BRICS continues to expand. Fitch downgrades Chinese companies again

January 4, 2024

As of Wednesday’s stock market close, the Dow Jones (US30) index decreased by 0.76%, while the S&P 500 (US500) index was down by 0.80% yesterday. The NASDAQ Technology Index (US100) closed negative by 1.18% on Wednesday. The S&P 500 Index (US500) fell to a 2-week low, the Dow Jones Index (US30) fell to a one-week low, and the NASDAQ Index (US100) fell to a 3-week low.

The minutes of the December 12-13 FOMC meeting did not indicate an imminent Fed rate cut and provided support for the dollar. The minutes also showed that policymakers agreed that it is appropriate to maintain a restrictive policy for some time until inflation begins to decline steadily. Markets estimate the odds of a -25bp rate cut at the next FOMC meeting on January 30-31 at 9% and at the next meeting on March 19-20 at 77% (down from 99% a week ago).

US economic news was mixed yesterday: activity in the US manufacturing sector was stronger than expected last month, but US job openings unexpectedly fell in November. The US ISM manufacturing index for the decade rose by 0.7 to 47.4, beating expectations of 47.1. The number of open job openings in the US for November unexpectedly fell by 62,000 to a 2-year low of 8.790 million, indicating a weaker labor market than expectations of a rise to 8.821 million.

Equity markets in Europe were mostly down yesterday. The German DAX (DE40) fell by 1.38%, the French CAC 40 (FR40) lost 1.58% yesterday, the Spanish IBEX 35 (ES35) decreased by 1.26% yesterday, and the British FTSE 100 (UK100) closed negative by 0.51%.

Inflation statistics for the Eurozone are expected to be released this week, following data from Germany today. Inflation is forecast to rise to 3% year-on-year in December, up from 2.4% in the previous month. This would be the highest reading in three months and the biggest rise in a single month since October 2022. Nevertheless, markets are questioning the ECB’s hawkish appetite. The policy rate has continued to move downward since the December meeting. Analysts expect the first 25 basis points (bps) rate cut to come no later than April.

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Saudi Arabia officially joins the BRICS bloc. Prince Faisal bin Farhan said the BRICS group is a beneficial and important channel to strengthen economic cooperation. Previously, the BRICS bloc included Brazil, Russia, India, China, and South Africa. Still, it will now double as the United Arab Emirates, Egypt, Iran, and Ethiopia will join along with Saudi Arabia. Pakistan has also applied to join BRICS. Saudi Arabia’s biggest oil consumer, China, has led calls for BRIC expansion to become a counterweight to the West.

Crude oil prices jumped on Wednesday on concerns about dwindling global oil supplies after Libya said it was shutting down its Sharara oil field after protesters stormed the facility. The Sharara oil field is Libya’s largest and pumps about 300,000 barrels per day.

Iran’s dispatch of a warship to the Red Sea is the boldest move it has made to challenge US forces on a key trade route, emboldening Houthi militants whose attacks have disrupted shipping over the past two months. Tehran is unlikely to want a direct confrontation—its old frigate is no match for the US-led maritime task forces patrolling the waters off Yemen, but it takes the projection of Iranian power in the region to a new level and heightens tensions in the Middle East.

Asian markets were predominantly rising yesterday. Japan’s Nikkei 225 (JP225) was not trading due to holidays, China’s FTSE China A50 (CHA50) was down by 1.67% yesterday, Hong Kong’s Hang Seng (HK50) fell by 0.85% by Wednesday’s close, and Australia’s ASX 200 (AU200) was negative by 1.37% for the day.

Fitch downgraded four Chinese state-owned asset managers by one notch and placed three of the four companies under surveillance for further potential downgrades. The rating agency cited growing pressure on the four companies due to the ongoing downturn in the real estate market and increased uncertainty about the government’s ability to support the asset managers’ finances. This, in turn, has led to uncertainty over the ability of state-owned companies to buy back non-performing assets on the open market, which is weighing unfavorably on China’s financial markets. At the same time, Taiwan should benefit from the semiconductor sector’s recovery from a severe downturn in 2023.

S&P 500 (US500) 4,704.81 −38.02 (−0.80%)

Dow Jones (US30) 37,430.19 −284.85 (−0.76%)

DAX (DE40) 16,538.39 −230.97 (−1.38%)

FTSE 100 (UK100) 7,682.33 −39.19 (−0.51%)

USD Index 102.51 +0.31 (+0.30%)

News feed for 2024.01.04:

– Australia Services PMI (m/m) at 00:00 (GMT+2);
– Japan Manufacturing PMI (m/m) at 02:30 (GMT+2);
– China Caixin Services PMI (m/m) at 03:45 (GMT+2);
– German Services PMI (m/m) at 10:55 (GMT+2);
– Eurozone Services PMI (m/m) at 11:00 (GMT+2);
– UK Services PMI (m/m) at 11:30 (GMT+2);
– German Consumer Price Index (m/m) at 15:00 (GMT+2);
– US ADP Non-Farm Employment Change (m/m) at 15:15 (GMT+2);
– US Initial Jobless Claims (w/w) at 15:30 (GMT+2);
– US Services PMI (m/m) at 16:45 (GMT+2);
– US Natural Gas Storage (w/w) at 17:30 (GMT+2);
– US Crude Oil Reserves (w/w) at 18:00 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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BRICS continues to expand. Fitch downgrades Chinese companies again