBPUSD 1.1837/td> 1.3532 0.73 0.11
AUDUSD 0.6648 0.7263 -0.73 -3.23
USDSGD 1.3785 0.7263 -0.73 -3.23
USDCHF 0.9553 0.9129 1.23 -0.44
USDJPY 140.43 115.08 0.34 2.48
USDCAD 1.3416 1.2637 0.74 3.22
USDINR 81.89 74.34 0.76 2.63
USDTRY 18.6173 13.3040 0.14 2.85
DXY Index 107.22 112.12 0.52 -0.88
  • As of close of Asian trading on Friday, the kiwi dollar was the best performing G10 currency up by 1.18% against USD. CHF stands as the best performer YTD with a 3.96% loss against the greenback. Worst performing for the week was SEK, down 2.16% against the dollar.

  • The Argentinian government is expected to reinstate a decree which would implement a special FX rate for the peso from beginning of December to assist farmers with their soy sales. This measure was implemented in September but had expired. The rate being negotiated is 215-225 pesos per USD.

Key Economics Events

21Nov 2022

*Nov PBOC Interest Rate decision*; Oct Germany PPI; Oct Chicago Fed National Activity Index; Oct German PPI; Nov Canadian Bloomberg Nanos Confidence;

22Nov 2022

Oct U.K. Public Finances; Sep Canadian Retail Sales; Oct Canadian New Housing Price Index; Oct Canadian Manufacturing & Wholesales; Nov Eurozone Consumer Confidence; Nov U.S. Richmond Fed Manufacturing Index; Australian RBA Speech; U.S. Fed speech; Bank of Canada speech;

23Nov 2022

Nov S&P Global Manufacturing, Composite & Services PMI – Australia, France, Germany, Eurozone & U.S.; Nov U.K. S&P Global/ CIPS Manufacturing, Composite & Services PMI; Nov U.S. MBA Mortgage Applications; Oct U.S. Durable Goods Orders; Nov U.S. Initial Jobless Claims & Continuing Claims; Nov University of Michigan Consumer Sentiment; Oct U.S. New Home Sales; Oct Russian Industrial Production; Oct Russian PPI & CPI; Bank of England Speech; U.S. FOMC Minutes;

24Nov 2022

*Thanksgiving in the U.S.*; Nov Japanese Jibun Bank Manufacturing, Composite & Services PMI; Sep Final Japanese Leading Index CI; Sep Japanese Nationwide Dept Sales; Nov Turkish Capacity & Business Utilization; Nov French Business Confidence; Nov Turkish One-Week Repo Rate; Nov Turkish Foreigners Net Stock Invest; *Turkish Interest Rate Decision”; Nov U.K. CBI Industrial Trend Order; Oct Final Machine Tool Orders; Nov French Manufacturing Confidence; Nov German IFO Business Climate; Nov German IFO Current Assessment & Expectations; Nov Canadian CFIB Business Barometer; Weekly Russian Gold & Forex Reserve;

25Nov 2022

Nov Tokyo CPI; Nov Japanese Buying Foreign Bonds & Stocks; Dec German GfK Consumer Confidence; Q3 German GDP; Oct Spain PPI; Nov Italian Consumer & Business Confidence Index; Oct French Unemployment; Turkish Financial Stability Report; Nov Indian Foreign Exchange Reserve; Sep Canadian Budget Balance; Nov French Consumer Confidence; Nov Russian Money Supply; Nov Italian Consumer Confidence Index; Nov Italian Manufacturing Confidence; Nov Italian Economic Sentiment;