Briefing global markets

In the past week, almost all of the currencies we tracked have weakened against the dollar. The average coin lost 0.8 percent. against the dollar. Against this background, the Polish zloty was weaker than in previous weeks, losing 1.2 percent. The Swedish krona lost the most. The topic of the weakness of the Swedish currency is gaining importance – it is systematically weaker against other currencies, even against the zloty, which has been weak in recent years. One reason may be Sweden’s relatively lower interest rate compared to other developed countries, adjusting for inflation. Another reason may be the higher exposure of northern banks to the risk of falling commercial real estate prices. However, for all currencies, the fact that the topic of interest rate hikes have come back recently in the US is significant. The issue of the end of the cycle has not been finally closed, which increases uncertainty about the dollar borrowing rate and puts pressure on other market currencies.

Changes in stock indices were much smaller – in local currencies, the average index did not change its value during the week, and in dollar terms it was, of course, slightly negative. During the week, the Turkish index achieved the highest percentage (in local currency) and the Chinese index lost the largest number of losses. The Polish WIG20 fell 1.2 percent. (It happened that the zloty exchange rate fell accidentally). It can be seen that stocks in developed markets have lost more than emerging markets. This also indicates that the impact of the dollar’s rise on global markets has been limited so far. The real panic and risk-taking tends to be associated with a larger sell-off in emerging market stocks.

On the other hand, commodity prices have decreased significantly. Gas fell in particular, as well as industrial minerals. In the latter case, it is important that the recession in the global industry clearly lasts longer than expected and instead of a recovery in the second quarter, we note a renewed deterioration in sentiment. Oil resisted the selling, which may be due to the fact that OPEC+ threatens to cut production from time to time, and the market seems to be operating at a balance between $70 and $80 per barrel.

Bonds also fell last week, which means their yields were rising. The largest increase was for developed markets, which also corresponds to the deeper average discount for stocks in these markets. Although there are clear increases in yield in the Czech Republic and Hungary. In Poland, yields did not change significantly, which indicates that investors believe the story of rapid inflation and possibly even interest rate cuts.

sector indicators

Last week was a weak one for European stock markets. The only sectoral index that gained was that of companies producing information and communication technology equipment (an increase of 0.44 standard deviation from last year). All other sectors declined, and the largest companies in the field of leisure products, including game producers (-1.26), home furniture producers (-0.80), chemical companies (-0.70), gas and water supply companies (-0.54) and electricity producers (-0.52). The Stoxx Europe 600 index, which includes the largest European companies, also ended the week with a clear decline (-0.32).

What are the reasons for pessimism in European stock exchanges? The main factor is the possibility of a further slowdown in the economy, and thus recession. So far, the economic situation in Europe has been weak, the slump in the industry has been going on for several months, but there were hopes that growth would be maintained above zero. With the European Central Bank raising interest rates, these hopes are fading and most sectors are expecting weaker demand. This is also accompanied by destocking, that is, a reduction in stocks in firms that produce finished products, which causes a significant decrease in orders from component manufacturers.

This negative macroeconomic outlook is not offset by even the rapid decline in prices for energy, especially gas, and other raw materials, including metals.

Another reason for the decline may be, paradoxically, predictions of slowing inflation. In recent quarters, it has been inflation that has fueled the economy — companies have been able to post high nominal increases in revenue and profits, despite the weakness of the economy. Due to the fact that the stock exchange values ​​companies at face value, this has led to an increase in their prices. When inflationary processes begin to lose their apparent strength, corporate results will also improve more slowly or even deteriorate. Investors may have already started pricing in such a scenario.

Why were ICT equipment producers able to make gains last week? This is primarily due to the boom in artificial intelligence. The impetus was the publication of forecasts by Nvidi, the American manufacturer of chips and graphics cards, indicating a huge increase in demand for components needed to create AI-enabled server farms. This also strengthened the quotations of European companies producing such components.

Companies closest to the top and bottom of the European stock exchanges

The composition of the European Stoxx 600 companies closest to their highs has not changed much since last week. Of particular note is the appearance of Polish dinosaurs on this list. This is the result of the increase in the company’s quotes in recent weeks. These increases are due to the very good results the company has posted in recent weeks, which are largely attributed to inflation. The company’s share price also rose significantly after the announcement of the revaluation plan of 500 plus PLN 800 interest.

In the list of companies closest to the heights, it is also worth paying attention to the producers of ICT equipment. BE Semiconductor, the semiconductor manufacturer, extended its gains last week. This was due to the aforementioned investor interest in artificial intelligence and the equipment needed to develop this technology. Addtech, the Swedish manufacturer of equipment and machinery for industry, is also among the companies near the top. Another Swedish company, Atlas Copco, which also provides industrial equipment, also appeared on the list. This indicates that the industry is still investing despite the weak economic situation.

Among the companies with 5-year highs, there are also two German insurers – Hannover Rock, which specializes in reinsurance, and Talanex, one of the largest insurers in Germany. The list also includes two companies that provide information technology services and consulting services related to this field – Alten and Sag.

On the other hand, more and more companies are running real estate portfolios near 5-year lows. These are Aroundtown, Samhallsbyggnadsbolaget, Confinimo and the elemental health properties. This is the result of the tightening of the Monterana policy throughout Europe. On the one hand, this leads to an increase in financing costs for these companies, which leads to worse results and a decrease in the valuation of their portfolio. On the one hand, it slows down the growth of real estate prices or even causes declines, which also contributes to their lower valuations.

Closest to the high and low shares of the US stock markets

Among the S&P 500 companies, technology companies were the closest to a 5-year high. In the first place is Nvidia, which has grown strongly after the release of revenue forecasts, which showed that there is a huge demand for equipment for the development of artificial intelligence (AI). In one day, the company’s share price rose by more than 20%.

At the same time, this caused the “Nvidia effect” – increases in other technology companies that produce hardware or software used to develop artificial intelligence. As a result, some of these companies have found themselves close to 5-year highs. We are talking about Cadence Design Systems (a company specializing in computing software), Synopsys (including semiconductors), Brodcom (semiconductors, infrastructure software) and Oracle (software).

In contrast, among the companies closest to the lowest levels in the US were companies from the region for example energy (Dominon Energy), real estate (Healthpeak Properties), telecommunications (Verizon), digital services (PayPal, Match Group) and commodity manufacturers. Perennials for Homes (3M Group, Newell Brands).

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