Market development factors: 5 global market themes for the coming week
The China Evergrande Group saga takes the next step after rating agency Fitch called a default. More: Has SPAC-mania returned from the dead?
Here’s your week ahead in the markets:
1 / AT CNE PETIT NOEL
How much hawkishness from the Federal Reserve are the markets willing to tolerate? We may get the answer on Wednesday when the Fed concludes its last meeting of 2021.
His largesse helped the S&P 500 more than double from its March 2020 lows, but lately stocks have hovered between Omicron’s woes and cutback expectations, with Fed Chairman Jerome Powell reporting that policymakers would discuss a faster reduction in bond purchases.
Some have speculated that some degree of Fed hawkishness may already be embedded in stocks, which have risen in recent days.
Signs that the Fed is increasingly worried about inflation – even after suggesting it was time to step back “transiently” from its description of US price hikes – could disrupt markets. The same goes for suggestions for a more aggressive rate hike path in projecting dot plot rates.
2 / READY FOR MORE?
Across the pond, the Bank of England and the European Central Bank unveil their policy decisions 45 minutes apart on Thursday. Both are likely to influence the market.
Uncertainty fueled by the Omicron COVID-19 variant has rocked expectations of a near-term BoE rate hike, but markets are also not entirely ruling out a 15 basis point move.
The ECB is expected to confirm that its € 1.85 trillion PEPP pandemic stimulus package will end in March. His hawks and doves are now vying for support to be left in place once PEPP is over – Omicron and persistent inflation complicate the debate.
Meanwhile, the Bank of Japan concludes a two-day meeting on Friday. A decision to phase out some pandemic stimulus programs when they expire in March could be made. Again, they can be extended using Omicron.
3 / D FOR FAULT
Besieged developer China Evergrande Group appears to have reached the end of the line.
A missed coupon payment of $ 82.5 million is expected to be the domino that will trigger cross defaults worth around $ 19 billion on Evergrande’s international debt, as well as the most worrying contagion risk for the economy and the markets at large from its $ 300 billion in total liabilities.
A downgrade of Fitch’s rating to “narrow default” hit commodities, including crude, amid renewed concerns about the Chinese economy. Authorities say the fallout is manageable, but it has a lot to do right now.
The central bank reduced bank reserve ratios to stimulate growth, then increased foreign exchange reserve requirements to stem a rally in the yuan. The government is also facing a growing diplomatic boycott of the Beijing Winter Olympics, potentially drawing battle lines with the West.
4 / SPAC-TACULAR REBOUND
Special Purpose Acquisition Companies (SPACs) have made a comeback thanks to a flurry of deals, poor trading and Donald Trump.
Choppy markets have seen the PSPC boom halt in recent months, but now it is all over again after Omicron’s expectations for more central bank largesse pushed blank check vehicle volumes above 144 billion dollars for the year so far.
A number of listed PSPCs in New York, Amsterdam and London, while the “de-PSPCs” have seen news site Buzzfeed, UK pharmaceutical company BenevolentAI and bitcoin miner Griid Infrastructure agree to mergers. Donald Trump’s social media firm is raising $ 1 billion to boost its October PSPC merger.
There have been risk recalls with the electric vehicle maker Lucid cited in court by the SEC and Singaporean ridesharing company Grab dropping 20% when it debuted. For now, SPAC-mania continues.
5 / IS TURKEY CUTTING AGAIN?
Thursday is another judgment day for Turkey’s central bank. Policymakers must decide whether to follow President Tayyip Erdogan’s lead and double down to cut rates amid inflation over 21% or whether a weak pound – down 36% this quarter – hampered the decline .
The week will also confirm Turkey as an outlier among hawkish emerging central banks grappling with rising inflation and the prospect of the Fed starting its cycle of down and up. Hungary is expected to rise by 30 basis points on Tuesday, Russia could follow with a rise of 50 basis points on Friday.
Across Latin America, a region that has seen significant rate hikes over the past year, expectations are high that Chile on Tuesday, Mexico on Thursday and Colombia on Friday will all hike their benchmarks.