Ormiga Weekly Market Update: 8th December 2023

US

In November, the US economy continued to flex its resilience, showing ongoing job creation and indicating sustained strength in the labor market. Employers added 199,000 jobs, signaling vitality despite slight underlying weakness due to the return of autoworkers and actors following strikes. The unemployment rate declined to 3.7%, down from 3.9%, underlining the economy's distance from recessionary territory. Despite interest rate hikes affecting consumer spending and business investments, the report depicts a robust economic landscape. Wages surged by 0.4% over the month, surpassing expectations, while the workweek also saw a slight extension, reinforcing the vigor in labor demand.

However, layoffs have remained a persistent reality in 2023. Several companies, including Spotify, cited sluggish economic growth in announcing staff reductions. Notable tech and finance firms like Meta, Google, Goldman Sachs, and others initiated significant layoffs early in the year, mirroring the trend of downsizing witnessed toward the end of the previous year.

In contrast, McDonald's, the global fast-food giant, unveiled ambitious expansion plans, aiming to open an additional 10,000 restaurants worldwide by 2027. This initiative, outlined by McDonald’s CEO Chris Kempczinski, represents an accelerated growth phase, leveraging the brand's strength, global presence, and digital ecosystem to solidify its position as a leading consumer brand. The company's goal to reach 50,000 restaurants by 2027 reflects its strategic trajectory for continued expansion and brand elevation.

Europe

Industrial production in Germany and Italy stumbled as the final quarter of the year commenced, hinting at a potential recession in the European region. Germany, the continent's largest economy, witnessed a 0.4% decline in output in October compared to the previous month, marking the lowest level since August 2020, as reported by the German statistics office. Similarly, Italy recorded a 0.2% drop in production from September. Though the statistical samples might not be directly comparable, the concurrent downturns in both economies, alongside negative results in France and Spain earlier in the week, signal emerging weakness across the region's hard data. The euro-zone's gross domestic product contracted by 0.1% in the third quarter, further underlying the economic challenges. Germany's unexpected production decline, contrary to economist predictions of a 0.2% increase, highlights the economy's ongoing struggle to rebound from last winter's energy-induced crisis and subdued global demand. This situation notably impacts the manufacturing sector, a cornerstone of Germany's economy, grappling with expensive energy costs, higher interest rates, and subdued international demand.

In the UK, a major report on the nation's economic status revealed that fifteen years of economic stagnation have left the average household £8,300 ($10,550) behind peers in countries like France and Germany. The Resolution Foundation and the Centre for Economic Performance at the London School of Economics proposed initiatives aiming to revitalize the UK economy, enhance living standards, and reduce inequality. Their suggestions encompass broad measures such as narrowing the wealth gap between British cities, promoting services exports, and boosting public investment, all geared toward bolstering productivity and uplifting the nation's economic landscape.

Asia

Moody's, the credit rating agency, downgraded China's ability to repay its government borrowing, citing the ongoing repercussions of the property sector crisis as a hindrance to the country's economic revival. Moody's cautioned that Beijing might need to intervene to support local governments, state-owned enterprises, and regions grappling with mounting debts. This predicament could impede efforts to stimulate investment and economic growth, prompting Moody's to shift its outlook for Chinese sovereign bonds from stable to negative. This adjustment signals an increased risk of default by Beijing over the past year, a concerning factor for potential lenders.

In response, China's top leadership has prioritized economic stability and restoring investor confidence for the upcoming year. During a Politburo meeting, President Xi Jinping emphasized policy continuity to reinforce the ongoing economic recovery and bolster positive market sentiments. He highlighted the necessity of stabilizing economic fundamentals to attract foreign investment, promote trade growth, and counter negative perceptions about the Chinese economy through increased engagement with global markets.

In Washington this week, SK Group Chairman Chey Tae-won reiterated his proposal for a trilateral economic union between South Korea, Japan, and potentially other nations in Northeast Asia. He envisioned this partnership mirroring the European Union's integration, aiming to harness synergies and foster regional peace. At the 2023 Trans-Pacific Dialogue in Washington, Chey underscored the changing dynamics, noting that South Korea and Japan are witnessing diminishing benefits from the World Trade Organization system and facing intensified competition, particularly from China.

[Disclaimer: The information provided in this blog post is for educational and informational purposes only and should not be construed as financial advice. Consult with a qualified financial professional before making any investment decisions.]