The Week Ahead

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The Week Ahead
Credit: © Reuters

US jobs

In the week ending Jan 1, the advance figure for seasonally adjusted initial claims was 207 000, an increase of 7 000 from the previous week's revised level. The previous week's level was revised up by 2 000 from 198 000 to 200 000. The 4-week moving average was 204 500, an increase of 4 750 from the previous week's revised average. The previous week's average was revised up by 500 from 199 250 to 199 750. The advance seasonally adjusted insured unemployment rate was 1.3 percent for the week ending Dec 25, unchanged from the previous week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending Dec 25 was 1 754 000, an increase of 36 000 from the previous week's revised level. The previous week's level was revised up 2 000 from 1 716 000 to 1 718 000. The 4-week moving average was 1 798 750, a decrease of 61 250 from the previous week's revised average. This is the lowest level for this average since Mar 14, 2020 when it was 1 730 750. The previous week's average was revised up by 500 from 1 859 500 to 1 860 000. Total nonfarm payroll employment rose by 199 000 in Dec and the unemployment rate declined to 3.9 percent, the U.S. Bureau of Labor Statistics reported on Fri Jan 7. Employment continued to trend up in leisure and hospitality, in professional and business services, in manufacturing, in construction, and in transportation and warehousing. The unemployment rate declined by 0.3 percentage point to 3.9 percent in Dec and the number of unemployed persons decreased by 483,000 to 6.3 million. Over the year, these measures are down by 2.8 percentage points and 4.5 million, respectively. In Feb 2020, prior to the coronavirus (COVID-19) pandemic, the unemployment rate was 3.5 percent, and unemployed persons numbered 5.7 million.

US other

Last Mon Jan 3, following a three-month trial, a jury in Silicon Valley found Elizabeth Holmes guilty of intentionally deceiving investors in Theranos. Holmes was convicted on four counts of wire fraud after a jury in San Jose found that she deceived investors into sinking more than $945 million into her faulty blood testing machine. The jury was told that Holmes knew that the firm's technology was faulty and lied about its prospects. Each charge carries a maximum sentence of 20 years - though she is expected to serve each count concurrently - but legal experts have indicated the 37-year old could receive a more lenient term. If sent to jail, Holmes would be the most notable female executive to serve time since Martha Stewart did so in 2004 after lying to investigators about a stock sale. A sentencing date has not yet been set. At Theranos's peak, in her black turtlenecks giving a TED talk, Holmes symbolised the self-assured culture of other tech start-ups. Toyota sold more cars in the US than General Motors (NYSE: GM ) did in 2021, the first time that GM has lost the number one position as America's largest auto manufacturer since the early 1930s. GM was especially hard hit by the global shortage of semiconductors (computer chips), causing it to limit production sharply. Toyota had stockpiled these chips, leaving it ready to take advantage of rising demand for new cars when pandemic restrictions eased. Toyota says it doesn't expect to maintain this position through 2022. Airline shares and the broader travel industry fared better on Wall Street last year as fears faded that the Omicron variant would result in closed international borders again. Last year also saw a few scares in the markets, but overall the S&P 500 was up by 27% during the year, the Nasdaq by 21% and the Dow Jones Industrial Average by 19%. Apple (NASDAQ: AAPL ) became the first company to reach $3trillion in market capitalisation, though only briefly, as its value fell back with the rout in tech stocks. The company's share price has more than tripled since the depths of the pandemic in Mar 2020. The S&P 500 closed 1.9% lower for the week at 4 677.03 on Fri 7 Jan. Year to date, the index is down 1.9% from its closing level on 31 Dec 2021 of 4 766.18. From its pandemic low of 2 237.4 on Mar 23 2020, the market is now 109% higher. According to Reuters, The Nasdaq posted its biggest weekly percentage fall since Feb 2021 and led declines for the day in the major indexes. Stocks fell on Fri after the Dec US jobs report missed expectations but was still seen as strong enough to keep the Fed's tightening path in place. On Wed, minutes released of the Fed's Dec 14-15 policy meeting showed officials at the US central bank viewed the labour market as "very tight," and signalled the Fed may have to raise rates sooner than expected.

China

Despite attempts by the Chinese Communist Party (CCP) to play down the impact of the Evergrande (HK: 3333 ) crisis, it continues unabated. Dec saw two major defaults among China's debt laden developers with both Evergrande and Kaisa missing bond repayments totalling nearly $500m between them. The property sector contagion has spread to regional government finances, with the Financial Times reporting that local officials are increasingly searching for new ways to bring in revenue, including forcing local businesses to buy equipment from government designated suppliers. In the city of Shaoyang, in Hunan province, local officials have been auctioning off Evergrande projects in a bid to raise money. One official there told the FT: "Neither the government nor Evergrande has money... Someone else needs to fill the vacuum." Earlier last week Evergrande confirmed it had been ordered to demolish 39 buildings on a man-made island that it says resembles the Palm Jumeirah in Dubai. The local authority in Hainan province said Evergrande had not been given permission to build the properties. China called on banks to boost real estate lending on fears that more developers might default. The Chinese authorities have eased a key debt restriction amid concerns about the industry's liquidity crisis. Regulators told banks to step up lending to developers after two consecutive quarters of declines. At the same time, borrowing by major property firms used to fund mergers & acquisitions will no longer be counted toward the metrics that limit debt. Regulators are reducing the intensity of a crackdown on the nation's real estate which was implemented due to huge developers such as Evergrande and Kaisa missing payments on bonds, A second city in China was put into a strict lockdown following a rise in covid infections. Officials in Yuzhou, about 700km south-west of Beijing, vowed to quash the disease. Xi'an, a city of 13m, has been in lockdown since Dec 23rd. The government says it is ready to deal with any surge in cases ahead of the Chinese New Year and Winter Olympics in Beijing.

Commodities

The copper price fell by around 1.5% last week, settling around $9,575/tonne on Thursday, though it showed a bit of strength on Friday, moving up around 0.5%. Any upwards momentum in the copper price was limited by comments in the Fed's minutes, which show continued hawkish momentum, with the anticipation of 3 rate hikes this year set to weigh on copper demand. Having said that, copper stocks on the London Metal Exchange remain low at 80,525 tonnes. The uranium price continues to climb as unrest in Kazakhstan intensifies. Mayhem has gripped Kazakhstan, as big rallies against fuel-price hikes quickly turned into violent protests against the autocratic regime. Uranium prices have climbed to $47/lb from $42/lb at the beginning of last week. Kazakhstan produces 40% of the world's uranium supply and is a major supplier to the US, Europe and China. State-owned miner Kazatomprom which produces 23% of global primary uranium supply, has stated that 'of course there's going to be an impact.' A spokesperson from major Canadian uranium supplier, Cameco, has stated that production may be reduced on logistical difficulties. Analysts hope the presence of Russia-led CSTO troops will calm the situation, although this is far from certain. Kazakhstan's president, Kassym-Zhomart Tokayev, fired his government, but this had little effect. Rioters burned buildings and briefly seized an airport. Tokayev accused foreign powers of stirring unrest and requested help from a regional military alliance that includes Russia. Internet access was cut off.

UK/Europe

In Europe the Stoxx 600 ended Dec 22% higher than when it opened in Jan. The FTSE 100 only rose by 14.3% during 2021. French president Emmanuel Macron used some very colourful and undiplomatic language last week when talking about his desire to get as many people vaccinated as possible to combat the latest wave of the coronavirus. "J'ai vraiment envie de les faire chier, et on va continuer jusqu'au bout", he told Le Parisien newspaper, which roughly translated means "I really want to piss them off, and we'll carry on doing this - to the end." He really drove the message home, to the disbelief of his political opponents by saying ""I won't send [unvaccinated people] to prison," he said. "So we need to tell them, from 15 Jan, you will no longer be able to go to the restaurant. You will no longer be able to go for a coffee, you will no longer be able to go to the theatre. You will no longer be able to go to the cinema."

Tourism

The UK authorities relaxed travel restrictions last week to the point where they are almost the same as they were prior to the outbreak of the Omicron variant. Fully vaccinated travellers returning to the UK from abroad will no longer need to submit a negative PCR test pre their departure from the foreign country, nor will they be required to take a PCR test on the second day after arrival in the UK. Instead, they will be required to take a lateral flow test on the second day after arrival and if that is positive, they will be offered a free PCR test. Unvaccinated travellers will, however, still be required to take a pre-departure PCR test and self-isolate for 10 days after arrival, taking a PCR test on days 2 and 8. On the day the new relaxations were announced, budget airline easyJet (LON: EZJ ) said it had seen a boost of almost 200% in bookings, with demand for some destinations up more than 400% week on week.

Rest of World

Delhi imposed a weekend curfew to slow the spread of the Omicron variant, beginning on Fri 7 Jan. Under the 10pm to 5am weekend curfew, all non-essential activities are prohibited. But people coming from or going to airports, railway stations or bus terminals will be allowed travel with valid tickets, as will those who work for services such as grocery shops, internet service providers, banks and petrol pumps. Delivery of food and online shopping deliveries will be allowed, and people can attend weddings, which will need to have at most 20 attendees, by showing an invitation card. Interestingly and perhaps somewhat hypocritically, politicians are still holding huge rallies in states that are holding elections in Feb and Mar, even though the capital city is under lockdown. Turkey's annual inflation rate spiked in Dec to a 19-year high of 36%, from an already highly elevated 21% in Nov. To add insult to injury, Turkey has pushed through a series of price hikes at the start of the year which can only fuel pressures further as the authorities under prime minister Recep Tayyip Erdogan pursue an unorthodox interest-rate reduction policy. According to last week's official data, in Dec alone consumer prices jumped 13.58%, further eroding the earnings and savings of Turks hit by a currency crisis and resulting economic upheaval. Despite the price pressure, the central bank slashed its key rate by 500 basis points to 14% since Sep, sending the Turkish lira down as much as 50% by year end. As a result, according to Reuters, import prices soared and set off what some economists called a "vicious cycle" in which the government responded by lifting minimum wage, taxes, utility tariffs and other prices.

South Africa

After four years of intense deliberations, deputy chief justice Raymond Zondo handed the first part of his commission of enquiry's findings on state capture to president Cyril Ramaphosa last week. Although almost 900 pages long, there is no executive summary. That will only become available with the publication of the third part of the report at end of February. By all accounts, this is a seminal moment in South Africa's history but it will only have been worth the effort and expense if it results in tangible results ie convictions and incarcerations. The JSE All Share Index (Alsi) closed 0.3% higher at 73 940 73 on Fri 7 Jan. From its recent low point of 37 693 on Mar 19 2020, it has risen by 96%. Year to date, it is up by 0.3% from its close of 73 709.39 on Dec 31 2021.

The Fragile Five + Russia


The Fragile Five + Russia


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