MARKET RECAP W6/2023
MAJOR MARKET MOVEMENT (Week of 10 Feb 2023, W6)
- In Asia, back to back weekly decline of HSCEI (-3.5%) and HSI (-2.2%).
- US indices and major European indices are all taken a breather.
Receding rate hike fears
- As global central banks continue to hike rate, equity markets as represented by MSCI ACWI Index actually started to rebound from October 2022.
- Often focusing on the optimism language (of FED) or that each rate hike is now seen as moving towards the end of the tightening cycle, equity investors are enjoying a cushy ride up the market.
- But what if the increase in rates runs further than initially thought?
Benchmark rate reaching 6%?
- A shift in sentiment on Fed policy is emerging in interest-rate options, where several big wagers on the central bank’s benchmark rate reaching 6%—nearly a percentage point higher than the current consensus—have popped up this week.
Source: Bloomberg
- Wow, 6%!?! What would happen to financial conditions?
Tightening Credit – Domestic Banks – for Commercial and Industrial Loans
- The picture is not pretty. The last 4 recessions since the 1990 are all preceded with thee same tight financial conditions.
- There’s a better picture outside the US.
Board of Governors of the Federal Reserve System (US), Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Large and Middle-Market Firms [ DRTSCILM ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DRTSCILM, February 13, 2023. Board of Governors of the Federal Reserve System (US), Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Small Firms [ DRTSCIS ], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DRTSCIS, February 13, 2023.
APAC Earnings Revision Leading Indicator (ERLI)
- ERLI forecasts the momentum of earnings revisions to improve although it continues to point to further downgrades.
- An improving indicator is positive for the equity market in the long run. Keep looking for opportunities in the APAC market.
EU Carbon Credit returned 40% from Sep 22 low, returning to all time high
- The European Union’s Emissions Trading System (ETS), forces manufacturers, power companies and airlines to pay for each tonne of carbon dioxide they emit as part of Europe’s efforts to meet its climate targets.
- Analysts have increased their average price forecasts for EU carbon permits for the next three years on expectations that Europe’s economies could start to improve as energy prices fall from record highs. But they warned an increase in permits sales would keep a lid on gains.
- EU Allowances (EUAs) are expected to average 81.40 euros a tonne in 2023 and 94.14 euros in 2024, a Reuters survey of six analysts showed. That is up 4.2% and 1.9% respectively from forecasts made in October. The analysts forecast for average prices in 2025 rose by 0.6% to 102.24 euros/tonne. Source: Reuters
- I hope to see more trusted carbon markets around the world to support the path to Net Zero as per the Paris Agreement – to limit global warming to well below 2 degrees Celsius above pre-industrial levels.
- The World Bank estimates that a carbon price of $50-100 per metric ton of carbon dioxide is required by 2030 to meet the temperature goals.
- However, only the EU, UK and New Zealand currently have prices within or above this range, with other major markets falling well short.
- We have a long way to go but not much time no our hands to reach these goals.
Note: The contents of this publication were derived, sourced or reproduced from various sources. Any views and opinions expressed herein may not be representative of my employer’s.
