Stock Markets
Markets in 2023: Soaring stocks and roaring bonds defy the doubters
© Reuters. FILE PHOTO: A screen displays the Dow Jones Industrial Average after the closing bell on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., December 15, 2023. REUTERS/Brendan McDermid/File Photo
By Marc Jones
LONDON (Reuters) -This year might go down as one of the most unusual ever in financial markets – mainly because everything seems to have come good despite a lot of turbulence and many predictions turning out to be wrong.
Take equity markets. World stocks are nearly 20% higher despite the highest interest rates in decades and a mini crisis that wiped out one of Europe’s best known banks – Credit Suisse – along with a few smaller ones in the U.S.
In the bond markets, just a few months ago investors were expecting the Fed & Co to raise rates and leave them there while recessions rolled in. Now bond markets are looking to central banks to embark on a rate-cutting spree with inflation apparently beaten.
Other areas of the markets have experienced wild gyrations that are hard to explain. is up 150% on the year. Some of the most beaten up emerging market bonds have achieved triple-digit gains. The “magnificent seven” tech giants have seen a 99% surge in their shares over the year.
“If you’d told me at the start of year that we would have a U.S. regional banking crisis and Credit Suisse would cease to exist, then I’m not sure we would have guessed that we would see the year we’ve had for risk assets,” PIMCO’s CIO for Global Fixed Income, Andrew Balls, said.
The result has been 3.5% – 6.5% returns from top government bonds and a $10 trillion rally in world stocks, although that has been top heavy.
Meta (NASDAQ:) and Tesla (NASDAQ:) have soared 190% and 105%. The Nasdaq is on the cusp of its strongest year in two decades, while AI’s demand for semiconductor chips has catapulted Nvidia (NASDAQ:) 240% higher into the $1 trillion dollar club.
But it has been a very bumpy ride.
In March, the collapse of Silicon Valley Bank, a mid-sized U.S. lender, and the rescue of 167-year-old Credit Suisse triggered a slide in world shares where they lost all of the 10% gains made in January.
The scramble for safety pushed gold up 7% and U.S. and European government bond yields – the main drivers of global borrowing costs – recorded their biggest monthly drop since the 2008 financial crisis.
The steady climb in interest rates around the world then kept investors sweating through the summer, and in October Hamas’ attacks in Israel ratcheted up geopolitical tensions.
ROUND-TRIPPING
In the forex markets, the dollar is down a barely-noticeable 1% on the year. But Japan’s seeming reluctance to raise interest rates and China’s sputtering economy mean the yen and yuan are down 9% and 3.5% respectively.
As usual, the big moves have been in emerging markets.
Turkey’s efforts to tackle its economic problems following Tayyip Erdogan’s re-election have not been made any easier by another 35% dive in the lira.
Egypt has devalued its currency 20%, Nigeria has cut the naira by 45% and Argentina’s new president Javier Milei has just slashed the peso in half.
On the upside, Colombia and Mexico’s pesos are up 23% and 14%. Poland’s zloty is up 11%, followed by Brazil’s real which is up 8.5%. And of the major currencies, the safe-haven Swiss franc has been the strongest performer up 7.5%.
“Once the dollar starts to move down there could be a lot of fuel for that to continue,” DoubleLine’s Bill Campbell said, referring to a potential weakening of the dollar and also questioning what a potential return to power by Donald Trump might mean.
One of the most remarkable round trips is that the key will end the 2023 almost exactly where it started despite touching 5% in October.
BofA calculates that the battle against inflation has produced around 125 interest rate hikes globally this year versus 60 cuts.
If the previous 18 months are added the total is 510 hikes compared with just over 1,370 cuts since the global financial crash in 2008. And cuts will start to dominate next year with roughly 150 now expected compared with 40 hikes.
“Everyone expects a soft landing to happen, everyone expects bond yields to be lower and everyone expects Fed rate cuts,” BofA strategist Elyas Galou said, highlighting the group think the bank’s investor surveys showed.
The big discrepancy though is that the Fed has only cut rates when unemployment is as low as it now five times the last 90 years.
ELECTION FEVER
has surged 17% in dollar terms, or 27% in yen terms, setting it up for its best year in a decade.
Property woes have continued to drag on China, which has had a knock-on impact on oil, which is down almost 8% on the year. Gold has jumped 11.5%.
Other standouts include El Salvador bonds, which are now battling out of default and have returned 114% on the year.
U.S. sanctions relief has seen Venezuela’s bonds vault 150% and Pakistan and Sri Lanka’s have made 97% and 71%.
Next year won’t be quiet on the political front.
There are more than 50 major elections scheduled next year, including in the United States, Taiwan, India, Mexico, Russia and probably Britain. That means countries that contribute 80% of world market cap and 60% of global GDP will be voting.
Taiwan kicks it off with elections on January 13, followed just a few days later by the New Hampshire primary for the 2024 U.S. Presidential race.
Other dates for the diary include the Fed’s first rate cut, which is pencilled in for March 20, while OPEC and G7 meetings are scheduled for June.
“This is an era of boom and bust,” BofA Galou said. “We are not out of the woods.”
Stock Markets
Palantir, Anduril join forces with tech groups to bid for Pentagon contracts, FT reports
(Reuters) – Data analytics firm Palantir Technologies (NASDAQ:) and defense tech company Anduril Industries are in talks with about a dozen competitors to form a consortium that will jointly bid for U.S. government work, the Financial Times reported on Sunday.
The consortium, which could announce agreements with other tech groups as early as January, is expected to include SpaceX, OpenAI, autonomous shipbuilder Saronic and artificial intelligence data group Scale AI, the newspaper said, citing several people with knowledge of the matter.
“We are working together to provide a new generation of defence contractors,” a person involved in developing the group told the newspaper.
The consortium will bring together the heft of some of Silicon Valley’s most valuable companies and will leverage their products to provide a more efficient way of supplying the U.S. government with cutting-edge defence and weapons capabilities, the newspaper added.
Palantir, Anduril, OpenAI, Scale AI and Saronic did not immediately respond to a Reuters request for comment. SpaceX could not be immediately reached for a comment.
Reuters reported earlier this month that President-elect Donald Trump’s planned U.S. government efficiency drive involving Elon Musk could lead to more joint projects between big defense contractors and smaller tech firms in areas such as artificial intelligence, drones and uncrewed submarines.
Musk, who was named as a co-leader of a government efficiency initiative in the incoming government, has indicated that Pentagon spending and priorities will be a target of the efficiency push, spreading anxiety at defense heavyweights such as Boeing (NYSE:) , Northrop Grumman (NYSE:) , Lockheed Martin (NYSE:) and General Dynamics (NYSE:) .
Musk and many small defense tech firms have been aligned in criticizing legacy defense programs like Lockheed Martin’s F-35 fighter jet while calling for mass production of cheaper AI-powered drones, missiles and submarines.
Such views have given major defense contractors more incentive to partner with emerging defense technology players in these areas.
Stock Markets
Weakened Iran could pursue nuclear weapon, White House’s Sullivan says
By Simon Lewis (JO:)
(Reuters) -The Biden administration is concerned that a weakened Iran could build a nuclear weapon, White House National Security Adviser Jake Sullivan said on Sunday, adding that he was briefing President-elect Donald Trump’s team on the risk.
Iran has suffered setbacks to its regional influence after Israel’s assaults on its allies, Palestinian Hamas and Lebanon’s Hezbollah, followed by the fall of Iran-aligned Syrian President Bashar al-Assad.
Israeli strikes on Iranian facilities, including missile factories and air defenses, have reduced Tehran’s conventional military capabilities, Sullivan told CNN.
“It’s no wonder there are voices (in Iran) saying, ‘Hey, maybe we need to go for a nuclear weapon right now … Maybe we have to revisit our nuclear doctrine’,” Sullivan said.
Iran says its nuclear program is peaceful, but it has expanded uranium enrichment since Trump, in his 2017-2021 presidential term, pulled out of a deal between Tehran and world powers that put restrictions on Iran’s nuclear activity in exchange for sanctions relief.
Sullivan said that there was a risk that Iran might abandon its promise not to build nuclear weapons.
“It’s a risk we are trying to be vigilant about now. It’s a risk that I’m personally briefing the incoming team on,” Sullivan said, adding that he had also consulted with U.S. ally Israel.
Trump, who takes office on Jan. 20, could return to his hardline Iran policy by stepping up sanctions on Iran’s oil industry.
Sullivan said Trump would have an opportunity to pursue diplomacy with Tehran, given Iran’s “weakened state.”
“Maybe he can come around this time, with the situation Iran finds itself in, and actually deliver a nuclear deal that curbs Iran’s nuclear ambitions for the long term,” he said.
Stock Markets
Ukraine says Russian general deliberately targeted Reuters staff in August missile strike
(Reuters) -Ukraine’s security service has named a Russian general it suspects of ordering a missile strike on a hotel in eastern Ukraine in August and said he acted “with the motive of deliberately killing employees of” Reuters.
The Security Service of Ukraine (SBU) said in a statement on Friday that Colonel General Alexei Kim, a deputy chief of Russia’s General Staff, approved the strike that killed Reuters safety adviser Ryan Evans and wounded two of the agency’s journalists on Aug. 24.
In a statement posted on Telegram messenger the SBU said it was notifying Kim in absentia that he was an official suspect in its investigation into the strike on the Sapphire Hotel in Kramatorsk, a step in Ukrainian criminal proceedings that can later lead to charges.
In a separate, 15-page notice of suspicion, in which the SBU set out findings from its investigation, the agency said that the decision to fire the missile was made “with the motive of deliberately killing employees of the international news agency Reuters who were engaged in journalistic activities in Ukraine”.
The document, which was published on the website of the General Prosecutor’s Office on Friday, said that Kim had received intelligence that Reuters staff were staying in Kramatorsk. It added that Kim would have been “fully aware that the individuals were civilians and not participating in the armed conflict”.
The Russian defence ministry did not respond to a request for comment on the SBU’s findings and has not replied to previous questions about the attack. The Kremlin also did not respond to a request for comment. Kim did not reply to messages sent by Reuters to his mobile telephone seeking comment about the SBU’s statement and whether the strike deliberately targeted Reuters staff.
The SBU did not provide evidence to support its claims, nor say why Russia targeted Reuters. In response to questions from the news agency, the security agency declined to provide further details, saying its criminal investigation was still under way and it was therefore not able to disclose such information.
Reuters has not independently confirmed any of the SBU’s claims.
Reuters said on Friday: “We note the news today from the Ukrainian security services regarding the missile attack on August 24, 2024, on the Sapphire Hotel in Kramatorsk, a civilian target more than 20 km from Russian-occupied territory.”
“The strike had devastating consequences, killing our safety adviser, Ryan Evans, and injuring members of our editorial team. We continue to seek more information about the attack. It is critically important for journalists to be able to report freely and safely,” the statement said.
Reuters declined to comment further on the allegation that its staff were deliberately targeted.
The SBU statement said Kim had been named a suspect under two articles of the Ukrainian criminal code: waging an aggressive war and violating the laws and customs of war.
“It was Kim who signed the directive and gave the combat order to fire on the hotel, where only civilians were staying,” it said.
Evans, a 38-year-old former British soldier who had worked as a safety adviser for Reuters since 2022, was killed instantly in the strike.
The SBU statement gave some details about how the strike had occurred, according to its investigation.
“To carry out the attack, the Russian colonel general involved one of his subordinate missile forces units,” the Ukrainian agency said, adding that the strike was carried out with an Iskander-M ballistic missile.
The SBU did not identify the specific unit.
Ivan Lyubysh-Kirdey, a videographer for the news agency who was in a room across the corridor, was seriously wounded. Kyiv-based text correspondent Dan Peleschuk was also injured.
The remaining three members of the Reuters team escaped with minor cuts and scratches.
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