March 24, 2023

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On Monday, world shares paused for assessing a record-breaking month, as concerns about the coronavirus pandemic were eclipsed by additional stimulus from central banks and the prospect of economic recovery next year, driven by a vaccine. A survey highlighting that Chinese factory activity had beaten forecasts in November also helped sentiment, and a number of cheap loans by the country’s central bank were also a bonus. While Chinese blue chips were trading lower, but they still had increased 6% in the month, and even though traders in Europe seemed reluctant to add to a bumpy November, it still didn’t detract from a record-busting month of 15%. 

Industrial commodities and oil have also been helped by the increase in risk appetite, while safe-haven options like gold and dollar have been undermined. Analysts said that markets had seen a very strong month, especially in terms of equity, but fixed income hadn’t been bad either. The key drivers have been the announcement of the vaccines and the swift rollout that’s expected to happen. Analysts went on to say that the markets were also being supported by central banks who were providing liquidity. Since the European Central Bank (ECB) is scheduled to give more stimulus in December, the market view seems to be quite positive.

A number of European bourses are having their best month ever, with Italy climbing by 26% and France by 21%. There is also a 13% increase in the MSCI world stock index for November, whereas there has been an 11% increase in the S&P 500 to reach all-time peaks. The broadest MSCI index of Asia-Pacific shares, exclusive of Japan, closed 1.5% lower, but it was still up by nearly 10% for November. There was a 0.8% decline in Japan’s Nikkei 225, but it was still high by 15% for the month, which is the biggest rise since 1994. 

Analysts said that markets were at risk of a pause in the short-term, as they are overbought. However, this time of the year tends to be strong and investors haven’t discounted the possibility of a strong recovery in profits and growth next year, as vaccines combine with stimulus. They said that the cyclic recovery shares were expected to be outperformers, which include industrials, resources, and financials. Safe-haven bonds are under pressure due to a surge in stocks, but most of it has been cushioned by the prospect of more bond-buying by central banks. 

Last week, Sweden’s Riksbank had surprised by expanding their bond purchase program and the same is likely to happen with the European Central Bank in December. On Tuesday, Jerome Powell, Federal Reserve Chair will testify to Congress amidst speculation about changes in policies in their next meeting in December. The expected changes are not likely to benefit the US dollar. A massive fiscal stimulus and easy monetary policy is expected, which would drive the recovery post-pandemic, but would put the greenback under pressure. The dollar index has declined by 2.4% this month against a basket of other major currencies.

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