Anzo Capital: Weekly Market Review

[Anzo Capital]

Weekly Market Review by Anzo Capital
Reflecting on the week of 23 Aug 2021

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A Taper Is On The Cards

Federal Reserve Chairman Powell indicated that the committee is prepared to start rolling back the $120 billion asset purchasing program implemented at the height of the pandemic. Inflationary pressures will likely subdue as a result, which Powell reiterated as transitory effects of supply chain bottlenecks and subsequent rise in input prices. The committee is closely monitoring the labour shortage which has been partially attributed to generous stimulus packages. The result, is that we are unlikely to see any change in the Fed Funds rate in the near-term. A downward revision to estimates of second quarter growth, coupled with the slowdown in private sector output, highlights the fragility of the situation and indicates that economic growth will remain weighed down by new spikes in Covid-19 cases.

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[Anzo Capital]

Weekly Market Review by Anzo Capital
Reflecting on the week of 30 Aug 2021

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A Shock For The U.S. Dollar

A hugely disappointing result in the Non-Farm Payroll on Friday resulted in mixed fortunes for the dollar, which fell moderately on the news. A mere 235,000 new jobs were added to the economy for the month of August, against a forecast of 720,000. The delta variant remains a source of concern and weighs on the recovery. Markets saw the result as a derailment of the taper plans, however, a reduction in asset repurchasing is likely to go ahead as most see it, at the December meeting. The EIA announced a major crude oil inventory draw in the week running up to the 27th August. A drawdown of 7.2 million barrels saw WTI prices jump despite OPEC members agree to an output increase of approximately 400,000 barrels per day.

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[Anzo Capital]

Weekly Market Review by Anzo Capital
Reflecting on the week of 6 Sep 2021

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ECB Reduces Stimulus; Germany Carries Eurozone

The ECB has decided to scale back its PEPP bond purchasing in response to improving economic conditions and announced this intention in its September meeting. There was no distinct figure given for the pace of purchasing which was described by President Lagarde as a ‘recalibration.’ The ECB also acknowledged inflationary pressures with upward revisions to inflation forecasts. Consumer prices have climbed to the upper bound of the price stability mandate set by the bank, with another monthly price rise of 3%. German Factory orders surged by 3.4% in July as foreign demand for German goods rose despite softer domestic demand. The German ZEW Economic Sentiment report did not reflect the optimism as the September survey resulted in a 13.9-point decline. Respondents from automobile and construction sectors indicated that profits would likely be lower than anticipated due to supply constraints. Eurozone recoveries are likely to remain asymmetric as the delta variant of the Covid-19 virus continues to crop up.

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[Anzo Capital]

Weekly Market Review by Anzo Capital
Reflecting on the week of 13 Sep 2021

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Renewed Growth Prospects For US?

US markets were buoyant with better-than-expected results from retail sales data last week. Core retail sales showed a 1.8% rise in August, against a forecasted decline of -0.1%. Online purchases surged amidst climbing delta variant cases as ‘back-to-school’ purchases likely contributed to the rise. The surprise provides some optimism going into the third quarter after signs of a significant slowdown in growth. Core CPI data showed that consumer price increases have become subdued in August with a month-on-month rise of 0.1%. Unemployment claims ticked slightly higher in the week ending September 11th with 332,000 new claims representing a 20,000 rise in claims over the previous week. Residual weakness in the labour market may weigh on growth prospects.

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[Anzo Capital]

Weekly Market Review by Anzo Capital
Reflecting on the week of 20 Sep 2021

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Taper Imminent As Fed Poised To Make Moves

The Fed left monetary policy measures unchanged in its September meeting, yet the stance of the committee appears to have shifted. Given the price stability mandate and the path towards maximum employment, the Fed acknowledged the need to scale back the current asset purchasing programme. A discussion of a 2022 rate hike further signalled that the Fed is moving towards implementing tightening measures in response to economic recovery. Jobless claims ticked slightly higher than forecast in the week ending 18th September with 351,000 new claims for unemployment benefits, which may signal increasing labour market participation as labour shortages persist. Output from the Manufacturing sector continues to be hampered by supply chain disruptions which is likely to result in continued inflationary pressures, perhaps even into 2022. However, both Services and Manufacturing sectors enjoyed another month of expansion at 54.4 and 60.5 points respectively.

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[Anzo Capital]

Weekly Market Review by Anzo Capital
Reflecting on the week of 27 Sep 2021

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The end of an era for Germany’s Angela Merkel

The end of an era for Germany’s Angela Merkel and it throws into question what a post-Merkel Germany will look like. The election failed to produce a clear winner and the result will have Merkel fulfilling a caretaker role in the next few months as a coalition government is formed. The two main parties; the CDU/CSU and the SPD will initiate talks with the two smaller parties, the Greens and FDP which are slit of their loyalties to the main parties. A coalition government could be reached with the SPD and CDU/CSU, yet an alliance appears unlikely as both party leaders have ambitions for the chancellery. A deal is expected to be reached by the year-end.

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[Anzo Capital]

Weekly Market Review by Anzo Capital
Reflecting on the week of 04 Oct 2021

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Is A Taper Off The Table Now?

U.S. employment figures for September were disappointing; despite 11 million vacancies, only 198,000 new jobs were created. The numbers highlight that the slowdown in hiring is largely due to labour shortages and not due lack of demand, therefore with time, the discrepancy will even out. Further, the competition for staff will put upward pressure on wages and subsequently inflation, providing the backdrop needed for a taper this year. Given the ADP payrolls data was considerably more positive, data shows residual weakness in public sector hiring, particularly in government. The hospitality sector job creation still remains below pre-pandemic levels as one of the worst-hit sectors by the pandemic.

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[Anzo Capital]

Weekly Market Review by Anzo Capital
Reflecting on the week of 11 Oct 2021

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November Taper Back On?

Rising energy prices are putting upward pressure on U.S. inflation numbers as we enter into the winter heating season. Annualized inflation reached 5.4% in September, far overshooting the Federal Reserve’s 1-3% rise in prices set in its price stability mandate. The food index also contributed to the rise in prices with a month-on-month rise of 0.9%. This scenario is likely to remain into the first quarter of next year as temperatures continue to drop, indicating inflationary pressures have moved beyond being transitory. Retail sales indicated that the economy is making a recovery after persistent weakness resulting from covid-19 variants. Sales climbed 0.7% in September against a forecasted contraction of 0.2%. Rising wages and employment specifically in time for the festive season should see this trend continue. Further, the result fuelled speculation of a November taper from the Fed.

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[Anzo Capital]

Weekly Market Review by Anzo Capital
Reflecting on the week of 18 Oct 2021

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China Growth Falters

China GDP figures disappointed, with a growth rate of 4.9% for the third quarter. The fall has been attributed to a reduction in lending to the real estate sector, which was already burdened by the Evergrande crisis and represents over 20% of total GDP. A rising debit crisis has also seen land sales drop significantly due to contagion risk. Infrastructure projects have been limited, as the government has implemented curbs on local government debt. The reforms are coming at the cost of growth and therefore we may anticipate slower growth numbers into the fourth quarter, which the People’s Bank Of China have forecasted at 6% for the year.

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[Anzo Capital]

Weekly Market Review by Anzo Capital
Reflecting on the week of 25 Oct 2021

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US Economy Is Overheating

US economic growth figures were expected to slow in the third quarter as a rampant delta variant put the brakes on recovery. However, GDP figures came out worse than expected. An output of 2% has been estimated for the three months ending September. Consumer demand still remains strong, as nominal GDP reflected a 7.8% rise and was eroded by inflation in the headline number. The number also seems considerably lower when compared to the previous quarter where pent-up demand accelerated output due to a reopening of the economy. The fourth quarter is expected to be better, with the CB Consumer Confidence index turning positive for the first time in three months in October. Capital goods orders also climbed for the seventh month in a row during September, maintaining growth momentum and indicating strong business investment going into the latter part of the year.

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