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1610 2023

Market Insights

Market Insights - Week 42

Bas Kooijman

As we start a new week, let's take a look at the significant events in the global economy over the past week with our weekly financial update, presented by Bas Kooijman, the CEO and Asset Manager of DHF Capital SA.

Stocks showed a mixed trend as the earnings season commenced. While large-cap value stocks surged, owing to impressive earnings from banking giants such as Citigroup, Wells Fargo, and JPMorgan Chase, tension in the Middle East after attacks by Hamas against Israel affected sectors like airlines and cruises negatively. DaVita's stock dropped following reports of Novo Nordisk’s new dialysis drug's potential to treat kidney disease.

Regarding monetary policy, Fed officials hinted at a dovish stance. Fed Vice Chair Philip Jefferson raised concerns about the long-term bond yields, suggesting they might influence future rate decisions. A sentiment echoed by Dallas Fed President Lorie Logan. The minutes from the Fed's September policy meeting highlighted a possible shift in focus from rate hikes to maintaining rates. Despite inflation concerns, expectations about the Fed's next move remained unchanged. Bond markets reacted with Treasury and municipal bond yields decreasing, while demand for investment-grade corporate bonds remained robust.

The pan-European STOXX Europe 600 Index surged by 0.95%, halting a three-week losing streak, buoyed by dovish comments from the U.S. Fed and rumors of China considering more economic stimulus. While Italy’s FTSE MIB and the UK's FTSE 100 Index witnessed growth, Germany’s DAX and France’s CAC 40 faced declines. Middle Eastern conflicts prompted a surge in demand for European government bonds, causing a decrease in yields.

The ECB's minutes showed a close decision to hike the deposit rate to 4.0% due to existing inflation concerns. Germany revised its economic outlook, forecasting a 0.4% contraction, attributing the decline to soaring energy prices and reduced demand from primary markets like China. On a brighter note, the UK's GDP expanded by 0.2% in August, indicating a rebound in its economy.

Japan's equity markets enjoyed a positive week, with the Nikkei 225 Index growing by 4.3% and the TOPIX Index up by 2.0%. The weakened yen continues to provide support, although there's no evidence of intervention to prevent further weakening. On the monetary front, speculations are rife about the Bank of Japan's (BoJ) strategies on yield curve control (YCC). The International Monetary Fund (IMF) upgraded Japan's 2023 growth forecast to 2.0% and expects consumer inflation to reach 3.2% due to various factors, including rising oil prices and the depreciating yen.

In China, post-Golden Week trading saw financial markets decline amid concerns of slipping back into deflation, despite some sectors showing signs of stabilization. Regulatory developments include the China Securities Regulatory Commission (CSRC) banning domestic brokerages from accepting new mainland clients for offshore trading, and plans for a state-backed stabilization fund to support China's stock markets.

In summary, as the global markets navigate through inflation concerns, geopolitical tensions, and monetary policy shifts, investors are closely monitoring developments across the U.S., European, and Asian sectors, anticipating the next moves that could shape the financial landscape.

Bas Kooijman

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