Anzo Capital: Weekly Market Review

[Anzo Capital]

Weekly Market Review by Anzo Capital​

Reflecting on the week of 21 Jun 2021

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Is The GBP The One To Watch?​

UK consumer price inflation registered 2.1% growth for May, exceeding the Bank of England price stability mandate of 2% annualised inflation. Despite this, the bank maintained their current policy stance with no changes to the asset repurchasing programme or forward guidance policy. However, there were some hints that the bank will taper stimulus next year. Private sector output appears to be surging in the second quarter, as signs point to further recovery of UK economic growth. New orders and output do appear to be coming off a peak and surging demand, specifically in the hospitality sector, may stabilise in subsequent quarters.

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[Anzo Capital]

Weekly Market Review by Anzo Capital​

Reflecting on the week of 28 Jun 2021

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Inflation Is Coming​

The Non-Farm payroll report beat expectations at 850,000 new payrolls for the month of June. However, the unemployment rate did rise during the month to 5.9% with the economy still some way off of pre-pandemic employment levels, with an extra 6.7 million citizens out of the labour force since February 2020. Staff shortages are driving up earnings which are likely to filter through to inflation numbers. These concerns are particularly apparent in the Manufacturing sector where June’s PMI report recorded a contraction in the employment subsector despite output growth at 60.6%.

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[Anzo Capital]

Weekly Market Review by Anzo Capital​

Reflecting on the week of 5 Jul 2021

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The Fed Takes Note Of Price Pressures​

Minutes from the FOMC June Meeting indicated that some committee members acknowledged that tapering of asset purchasing would probably happen sooner than they had expected, yet no timeline was given for such policy moves. The established stance of waiting until ‘substantial further progress’ in economic conditions remains. A now majority number of committee members felt there was upward pressure on prices brought about by labour shortages and supply chain disruptions, yet no serious debate was made with respect to hiking interest rates. ISM Services PMI data showed that the sector continues to enjoy strong growth at 60.1% for June, albeit at a more moderate pace. Business activity and new orders continue to climb yet pressures are building from labour market shortages, with the employment index contracting at 49.3%.

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[Anzo Capital]

Weekly Market Review by Anzo Capital​

Reflecting on the week of 12 Jul 2021

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Fed Under Pressure As Inflation Soars Again​

The Federal Reserve is under pressure, once again, as headline inflation soared to a 5.4% annualized rate in June. The committee has argued that climbing prices are transitory and largely due to base effects of plummeting prices during the height of the pandemic in 2020. This stance is becoming increasingly difficult to justify and therefore an interest rate move in 2022 is highly probable. US citizens continued the spending in June with a 1.3% spike in retail sales for the month, taking the annual rate of retail sales growth to 18.5%. Momentum looks strong going into the third quarter and we should see that reflected in GDP figures.

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[Anzo Capital]

Weekly Market Review by Anzo Capital​

Reflecting on the week of 26 Jul 2021

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Is The US Dollar Making A Comeback?​

US economic growth figures fell below expectations at 6.5% for the second quarter of 2021. Despite a robust quarter in terms of consumer spending, bottlenecks in supply chain resulted in manufacturers struggling to maintain stock levels in order to meet demand. Despite the climb in consumer confidence, fuelled by massive stimulus, the job market remains a concern and is well below pre-Covid levels. The Fed will be hoping that a spike in unemployment claims signals an increase in labour market participation, as 400,000 new jobless support claims were made in the week ending 24th July. Unsurprisingly, the Fed left policies unchanged at the last meeting.

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[Anzo Capital]

Weekly Market Review by Anzo Capital​

Reflecting on the week of 2 Aug 2021

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A Boost For US Jobs And Wages​

US jobs data was positive; with a total of 943,000 new jobs added to the labour market in July, beating a forecast of 870,000. A total of 10.1 million new job openings suggests that the slow recovery of the labour market is due to a worker supply shortage rather than a lack of available jobs. As a result, we are starting to see upward pressure on wages in order to fill positions. All signs are pointing to a reduction in stimulus provided during the height of the pandemic, which may also spur citizens to seek employment.

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[Anzo Capital]

Weekly Market Review by Anzo Capital​

Reflecting on the week of 9 Aug 2021

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A Taper Around The Corner?​

US inflation flattened in July to 0.5% as forecast which many spectators are taking as a sign of cooling price pressures. However, the annualized rate of inflation remains at 5.4% and significantly above the Fed’s target of 2%. Most components of the index kept the same pace of growth as the previous month indicating that there is broadening inflationary pressures. An early taper is not off the cards yet. Several Fed members including Bostic and Rosengren suggest a possible taper in the near-term as well as a Fed Funds rate hike in 2022.

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[Anzo Capital]

Weekly Market Review by Anzo Capital​

Reflecting on the week of 16 Aug 2021

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Short-term US Dollar Weakness Ahead?​

US spending declined more than expected in July, as stimulus began to fade and the world’s largest economy still grapples with spiking Covid-19 cases. Inflation expectations have also dampened consumer sentiment yet services should start to see a rise in demand, as employment continues to rise along with household incomes. A headline contraction in sales of 0.4% was registered for the month. Despite the result, FOMC meeting minutes suggest that the Fed is ready and preparing for the taper. As the committee acknowledged that ‘progress has been made’ with respect to key economic metrics. The Fed highlighted concerns over labour supply which may dampen progress for the second half of the year. Markets are pencilling in a September announcement.

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[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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[Anzo Capital]

Weekly Market Review by Anzo Capital​

Reflecting on the week of 01 Nov 2021

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The Wait Is Over​

The US labour market looks to be making a moderate recovery with 531,000 new jobs added in October, against a forecast 450,000. Another 235,000 was also added to September’s data indicating that after a long period of weakness, the jobs market may be turning a corner. The rise will make a dent in the recovery of the 22 million jobs that were lost during the pandemic. At the November FOMC meeting, the Fed predictably announced that it will begin to taper $15 billion in bond purchases each month, starting this month. The current purchasing rate stands at $210 billion per month. The committee also recognised the persistence of inflationary pressures although no change was made to the Fed Funds rate at this meeting. The Fed will now have a task of managing inflation expectations.

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[Anzo Capital]

Weekly Market Review by Anzo Capital​

Reflecting on the week of 08 Nov 2021

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All Bets On An Early Fed Rate Hike​

Futures markets have priced in a July 2022 rate hike from the Fed after October’s inflation numbers surprised to the upside. Consumer prices climbed 0.9% for the month against a forecasted 0.6% rise. Annualized rates have now soared well beyond the price stability mandate of 1-3% annualized inflation. The Fed has stated aims to complete the tapering of its asset repurchasing program by the middle of next year, with interest rate hikes expected soon after. Despite the holiday season and associated hiring trends, unemployment claims unexpectedly moved higher in the week ending 6th November. A total of 267,000 new claims were recorded representing a drop of 4,000 on the previous week, indicating that a moderate recovery is still underway for the U.S. labour market.

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