Most markets comes back from a highly volatile week with a record breaking performance. Get my take on this week’s market action below.
WEEKLY SOUND BITES:
After a volatile week, US Indexes recorded its best weekly gain since February, as fears seemed to abate about the new omicron variant of the coronavirus. Information technology stocks drove much of the rally, as solid gains in Apple pushed the market capitalization of the world’s most highly valued public company near USD 3 trillion. In fact, the top 5 stocks of the S&P have driven over 20% of the total gains for the year in this index with AAPL surging over 10.9% for this week alone.
On Thursday, the Labor Department reported that 184,000 Americans applied for unemployment benefits the previous week—the lowest number since 1969. The number of open jobs in the U.S. also rose much more than expected to a record 11 million, with most of the gains coming in accommodation and food services. The multi-decade strength in the labor market was reflected in multi-decade high levels of inflation, with the November consumer price index, reported Friday, rising 6.8% on a year-over-year basis, the biggest jump since 1982. While rising energy costs deserved part of the blame, price increases were broad-based—the core rate, excluding food and energy, rose 4.9%—suggesting wage pressures alongside supply chain issues. Both increases were roughly in line with expectations, however.
Bond traders appeared to take the inflation news in stride, perhaps because they had girded themselves for an upside surprise. The yield on the benchmark 10-year U.S. Treasury note fell in the wake of Friday’s report, reversing a part of its increases earlier in the week. Fed Fund Futures are pricing in a rate hike next June, a second increase in Sept and third in Dec. for a 2022 rate hike totals of 75 bps. The signals being sent from the Bond markets appear to be showing less forward growth with inflation not being much of a concern at this point.
Shares in Europe also rebounded as fears about the omicron variant of the coronavirus and its potential economic implications subsided. Some countries implemented stricter rules to contain the spread of the coronavirus which could affect the broader economy over time. Meanwhile, GDP in the UK expanded 0.1% in October, slowing from 0.6% in September.
In Japan, Prime Minister Fumio Kishida set out how his administration plans to carve out a new era for Japan in a policy speech to parliament, with areas of focus including digitalization opportunities, climate change mitigation, and strengthening the start-up ecosystem. He also made reference to the previously announced large-scale economic measures, amounting to USD 490 billion, to overcome the coronavirus and carve out a new era.
In China, property sector turmoil kept investors on edge amid reports of offshore debt restructurings for cash-strapped developers China Evergrande and Kaisa Group. On Monday, the PBOC announced it would cut the Reserve Ratio’s for banks by 50 basis points effective December 15, its second such move this year as China seeks to bolster slowing growth. China’s export growth also slowed in November due to currency strength and weaker external demand. And on the inflation front, China’s consumer price index rose 2.3% in November from a year ago compared with October’s 1.5% gain, reflecting higher food prices and a low base in the prior-year period. But the producer price index rose 12.9% in November from a year earlier, easing from October’s 13.5% increase.
Enjoy This Week’s Round-Up;
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