Daily Analysis 30 August 2022 (10-Minute Read)

Hello there,

A wonderful Tuesday to you as investors still absorbing a stern Fed monetary policy stance.

In brief (TL:DR)

  • U.S. stocks were lower on Monday with the Dow Jones Industrial Average (-0.57%), the S&P 500 (-0.67%) and the Nasdaq Composite (-1.02%) all down.

  • Asian stocks climbed Tuesday as investor sentiment stabilized following a rout sparked by the Federal Reserve’s commitment to a sustained period of restrictive monetary policy to quell inflation.

  • Benchmark U.S. 10-year Treasury yields fell one basis point to 3.09% (yields fall when bond prices rise).

  • The dollar was lower.

  • Oil was near the highest since late July with October 2022 contracts for WTI Crude Oil (Nymex) (-0.08%) at US$96.93.

  • Gold wavered with December 2022 contracts for Gold (Comex) (-0.19%) at US$1,746.40.

  • Bitcoin (+3.05%) recovered to US$20,385.


In today's issue...

  1. China’s Premier Claims Record Stimulus, Markets Muted in Response

  2. Shell CEO Warns Energy Crisis May Last More Than One Winter

  3. Singapore’s Retail Investors Find More Crypto Barriers to Entry


Market Overview

Powell’s push back against market hopes for a pivot to interest-rate cuts next year is the latest setback in a challenging year for investors.

Other risks range from China’s economic slowdown to Europe’s energy crisis as Russia continues its war in Ukraine and chokes gas supplies.

In Europe, natural gas and power prices plunged after Germany said its stores of the fossil fuel are filling up faster than planned. But Germany remains vulnerable in the winter if Russia halts gas flows.

Asian markets were higher on Tuesday with Tokyo's Nikkei 225 (+1.17%), Seoul's Kospi Index (+0.98%) and Sydney’s ASX 200 (+0.64%) up, while Hong Kong's Hang Seng Index (-0.80%) was down.



1. China's Premier Claims Record Stimulus, Markets Muted in Response

  • Amidst a worsening economic situation in China, Premier Li Keqiang remains stoic, declaring that Beijing has rolled out “more forceful” economic policies this year, than it did in the wake of the Covid-19 pandemic.

  • Last week, Beijing announced a 19-point stimulus plan to shore up its moribund econom in the hopes that government spending can pick up the slack as Chinese sour on real estate.

Politicians can’t always talk up the market, but they’ll certainly try.

Which is why amidst a worsening economic situation in China, Premier Li Keqiang remains stoic, declaring that Beijing has rolled out “more forceful” economic policies this year, than it did in the wake of the Covid-19 pandemic.

But even Li wasn’t delusional about the scale of the problems facing the world’s second largest economy.

Speaking during a meeting of China’s powerful State Council on Monday, Li warned that the country faced an arduous task in stoking a recovery, while still crediting the Communist Party’s stimulus response for this year as being “reasonable” and “appropriate,” according to state broadcaster CCTV and Xinhua News Agency.

Li made no mention about China’s unrealistic 5.5% GDP growth target, with most economists expecting the economy to grow between 3.3% and 3.9% this year, amidst a real estate crisis and zero-Covid lockdowns.

Last week, Beijing announced a 19-point stimulus plan to shore up its moribund economy, which included some US$145 billion worth of new funding for infrastructure development, in the hopes that government spending can pick up the slack as Chinese sour on real estate.

The real estate sector is a cornerstone of the Chinese economy, contributing to around 29% of GDP and responsible for about 70% of the economy through its effect on a variety of ancillary industries, from marketing and sales to construction materials and equipment.

Despite the economically debilitating and disruptive impact of a Covid lockdowns, whole districts and sometimes entire cities are being shut down in response to fresh outbreaks, hampering consumer and business confidence.

This past week, areas around Beijing and the southern tech hub of Shenzhen were locked down and a brutal heatwave is complicating any economic rebound.

Chinese manufacturing activity is likely to show a contraction in August, the second straight month and will mean that investors snapping up Chinese bonds or equities at pennies on the dollar may have more pain in store for them before things take a turn for the better.



2. Shell CEO Warns Energy Crisis May Last more than one Winter

  • Oil major Shell warned that Europe may have to brace for a string of winters with exorbitant power bills as a result of natural gas prices and electricity rationing as Russia continues to squeeze Europe’s gas supplies.

  • Relief packages, while welcome, also come at a time when prices are rising and the European Central Bank is under tremendous pressure to raise interest rates, as the euro caves against a surging dollar.

Oil prices may be moderating, and Americans may be enjoying some relief at the pumps, but across the pond in Europe, things are challenging to say the least.

Facing a sharp rise in power bills driven by skyrocketing gas prices Europe is bracing for further Russian gas supply cuts in retaliation for western sanctions over its invasion of Ukraine.

Oil major Shell warned that Europe may have to brace for a string of winters with exorbitant power bills as a result of natural gas prices and electricity rationing as Russia continues to squeeze Europe’s gas supplies.

Shell CEO, Ben Van Beurden, stressed in a conference that Europe is likely to have a number of winters where Europe will have to somehow find solutions through efficiency savings, rationing and a quick build out of alternatives.

Last month, Van Beurden warned that energy markets are likely to remain tight, with supply to be constrained and prices volatile “not only for the remainder of this year but well into next year.”

With the Russian invasion of Ukraine stuck in a stalemate, and neither side able adequately resourced for a meaningful final battle, Europeans are bracing themselves for a long and hard winter ahead.

Moscow has managed to find alternative markets for its various energy products as China and India, two major consumers, have elected not to go along with western sanctions.

Brussels is looking at steps to bring down power prices and governments across the European Union have already set aside some US$278 billion in relief packages to help citizens manage soaring costs of living, but these packages come at a tricky time for policymakers.

Europe is struggling with the hottest inflation in decades and incumbent governments are now starting to look shaky, with Italy’s prime minister one of the first political victims to soaring prices.

Relief packages, while welcome, also come at a time when prices are rising and the European Central Bank is under tremendous pressure to raise interest rates, as the euro caves against a surging dollar.



3. Singapore's Retail Investors Find More Crypto Barriers to Entry

  • While the crypto sector has provided plenty of high-paying jobs, there are also concerns that the more speculative corners of an already volatile market could create undesirable outcomes for Singapore retail investors.

  • The Monetary Authority of Singapore’s (MAS) managing director Ravi Menon said that the agency would take stronger measures to restrict retail access to cryptocurrencies and consider “further measures to reduce consumer harm”.

Entering the one of Singapore’s two casinos is simple enough if you have a foreign passport, but if you’re Singaporean, be prepared to shell out some US$107 for the privilege of entry.

Singapore’s casino policy of course is to protect the most feckless from becoming addicted to gambling and having to deal with the fallout from citizens who lose their life savings to games of chance.

Cryptocurrencies on the other hand are a different matter.

Long viewed as the most likely crypto hub in Asia after China’s crackdown on cryptocurrencies effectively ended Hong Kong’s prospects for taking on such a role, a recent spate of high profile crypto company crashes has forced Singapore to become more circumspect in its approach to the nascent asset class.

According to a report by KPMG, investment in Singapore’s crypto and blockchain companies surged to a record US$1.48 billion in 2021, 10 times the previous year’s total and nearly half the Asia-Pacific total for 2021.

But while the crypto sector has provided plenty of high-paying jobs, there are also concerns that the more speculative corners of an already volatile market could create undesirable outcomes for Singapore retail investors.

Singapore’s financial regulator has distanced itself from “heavily speculated” cryptocurrencies and on Monday, the Monetary Authority of Singapore’s (MAS) managing director Ravi Menon said that the agency would take stronger measures to restrict retail access to cryptocurrencies and consider “further measures to reduce consumer harm”.

Menon’s comments come after a string of collapses of various Singapore-based crypto companies, such as the implosion of Terraform Labs’ terraUSD algorithmic stablecoin and Three Arrows Capital, one of the best-known crypto hedge funds.

Earlier this year, the MAS restricted the marketing and advertising of cryptocurrency services in and since then, crypto providers have removed cryptocurrency ATMs and advertisments from areas frequented by retail investors, including public areas and public transport venues.

However, Menon added that MAS still believed in the “transformative” economic potential of the broader digital asset ecosystem including tokenised digital versions of existing assets.

While Singapore will likely remain committed to an incremental integration of digital assets into its financial markets, it will likely remain cautious about the involvement of retail investors in the crypto space.

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