2023 Market Forecast by Solid ECN

European Markets Edge Higher as ECB Minutes Loom

In European financial circles, there was a modest uptick in stock values on Thursday. The STOXX 50 index saw a slight increase of 0.1%, reaching 4,355 points—a peak not observed since August 10th. Similarly, the broader STOXX 600 index climbed by 0.2%, marking a new two-month high. Contributing to this trend, recent PMI surveys indicated a slower contraction in Eurozone business activities for November. Notably, there was a downturn in employment for the first time since early 2021, alongside a six-month peak in input cost inflation. The financial community is now keenly awaiting the ECB's October meeting minutes.

On the corporate front, notable developments included Virgin Money's annual profits falling short of expectations, Jet2's operating profit soaring by 19%, and Endesa revising its profit forecast downwards. Outside of the immediate financial sector, political developments in the Netherlands captured attention, particularly the exit polls suggesting a significant rise in support for Geert Wilders' right-wing populist Freedom Party.​
 

FTSE MIB Index: A Snapshot of Italian Market Stability

The Italian stock market, specifically the FTSE MIB index, showed minimal changes on a recent Thursday, hovering around the 20,200 level. This steady trend mirrored the overall cautious sentiment prevailing in European markets at the time. Investors and traders were in a phase of evaluating new information, particularly the latest PMI surveys. These surveys revealed that the rate of contraction in the Eurozone's business activities for November was slowing down, a detail that held significant interest for market participants.

Influence of Political Developments: Additionally, the financial world was closely monitoring political events, notably the victory of a right-wing populist party in the Dutch elections. Political events like these can have far-reaching impacts on the stock market, influencing investor confidence and future economic policies.

Leonardo's Strategic Moves: One of the standout performers in the Italian market was Leonardo, which saw its stocks increase by 1.2%. This rise came after Mariani, the co-director general of Leonardo, confirmed the company's active pursuit of partnerships in the land armaments sector. Such strategic alliances often indicate growth potential and can positively affect a company’s stock price.

Challenges for Diasorin and Prysmian: Conversely, companies like Diasorin and Prysmian experienced a downturn, each losing about 1% in their stock value. Fluctuations like these are common in the stock market and can result from various factors, including company performance, sectoral trends, or broader market sentiments.

Effect on the Economy: The stability of the Italian stock market, as seen in this instance, generally indicates a balanced economic environment. While modest movements in major indexes like the FTSE MIB don't signal significant growth, they also suggest that the market isn't facing immediate instability or decline. This kind of stability can be reassuring for investors and beneficial for long-term economic planning.

The Bigger Picture: The interaction of corporate performance and political events with stock market trends provides crucial insights into the health and direction of the economy. For instance, Leonardo's growth in stock value might signal a strengthening in the defense sector, whereas the losses for Diasorin and Prysmian could point to challenges in their respective industries.​
 

South Africa Holds Repo Rate Steady Amid Inflation Concerns​

In a move that aligned with broad expectations, the South African Reserve Bank (SARB) decided to keep its key repo rate steady at 8.25% on November 23rd, 2023. This decision marks the third consecutive time the rate has been held at this level, reflecting the bank's strategy to stabilize inflation expectations in the country.

Governor Kganyago noted that inflation risks are still perceived as high. Meanwhile, the balance of risks regarding the medium-term domestic growth outlook remains even. Notably, headline inflation in South Africa saw a significant rise to 5.9% in October, reaching a five-month peak. This rate is inching closer to the upper limit of the central bank's target range of 3% to 6% and moving away from the 4.5% midpoint, which is the bank's preferred level for anchoring inflation expectations.

The central bank has adjusted its inflation forecast slightly downward to 5.8% for this year, a small decrease from the previous estimate of 5.9%. Looking ahead to 2024, the forecast is set at 5%, a minor revision from the earlier prediction of 5.1%. The forecasts for 2025 and 2026 project a stabilization of the inflation rate at 4.5%.

In terms of economic activity, the SARB has also revised its GDP growth forecasts. For 2023, the growth forecast has been increased from 0.7% to 0.8%, and for 2024, it has been adjusted from 1% to 1.2%.

Assessing the Impact on the Economy​

The decision to maintain the repo rate can be seen as a cautious yet optimistic approach towards managing inflation without hindering economic growth. By keeping the rate steady, the SARB aims to ensure that inflation doesn't spiral out of control while also supporting economic recovery and growth. This balance is crucial for maintaining economic stability and fostering a favorable environment for investment and development.​
 

Analyzing the Shift in Colombian Business Confidence​

In Colombia, the business landscape has recently seen a notable shift. October 2023 marked a decline in the country's industrial confidence indicator, falling to -3.7. This figure represents a significant drop from the previous month's reading of 0.84 and is the most considerable decrease observed since May 2023. The industrial confidence indicator is a crucial measure, as it reflects the overall sentiment of manufacturers and their expectations for the future.

A key element of this change is the diminished optimism among manufacturers regarding their production forecasts for the next quarter. The expectation for output has worsened, with a decline to -16.5%, a steep fall from -10.3% in September. This downward trend suggests that manufacturers are anticipating a slowdown in production.

However, it's not all negative. There's a silver lining in the form of an increase in new orders, which rose to 4.6 from a previous -2.8. This improvement indicates that demand for products may be on the rise, which could potentially offset some of the pessimism about future output.

Additionally, there was an increase in finished goods inventory, moving up to 1.4 from -4.5. An increase in inventory levels could mean that manufacturers are preparing for anticipated demand or facing slower sales than expected.

Economic Implications​

The decline in industrial confidence can have mixed implications for the Colombian economy. On one hand, reduced optimism about future output might lead to cautious investment and hiring decisions by manufacturers, potentially slowing economic growth. On the other hand, the rise in new orders suggests there is still robust demand, which could drive future economic activity.​
 

Turkish Manufacturing Confidence Hits a Low​

In recent months, Turkey has witnessed a notable decline in business morale, reaching its lowest point in nearly a year as of November 2023. This downturn is primarily reflected in the manufacturing confidence index, which saw a decrease from 103.3 in October to 100.2 in November. This figure is significant as it represents the lowest level since December of the previous year, indicating a shift in the business climate.

Analyzing the Key Factors​

Several factors contribute to this decline in confidence. Firstly, there's a noticeable drop in expectations for production, which decreased from 106.6 in October to 108.5. This decline suggests a reduction in anticipated manufacturing output, which can impact the overall economic productivity. Secondly, the outlook for export order books also showed a downturn, moving from 107.9 to a lower 100.3. This change hints at a possible decrease in foreign demand for Turkish products, which can affect the country's trade balance and revenue from exports.

However, it's not all negative. There's a silver lining as the anticipations for total employment over the next twelve months have risen slightly from 109.5 to 111. This increase could mean that businesses are still planning to expand their workforce, possibly indicating a belief in future growth or stability.

Another area of concern is the decrease in fixed investment expenditure, which fell from 118 to 115.6. This reduction may imply a hesitancy in committing to long-term investments, possibly due to uncertainty in the market or economic forecasts. Additionally, the general business situation also experienced a slight downturn, moving from 92.8 to 91.7.

Economic Implications​

The decline in business confidence in Turkey can have both direct and indirect effects on the economy. Lower confidence can lead to reduced investment and production, which in turn can slow down economic growth. The decrease in export expectations suggests potential challenges in the international market, which could affect Turkey's trade balance and foreign exchange earnings. However, the increase in employment expectations might cushion some of these negative impacts by supporting consumer spending and economic activity.

Assessment and Recommendations​

While the decrease in business morale poses certain challenges, it also opens opportunities for strategic planning and adaptation. Businesses might need to diversify their markets, improve efficiency, or innovate to maintain competitiveness. Policymakers could also consider measures to boost business confidence, such as providing financial incentives, improving trade relations, or investing in infrastructure.​
 

Madrid Stocks Cautiously Higher​

Madrid's stock market exhibited a cautious uptrend, with the IBEX 35 index slightly surpassing the 9,900 mark on Friday. This movement marked a continuation of the rising trend for the third consecutive session, touching the highs of 2020. Market participants are keenly observing the influx of economic data and any indications of forthcoming decisions by major central banks. There is a heightened focus on the scheduled public appearances of European Central Bank (ECB) President Christine Lagarde and Vice President Luis de Guindos. Despite this, there remains an underlying concern about a possible economic deceleration. This apprehension is fueled by Germany's shrinking GDP and the persistently contracting Eurozone PMI indices, which remain below the critical 50-point mark.​
 
NZD Gains Strength as RBNZ Focuses on Inflation

The New Zealand dollar experienced a notable increase this Friday, maintaining a value around $0.605. This marks the second week of significant growth, fueled by expectations that the nation's central bank will maintain its aggressive stance against persistent inflation in their upcoming end-of-year monetary policy meeting.

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In October, the Reserve Bank of New Zealand (RBNZ) kept the cash rate steady at 5.5% for the third time in a row. However, they warned that consumer price inflation was still too high. To manage this, they suggested that interest rates might need to remain high for an extended period to bring inflation within the target range of 1 to 3%.

Meanwhile, the recent changes in government in Wellington have led to a shift in policy direction. The new coalition government has revised the central bank's dual mandate, which previously included both inflation and employment concerns, to now solely focus on price stability.

Over in China, government advisors are preparing for an important annual meeting in December. They're expected to set the GDP growth targets for the upcoming year, with projections ranging between 4.5% and 5.5%. This move is part of Beijing's broader strategy to stabilize demand and address the challenges in the real estate sector.​
 
USDJPY

The Japanese yen remained stable, hovering around 149.5 against the dollar, following a lukewarm market response to new economic data. This data revealed that Japan's headline inflation rate rose to 3.3% in October, up from 3% in September, marking the highest rate since July. Additionally, initial reports indicated that business activity in Japan experienced a slowdown in November, reaching an 11-month low, particularly due to ongoing challenges in the manufacturing sector.

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The Bank of Japan, during its October policy meeting, confirmed its dedication to maintaining supportive monetary policies. It made subtle changes to its approach to yield curve control. Specifically, the Bank redefined the 1% level on 10-year Japanese Government Bonds (JGBs) as a flexible "upper bound" rather than a strict limit, and decided to discontinue its commitment to purchase an unlimited number of bonds to maintain this level.

On an international scale, investors are also closely monitoring the United States Federal Reserve's monetary policy. This focus comes in the wake of varied economic indicators emerging from the US, which continue to influence global financial decisions and trends.​
 
CAD Strengthens as Inflation and Growth Slow

As November drew to a close, the Canadian dollar found itself trading at approximately 1.37 against the US dollar, marking a notable recovery from its near one-year low point of 1.386, recorded on October 31st.

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This resurgence can be largely attributed to the weakening of the US dollar, following indications that the Federal Reserve's period of monetary tightening might be drawing to a close.

In Canada, the inflation rate took a surprising dip to 3.1% in October, a figure notably lower than the Bank of Canada's projected rate of about 3.5% for the upcoming year. This decrease in inflation, when viewed alongside the slowing pace of the Canadian economy, is fueling speculation that the Bank of Canada might put a pause on any further increases in interest rates.​
 

What to Expect Next Week - Nov 27th​

The US will have a busy week with many important economic indicators and events. The main ones are:​
  • PCE prices, personal income and spending: These will show how much inflation, income and consumption changed in October. They are closely watched by the Fed and the markets as they reflect the health of the economy and the impact of the pandemic.​
  • ISM Manufacturing PMI: This will measure the activity and sentiment of the manufacturing sector in November. A reading above 50 indicates expansion, while below 50 signals contraction. The manufacturing sector has been recovering from the Covid-19 shock, but faces challenges from supply chain disruptions and labor shortages.​
  • Fed speeches: Several Fed officials, including Chair Powell, will speak at different events throughout the week. They will likely provide more insights into the Fed’s views on the economic outlook, inflation, and the tapering of its asset purchases.​
Other notable releases and events in the US include:​
  • CB Consumer Confidence: This will gauge the level of confidence and optimism of consumers in November. Consumer confidence is a key driver of spending and growth, especially during the holiday season.​
  • Q3 GDP growth rate (2nd estimate): This will revise the preliminary estimate of the annualized growth rate of the US economy in the third quarter. The first estimate showed a 2% increase, below market expectations of 2.6%.​
  • New and pending home sales: These will report the number of new and existing homes sold in October. They are indicators of the demand and supply conditions in the housing market, which has been affected by rising prices, low inventory, and higher mortgage rates.​
  • Q3 corporate profits: This will reveal the earnings of US corporations in the third quarter. Corporate profits are a measure of the profitability and performance of the business sector.​
Meanwhile, other countries and regions will also have some significant developments to watch. These include:​
  • Monetary policy decisions: The central banks of South Korea and New Zealand will announce their interest rate decisions. Both are expected to keep their rates unchanged, but may signal their future policy stance amid rising inflation pressures and Covid-19 risks.​
  • Speeches from ECB and BoJ officials: Several officials from the European Central Bank and the Bank of Japan will deliver speeches at various occasions. They will likely comment on the economic situation and outlook of their respective regions, as well as their monetary policy actions and plans.​
  • Inflation rates: Several countries and regions will release their inflation data for October. These include Germany, the Euro Area, France, Italy, Spain, the Netherlands, Poland, and Australia. Inflation has been rising globally due to higher energy and commodity prices, supply chain bottlenecks, and pent-up demand.​
  • GDP growth rates: Some countries will publish their GDP growth rates for the third quarter. These include Turkey, India, Canada, and Switzerland. These will show how their economies performed amid the pandemic and its variants, as well as the vaccination progress and the fiscal and monetary support.​
  • China’s Manufacturing and Services PMIs: These will indicate the level of activity and confidence of the manufacturing and services sectors in China in November. China’s economy has been slowing down due to the Delta variant, regulatory crackdowns, power shortages, and debt woes.​
  • Manufacturing PMIs: Other countries will also release their manufacturing PMIs for November. These include South Korea, India, Russia, Italy, and Canada. These will reflect the state and outlook of the manufacturing sector in these countries, which are influenced by the global demand and supply conditions.​
  • Germany’s GFK consumer confidence and retail sales: These will measure the confidence and spending of German consumers in November and October, respectively. Germany is the largest economy in the Euro Area and its consumer behavior has implications for the rest of the region.​
 
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