Markets were pushed and pulled by earnings reports and geopolitical events in another choppy week of trading. Most indices ended up higher and the blue-chip S&P 500 and technology focussed Nasdaq gained 3.3 and 2.6% respectively.
China was however a notable outlier and both the Shanghai Composite (-5.5%) and Hong Kong’s Hang Seng Index (-8.6%) fell sharply as President Xi Jinping consolidated his grip on the ruling Communist Party by appointing loyalists to key leadership positions at the 20th Party Congress.
Technology stocks, including Alibaba and Tencent, suffered double digit falls on concerns from many overseas investors that a new era of totalitarianism will see further regulation and censorship in the sector. Alibaba’s US listed stock is now $5 lower than its 2014 IPO price of $68.
China’s National Bureau of Statistics also reported on Monday that the economy grew 3.9% year-on-year in the third quarter. The release of the report was delayed by almost a week. Although the official figure was ahead of most analysts’ forecasts, it is much lower than the government’s full-year target of 5.5%. At the party congress, President Xi gave no hints of a relaxation of his zero-Covid policy any time soon.
More companies released earnings reports and the results were mixed. Netflix shares jumped 13% on Wednesday after it revealed that it added a much better than expected 2.4 million subscribers in the third quarter, helped by the success of hit series such as Stranger Things and Monster: The Jeffrey Dahmer Story.
The video streaming platform has endured a turbulent year and even after last week’s bounce, its stock is down by more than 50% in 2022. In a bid to attract more subscribers going forward, Netflix confirmed that it will launch lower cost options, including an advertising-supported subscription which will cost £4.99 per month in the UK.
It wasn’t such a good week for Adidas. Shares in the German sportswear manufacturer fell 9.5% on Friday to their lowest level in 6 years after it issued its second profit warning in just 3 months. The company said profits will be around 60% lower than previous guidance due to the sharp drop in footfall at its stores in China and the squeeze on consumer incomes in Europe and North America.
The political upheaval in the UK has provided enough material for a Netflix drama as a third prime minister moves into 10 Downing Street since the end of August. The short-lived government under Liz Truss will be remembered for the mini-budget which triggered historic moves in the pound and UK government bonds. The reversal of most of the measures announced in the budget have helped to restore some confidence and thus far markets have reacted favourably to Rishi Sunak taking the baton. 10-UK government bond yields, which move inversely to price, fell to 3.75%, reflecting the view that he is likely to pursue a more constrained approach to public spending and taxation.
Expectations of future interest rates have also continued to fall. Money market futures are now pricing in a more modest 0.75% interest rate hike by the Bank of England next week and expect rates to peak at 5% next summer.
The downgrade of interest rate expectations is a little bit surprising as it was revealed last week that annual UK consumer price inflation accelerated in September to a 40-year high of 10.1%. If the energy price guarantee ends, or is scaled back, in April, there is a risk of another inflationary spike as average household energy bills could climb well above the £2,500 cap.
Energy prices showed some signs of stability after a turbulent few weeks. The announcement by OPEC+ that it will cut oil production by 2 million barrels a day sent prices soaring before counter measures, including the release of millions of barrels from the US Strategic Petroleum Reserve, and concerns over the slowing global economy triggered a reversal. Brent Crude edge $2 higher to $93 a barrel last week.
(Cover Image Source: Lingchor)