Closing Report 07.01.2022

increase interest rates, new fed resolution for 2022

AMERICAN MARKETS MID-DAY

For the first stock market session of the year, the US indices are up at mid-session, with the Nasdaq 100 technology stock index gaining 0.86%, driven by Apple becoming the first company to reach 3 trillion in market value. The Dow Jones and the S&P 500 gained 0.43% and 0.40% respectively. The year is off to a good start for Silicon Valley company Apple, as during Monday’s trading session, Apple’s stock closed up 2.5%, with an intraday high of 182.88, giving it a market value of $3 trillion. For Scott Wren, senior global market strategist at Wells Fargo Investment Institute, this result is a consequence of the financial strength of the group rewarded by the market. To sum up, Apple has gained 5800% on the stock market since the announcement of the first iPhone by Steve Jobs in January 2007. On Tuesday, the US indexes are evolving in half-tone, after an opening of the session up by nearly 0.4% for the Nasdaq, the Dow Jones, and the S&P 500, the indexes close down except the Dow Jones which gains 0.59%. The Nasdaq was down 1.35% at the close and the S&P 500 lost 0.06%. Tesla shares fall 4.18% after Elon Musk announces the opening of a showroom in Xinjiang, China, an area affected by Beijing’s repressive policies and violation of the rights of the Uighur minority. Declining concerns over the safety of the Omicron variant following the World Health Organisation’s announcement is having a positive effect on the transport and tourism sectors in the US too, with American Airlines closing up 1.44% while Carnival shares gained 1.49% at the close. In the U.S., with the dollar falling and the Fed officials’ minutes pending, stock market indices are down on Wednesday. The Nasdaq 100 lost 3.12%, the S&P 500 fell 1.94% and the Dow Jones lost 1.07%. In the labor market, the lack of manpower and the threat of the spread of the Omicron variant are penalizing its recovery, even though the government announced on Tuesday that 10.6 million jobs will be available at the end of November 2021. The labor market remains strong thanks to its private sector. On Wednesday, an ADP National Employment report showed a larger-than-expected increase in private-sector payrolls, up 807,000 jobs in December compared to 400,000 expected by economists, according to data collected in mid-December. On Thursday, the US stock market indexes evolved in half-tone, after having gained 0.25% and 0.27% in the middle of the session, the S&P 500 and the Nasdaq closed down by 0.10% and 0.04%. The Dow Jones recorded the biggest drop of the session, down 0.47%. Cyclical stocks stood out, including the energy and financials sectors, while 11 of the S&P’s major sectors were down. The banking sector index gained 1.8% as 10-year Treasury rates rose to their highest level since April. The US stock market indices are moving lower on Friday after the release of employment data, which was weaker than expected due in part to a lack of manpower. The survey was conducted in mid-December, and the data was affected by the spread of the Omicron variant at that time. Indeed, people in quarantine at that time or on sick leave not paid by their employer were considered unemployed. The government’s announcement on Tuesday that it would open up 10.6 million jobs by the end of November remains a positive sign for the labor market. The dollar fell by almost 0.43% against the euro after the announcement of the employment figures. The Nasdaq is down 0.67% at mid-session, the S&P is down 0.09% while the Dow Jones is up 0.31%.

EUROPEAN MARKETS CLOSING

In Europe, the stock market indices closed the first session of the year up strongly, with the CAC 40 gaining 0.9% and the DAX 0.86%. The EURO STOXX 50 index of European stocks gained 0.78%. This upward trend is favored by the decrease of the worries about the Omicron variant which could constitute a brake on the recovery of the economic activity thanks to recent studies which confirm that the variant is less dangerous. Markit’s European Manufacturing Purchasing Managers’ Survey results revealed that the sector remains strong at the end of 2021 with an index reading of 58.0 compared to 58.4 in November, giving way to a sense of optimism in the European markets at the start of the year. On Tuesday, the European stock market indices continued their rise at the beginning of the year. The London Stock Exchange, which was closed on Monday due to the bank holiday, made a positive performance for its first session. The FTSE 100 gained 1.6% as concerns over the Omicron variant receded. The best performance of the London Stock Exchange was achieved by the share of the British Airways company which recorded a rise of 12% over the session and improved the European travel and leisure index (3.3%). The CAC 40 continued to rise with an increase of 1.39%, exceeding the 7300 point mark, and the DAX gained 0.82%. The CAC40 is close to 7400 points on Wednesday, up 0.81% at the close, driven by automotive stocks. Among the best performers on the index, today is Renault, which rose the most, gaining 5.31% as US chipmaker Qualcomm announced a deal to supply the French car giant. Stellantis shares are up 3.91%, the third-best performer on the index for the session, following the announcement of a partnership with Amazon.com to build cars with Amazon’s software in the dashboard and to deploy electric vans on Amazon’s delivery network. The European automotive sector index gained 2% on Wednesday, giving it a 33% year-on-year gain and outperforming the STOXX 600 by 10%. BMW shares in Germany and Daimler’s in the UK gained 2% and 3% respectively. For Emmanuel Cau, equity strategist at Barclays, cars in Europe are cheaper but their profitability remains strong thanks to the price mix offered by the market. BofA expects light vehicles sales to increase by 10% in 2022, report Reuters. On Thursday, the CAC 40 closed down 1.72%, after three successive sessions of increases, due to the publication on Wednesday of the FED’s report on an earlier than expected interest rate hike. Three of the CAC 40’s banking stocks were the best performers of the day including Societe Generale, BNP Paribas, and Credit Agricole Group. These so-called cyclical stocks benefited from the rise in long-term treasury rates, as these increases allow for a better margin of banking intermediation between the short and long term. The Carrefour share was the best performer on the index with a rise of 6.29% following the growing rumors of a proposed takeover of the group by the giant Auchan. All European stock indices closed the Thursday session lower, with the DAX losing 1.35% and the FTSE 100 falling 0.88%. The employment figures in the United States upset the European stock market indices. On Friday, the CAC 40 is down 0.42% while the DAX is down 0.65%. On the Paris stock exchange, STMicroelectronics shares gained 4.13% during the session and closed with a gain of 3.45% after announcing that its fourth-quarter sales were 11% higher than expected due to strong market demand for its products.

ASIAN PACIFIC MARKETS CLOSING

In its first session of the year, China’s stock market index closed lower on Tuesday. The SSE Composite Index lost 0.20% as investor anger continued to fall on China’s second-largest property developer, Evergrande. As « Evergrande announced a dial-back of plans to repay investors in its wealth management products, announcing that each could expect 8,000 yuan ($1,256) per month in principal payment for three months starting in January, irrespective of when their investment matures », reports Reuters,  about 100 protesters gathered outside the developer’s offices on Tuesday to protest for the repayment of their investment. The Tokyo Stock Exchange closed Tuesday’s session up 1.77%, buoyed in part by carmakers. On Wednesday, the Nifty 50 was the best performer on the continent, up 0.67% at the close, led by banking and financial stocks, plus 5% for Financial stocks Bajaj Finance (BJFN.NS) and Bajaj Finserv (BJFS.NS). Despite a high number of coronavirus cases, 58,097 so far today, Indian stocks closed higher for the third successive session since the start of the year. Narendra Solanki, head of equity research at Anand Rathi Investment Services, said the Indian markets have already priced in the lesser effect of the third wave of coronavirus, which would explain their performance at the start of the year. The Hang Seng index recorded a successive decline, losing 1.64% at the close, while the Nikkei 225 edged up 0.10%. On Thursday, the Nikkei 225 was not spared by the announcement of the Fed meeting minutes and recorded the biggest drop of the session compared to its peers, falling by 2.88%. On Friday, the FTSE Straits Times index gained 0.66% after two unidentified sources responded to rumors of two special purpose acquisition companies (SPAC) going public. Reuters reports that SPACs are « shell companies that list on the stock market and then merge with an existing company to take it public, to offer shorter listing times and higher valuations ». These two companies include Vertex Technology Acquisition Group focused on cybersecurity and financial technologies, and Pegasus Asia also focused on financial technologies, which are looking to raise funds in the Singaporean markets. If completed, these would be SPAC’s first IPOs on the Asian markets. The Singaporean stock market has only recorded 8 IPOs in 2021 with an estimated $565 million in fundraising according to Refinitiv data, their lowest level for 6 years. The Hang Seng closed the week up 1.82%, the Kospi gained 1.18% while the Nikkei was slightly down 0.03%.

COMMODITIES & FOREX MARKETS

• Oil Brent gained 1.22% and oil WTI gained 0.88% with the announcement earlier this week that Libya would temporarily cut its supply by 200,000 barrels a day for a week due to maintenance work on a pipeline, Reuters reported earlier this week.
• The Canadian dollar strengthened against its US counterpart after oil prices rose on Monday, with the OPEC+ countries announcing that they would maintain their production at 400,000 barrels per day for February. On Tuesday, the CAD/USD was up 0.43% on the exchange.
• On Wednesday, the dollar’s decline and investors’ concerns about inflation benefited the gold price, which gained 0.56% to 1,824.80 an ounce, as gold is a hedge against excess inflation. Ahead of the release of the minutes of the latest Fed meeting, investors expect policymakers to tighten monetary policy. In the meantime, markets are moving into safe havens to hedge against inflation. Palladium and silver prices are also up 2.11% and 0.47% respectively.
• The People’s Bank of China plans to expand the use of the digital yuan nationwide in the uncertain future and may need the help of WeChat Pay and Alipay, China’s two leading mobile payment applications.

FED, the minutes of the mid-December meeting

In its mid-December meeting minutes published on Wednesday, the FED is considering a more aggressive monetary policy to fight inflation, which has so far been considered transitory. Indeed, FED officials may raise interest rates more than expected in early 2022 and should result in a reduction in the size of the Federal Reserve’s balance sheet, the minutes said. In addition, to curb rising inflation, threatened by the emergence of the Omicron variant, the FOMC announced a reduction in the Fed’s bond-buying program earlier than had been anticipated at the November meeting. Following the release of the note, the 10-year Treasury bond rate rose to 1.7087%, its largest increase since April 2021, which is an encouraging sign in terms of economic growth.

The impact of the minutes was instantaneous, benefiting the dollar, which rose by 0.13% against the euro. The Nasdaq 100, which contains technology stocks, known as growth stocks, is correcting more than the other indices because of the high multiples of the stocks. The Nasdaq fell 3.12 percent while the S&P 500 and Dow Jones lost 1.94 percent and 1.07 percent at the close of Wednesday.