There Won’t Be a Fed Pivot. Don’t Expect a Santa Clause Rally.
Market Summary
We saw a choppy trading session last week as major economic events surprised and disappointed market participants. All major indices ended in the red with the Stoxx 600 leading the decline, deteriorating by 3.28%. Brent Oil outperformed the broader market with a 4.15% gain.
In the United States, CPI data came in better than expected. Headline inflation rose only 0.1% MoM, bringing YoY gain to 7.1% against market expectation of 7.3%. As widely expected, the US Fed slowed down the pace of rate hikes by announcing a 50bps increase; however, officials reiterated that further rate rises are likely until inflation proved to be improving in a sustainable fashion. In UK and EU, in-line with market expectations, the BOE and ECB raised official rates by 50bps. UK inflation eased from 41-year high to 10.7% as fuel prices weakened. In EU, business activity has been sluggish for the 6th consecutive month with the PMI still in the contraction range.
In Asia, China is considering new measures to support the property sector to boost the sluggish economy as previous COVID related policies weigh on the economy. Industry production rose 2.2% YoY while retail sales deteriorated by 5.9%. Fixed-asset investments also fell short of expectation.
Major News
EU Lawmakers agreed to introduce the world’s first carbon border tax with the aim to raise environmental standards globally.
Former CEO of FTX, Sam Bankman-Fried, has been arrested in the Bahamas. US DoJ has charged the FTX founder with eight counts, including conspiracy to commit fraud, money laundering and violating campaign finance laws.
US adds 36 Chinese companies to trade blacklist; the dramatic action came after Washington unveiled severe export controls designed to prevent China from developing high-end chips.
Vietnam announced an energy deal worth nearly USD 16bn with rich countries, including US, UK, and Germany to help transition away from Coal.
What Caught Our Attention
After a dreadful year for technology firms, the technology bellwethers are set to outperform. This year, we saw companies across multiple sectors to cut back on spending to shore up their balance sheet and ensure liquidity.
There were multiple ways how these companies have cut backed costs. Some of these examples are halting side projects (e.g., Google’s Stadia) and reducing overall headcount. Currently, it is estimated that at least 50k personnel in the technology sector have been laid off.
Larger firms are more resilient in times of market downturn as they typically hoard cash, allowing them to retain and hire the best talents. The hoarding of cash also gives them enough ammunition to acquire other firms at bargain prices. In other words, it is likely that the industry’s bellwethers will grow even bigger in 2023.
Source: Kredens Capital, Bloomberg, Financial Times, Economist
