Market Update – 7th December 2022.

Investor sentiment was boosted this week, as commodity markets and oil prices gained on the prospect of increased demand from China as it looks as though restrictions are being reduced at a quicker rate than markets had originally anticipated.

While Chinese General Services PMI fell in November and China’s trade surplus also declined, the economic data was somewhat muted by China announcing the further easing of Covid restrictions after waves of protests last week, the Hang Seng Index is up around 16.4% in the last month. Chinese stocks rallied on Monday after Beijing and Shenzhen said they would lift measures that required commuters to show negative Covid test results before travelling and going to public spaces such as malls, or residential areas. In a 10-point announcement on Wednesday Chinese health authorities reduced measures even further: individuals with asymptomatic or mild cases will no longer be forced into quarantine camps and will be allowed to isolate in their own homes.

Whilst China will inevitably experience its fair share of challenges as people emerge after nearly 3 years of restrictions, the economy will be supported by government spending across multiple sectors.

The G7’s price cap on seaborne Russian oil came into effect on Monday, limiting the price to $60 per barrel (close to where the price currently sits). The price cap from the west aims to deplete Russia’s revenues for fuelling their war in Ukraine. Russia has said that it will refuse to sell to any countries complying with the cap. Meanwhile, India’s oil minister has said that the cap won’t impact India as they continue to take advantage of a diverse set of supplies and access to top oil exporters who are willing to sell to their growing market.

Eurozone services PMI saw little change in November, from the previous month’s reading. The figure marked a fourth straight month of falling output levels across the service sector. Additionally, October Eurozone retail sales dropped by 2.7% from a year earlier, falling below market expectations. This data, along with signs of slowing growth across Europe, will give the European Central Bank something to think about and may help determine the scale of their next interest rate hike at their monetary policy meeting next week.

Over in the US, the ISM Services PMI unexpectedly jumped to 56.5 in November, rebounding from a more than 2-year low of 54.4 in October and beating market forecasts of 53.3. US economic data has continued to demonstrate resilience within different areas of the economy, with labour market data also holding up last week.

In contrast to the recent upbeat data releases, the US balance of trade gap widened to $78.2bn in October – up from September but smaller than market forecasts of $80bn, as the stronger dollar helped push exports down to a 7-year low. Stocks traded lower as investors continue to be wary of any data releases that could urge the Federal Reserve to act aggressively at their next meeting on the 14th of December.

U.S. President Joe Biden paid a visit to TSMC’s Arizona plant as the Taiwanese chipmaker has said it will more than triple its initial planned investment to $40 billion, making it one of the largest foreign investments in American History. The investment is a great achievement for President Biden after supply chain issues disrupted the U.S. economy in 2021. November’s mid-term elections drew to a close yesterday after the final senate results from Georgia gave the Democrats another Senate seat; President Joe Biden’s party now holds the upper chamber of Congress by 51-49. The extra seat should help the Democrats and Biden’s legislative agenda.

Still to come this week we have US consumer sentiment, producer prices and US initial jobless claims. Eurozone employment change, Japanese GDP for Q3 and Chinese CPI.

Kate Mimnagh, Portfolio Economist

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