Market News Summary of Institutional Views on Financial Markets on May 31
Summary of Institutional Views on Financial Markets on May 31
On May 31, institutions summarized their views on the stock market, commodities, foreign exchange and the central bank's policy outlook.
2022-05-31
9061
On May 31, institutions summarized their views on the stock market, commodities, foreign exchange and the central bank's policy outlook.
1. Morgan Stanley: The worst is over;
① Better late than never, said Andrew Sheets, chief cross-asset strategist at Morgan Stanley. Better late than never, he argues, applies to the central bank debate. It's easy to argue that policy has been too loose for too long. What matters now is that policy is normalizing in an important way, and that the shift has credibility. Final rates in the U.S., euro zone and Australia all assume the economy can handle further tightening. Inflation expectations are falling, the housing market is cooling, and credit risk premiums are back around their long-term averages. If this is a "policy error", there must be a lot of central bankers thinking, and that's fine for us;
② Sheets said: We believe that we have passed the worst period of inflation and policy surprises affecting the market. That should help yields stabilize over the summer and reduce interest rate volatility, which in turn helps mortgages, municipal bonds and investment-grade credit. We think it's too early to buy high-yield assets, especially after this week's big rally, but expect credit default swaps (CDS) to outperform cash as investors think they're well-hedged current uncertainty;
③ Sheets also said that relative to metals, energy remains a good example of where relative value can continue to play a role. Energy commodities generally have better arbitrage opportunities, better momentum and more fundamental support. The Brent-to-gold ratio has risen over the past 12 months, but remains 30% lower than it was 20 years ago
2. CICC: Lithium prices are expected to usher in a rebound inflection point in the third quarter, focusing on targets with more structural growth capabilities;
The essence of the early lithium sector correction lies in the downward shift of the industry growth center in the "green stagflation" stage, superimposed on the negative impact of short-term factors, which is now fully reflected in the valuation. Considering that the epidemic is expected to ease in the third quarter, the demand for lithium has entered the traditional peak season, and the increase in supply is limited. In this context, attention should be paid to the targets with more structural growth capabilities. The leaders of the lithium industry are expected to cross the cycle by accelerating the volume and the self-sufficiency rate of resources. The second-tier targets with larger marginal changes are expected to accelerate the evolution, reflecting the growth beyond the industry.
3. UBS analyst Giovanni Staunovo: Considering the low spare capacity, there may be greater supply disruptions in the future, while oil demand may continue to increase, I expect oil to be mainly driven by its own fundamental factors
4. China Gold: The mid-to-long-term nickel price center may be in the range of US$15,000-20,000/ton;
We judge that the mid- to long-term nickel price pivot is US$15,000-20,000/ton. From the perspective of supply and demand fundamentals, we expect the global nickel supply and demand balance to be -12/-2.2/+6.5/+1.9/+47,000 metal tons. The short-term supply and demand relationship in the nickel industry is relatively tight, but it will gradually enter a small surplus in the medium and long term. Considering that the Russian-Ukrainian conflict has continued to tear the global nickel supply chain, this may lead to an overall rise in the short- and medium-term nickel price center, and delay the gradual decline of long-term nickel prices. Taken together, we believe that the mid- to long-term nickel price pivot may be in the range of US$15,000-20,000 per ton.
5. CICC: The prosperity of rare earth magnetic materials is expected to rebound, and the rare earth sector will usher in allocation opportunities;
The CICC Research Report believes that the essence of the early rare earth sector correction lies in the policy suppression caused by the high rare earth prices and the poor transmission of downstream costs, and the superimposed impact of the epidemic has led to pressure on fundamentals and valuations. However, considering the strong demand for energy conservation and environmental protection of new energy vehicles and industrial motors in the long-term, the short-term downstream demand is expected to recover, and the upstream of rare earth is expected to benefit from price recovery and increased production and sales. With the reset of the magnetic material price contract, it is expected to usher in a rise in volume and price
6. Craig Erlam, senior market analyst at Oanda: If investor concerns about the economy further weigh on U.S. bond yields, gold prices may rise again, with $1,870 an ounce being the first major resistance, followed by $1,900 an ounce. Sentiment remains extremely fragile, but as long as the focus is on the deteriorating economic outlook rather than the market pricing in additional rate hikes, gold is expected to continue to perform well
7. Gold has held up very well, given the sharply higher bond yields and a stronger dollar this year, analysts at Heraeus Metals Germany GmbH & Co. wrote in a note. If it can hold above $1,800 an ounce, coupled with a longer-than-expected period of high inflation, gold prices are poised for further gains
8. Daniel Ghali, senior commodity analyst at TD Securities: In the last month, Europe has been discussing an embargo on Russian oil, and the market has increasingly seen additional sanctions as a risk. With rising demand for gasoline, diesel and jet fuel ahead of peak summer demand in Europe and the US, further bans on Russian oil will tighten the market
9. Bank of America: Sterling may encounter a "perfect storm", suggesting hedging against the pound crisis;
Bank of America strategists said investors should hedge against a sterling crisis, given the challenges sterling typically faces in emerging markets. Strategist Kamal Sharma said in a report that continued rate hikes by the Bank of England will not be enough to save the pound. The country's current account deficit, deteriorating relations with the EU over Northern Ireland, and doubts about the central bank's credibility could combine to create a "perfect storm";
"While not wanting to overstate the pound's woes into some kind of 'doomsday' scenario, we are concerned that the increasing politicization of UK policy is weakening the pound, as is happening in emerging markets," Sharma said in the report. Sensation that something is changing in the UK, with the Bank of England becoming less understandable and less transparent; the Bank neither discussing nor acknowledging that Brexit has been a major headwind on the supply side, and it feels like the Bank of England is losing control over its objectives";
Sharma advises clients to hedge against "current-account crisis" risks. The UK current account deficit is not a new phenomenon. But the liquidity and trading environment for the pound has changed and is currently facing one of the most challenging macroeconomic/policy challenges in a generation. Although the pound is one of the most actively traded currencies in the world, it has been impressive since 2016 that the pound has often been subject to a liquidity black hole
10. Citi economist Benjamin Nabarro: The UK is expected to provide additional economic stimulus this fiscal year;
The UK government is expected to provide more financial support to UK households by the end of the current financial year (to April next year). The package unveiled last week set a precedent for the government to provide support to vulnerable households, and as household incomes continue to tighten, a package of between £5bn and £10bn is likely to be introduced. The UK government is expected to cut VAT in the fourth quarter and make permanent tax cuts from April 2023 to stimulate the economy if persistent risks to inflation subside
11. ING: The rise of the euro against the dollar may stall near 1.08;
Market bets that the European Central Bank will start raising interest rates in the coming months and the United States will pause in raising interest rates have boosted the euro, although the euro may peak around 1.08 against the dollar. ING sees insufficient support for EUR/USD to move back towards 1.10 and rise above that level. Eurozone economy more vulnerable to spikes in energy prices, while worsening eurozone terms of trade 'damages euro's medium-term fair value'
12. Capital Economics: The Eurozone Economic Sentiment Index shows that the economy stagnated in the second quarter;
The euro zone's economic sentiment index in May was basically unchanged from April, well below the level before the Russian-Ukrainian conflict, in line with the stagnation of economic activity in the second quarter. Andrew Kenningham, chief European economist at Capital Economics, said: "While economic activity in April and May was a bit better than we feared, the outlook for this year remains bleak." Kenningham said the post-pandemic leisure and hospitality industry A rebound in China and a backlog of orders in the manufacturing sector underpinned economic activity, both of which could soon disappear. Euro zone GDP growth is expected to fall below consensus or ECB expectations this year
Rabobank: U.S. dollar may remain strong for longer;
Despite signs that the Fed may have had some success in slowing U.S. demand, safe-haven demand is expected to continue to support the dollar in the coming months. Even if the factor that triggers the deterioration in sentiment is deteriorating U.S. fundamentals, any sense of crisis is likely to boost demand for the dollar, reflecting the fragile nature of sentiment. We expect high volatility in the FX market in the coming months and the sell-off in USD will be short-lived, with a risk of another move towards 1.03 in EUR/USD in 1 to 3 months
1. Morgan Stanley: The worst is over;
① Better late than never, said Andrew Sheets, chief cross-asset strategist at Morgan Stanley. Better late than never, he argues, applies to the central bank debate. It's easy to argue that policy has been too loose for too long. What matters now is that policy is normalizing in an important way, and that the shift has credibility. Final rates in the U.S., euro zone and Australia all assume the economy can handle further tightening. Inflation expectations are falling, the housing market is cooling, and credit risk premiums are back around their long-term averages. If this is a "policy error", there must be a lot of central bankers thinking, and that's fine for us;
② Sheets said: We believe that we have passed the worst period of inflation and policy surprises affecting the market. That should help yields stabilize over the summer and reduce interest rate volatility, which in turn helps mortgages, municipal bonds and investment-grade credit. We think it's too early to buy high-yield assets, especially after this week's big rally, but expect credit default swaps (CDS) to outperform cash as investors think they're well-hedged current uncertainty;
③ Sheets also said that relative to metals, energy remains a good example of where relative value can continue to play a role. Energy commodities generally have better arbitrage opportunities, better momentum and more fundamental support. The Brent-to-gold ratio has risen over the past 12 months, but remains 30% lower than it was 20 years ago
2. CICC: Lithium prices are expected to usher in a rebound inflection point in the third quarter, focusing on targets with more structural growth capabilities;
The essence of the early lithium sector correction lies in the downward shift of the industry growth center in the "green stagflation" stage, superimposed on the negative impact of short-term factors, which is now fully reflected in the valuation. Considering that the epidemic is expected to ease in the third quarter, the demand for lithium has entered the traditional peak season, and the increase in supply is limited. In this context, attention should be paid to the targets with more structural growth capabilities. The leaders of the lithium industry are expected to cross the cycle by accelerating the volume and the self-sufficiency rate of resources. The second-tier targets with larger marginal changes are expected to accelerate the evolution, reflecting the growth beyond the industry.
3. UBS analyst Giovanni Staunovo: Considering the low spare capacity, there may be greater supply disruptions in the future, while oil demand may continue to increase, I expect oil to be mainly driven by its own fundamental factors
4. China Gold: The mid-to-long-term nickel price center may be in the range of US$15,000-20,000/ton;
We judge that the mid- to long-term nickel price pivot is US$15,000-20,000/ton. From the perspective of supply and demand fundamentals, we expect the global nickel supply and demand balance to be -12/-2.2/+6.5/+1.9/+47,000 metal tons. The short-term supply and demand relationship in the nickel industry is relatively tight, but it will gradually enter a small surplus in the medium and long term. Considering that the Russian-Ukrainian conflict has continued to tear the global nickel supply chain, this may lead to an overall rise in the short- and medium-term nickel price center, and delay the gradual decline of long-term nickel prices. Taken together, we believe that the mid- to long-term nickel price pivot may be in the range of US$15,000-20,000 per ton.
5. CICC: The prosperity of rare earth magnetic materials is expected to rebound, and the rare earth sector will usher in allocation opportunities;
The CICC Research Report believes that the essence of the early rare earth sector correction lies in the policy suppression caused by the high rare earth prices and the poor transmission of downstream costs, and the superimposed impact of the epidemic has led to pressure on fundamentals and valuations. However, considering the strong demand for energy conservation and environmental protection of new energy vehicles and industrial motors in the long-term, the short-term downstream demand is expected to recover, and the upstream of rare earth is expected to benefit from price recovery and increased production and sales. With the reset of the magnetic material price contract, it is expected to usher in a rise in volume and price
6. Craig Erlam, senior market analyst at Oanda: If investor concerns about the economy further weigh on U.S. bond yields, gold prices may rise again, with $1,870 an ounce being the first major resistance, followed by $1,900 an ounce. Sentiment remains extremely fragile, but as long as the focus is on the deteriorating economic outlook rather than the market pricing in additional rate hikes, gold is expected to continue to perform well
7. Gold has held up very well, given the sharply higher bond yields and a stronger dollar this year, analysts at Heraeus Metals Germany GmbH & Co. wrote in a note. If it can hold above $1,800 an ounce, coupled with a longer-than-expected period of high inflation, gold prices are poised for further gains
8. Daniel Ghali, senior commodity analyst at TD Securities: In the last month, Europe has been discussing an embargo on Russian oil, and the market has increasingly seen additional sanctions as a risk. With rising demand for gasoline, diesel and jet fuel ahead of peak summer demand in Europe and the US, further bans on Russian oil will tighten the market
9. Bank of America: Sterling may encounter a "perfect storm", suggesting hedging against the pound crisis;
Bank of America strategists said investors should hedge against a sterling crisis, given the challenges sterling typically faces in emerging markets. Strategist Kamal Sharma said in a report that continued rate hikes by the Bank of England will not be enough to save the pound. The country's current account deficit, deteriorating relations with the EU over Northern Ireland, and doubts about the central bank's credibility could combine to create a "perfect storm";
"While not wanting to overstate the pound's woes into some kind of 'doomsday' scenario, we are concerned that the increasing politicization of UK policy is weakening the pound, as is happening in emerging markets," Sharma said in the report. Sensation that something is changing in the UK, with the Bank of England becoming less understandable and less transparent; the Bank neither discussing nor acknowledging that Brexit has been a major headwind on the supply side, and it feels like the Bank of England is losing control over its objectives";
Sharma advises clients to hedge against "current-account crisis" risks. The UK current account deficit is not a new phenomenon. But the liquidity and trading environment for the pound has changed and is currently facing one of the most challenging macroeconomic/policy challenges in a generation. Although the pound is one of the most actively traded currencies in the world, it has been impressive since 2016 that the pound has often been subject to a liquidity black hole
10. Citi economist Benjamin Nabarro: The UK is expected to provide additional economic stimulus this fiscal year;
The UK government is expected to provide more financial support to UK households by the end of the current financial year (to April next year). The package unveiled last week set a precedent for the government to provide support to vulnerable households, and as household incomes continue to tighten, a package of between £5bn and £10bn is likely to be introduced. The UK government is expected to cut VAT in the fourth quarter and make permanent tax cuts from April 2023 to stimulate the economy if persistent risks to inflation subside
11. ING: The rise of the euro against the dollar may stall near 1.08;
Market bets that the European Central Bank will start raising interest rates in the coming months and the United States will pause in raising interest rates have boosted the euro, although the euro may peak around 1.08 against the dollar. ING sees insufficient support for EUR/USD to move back towards 1.10 and rise above that level. Eurozone economy more vulnerable to spikes in energy prices, while worsening eurozone terms of trade 'damages euro's medium-term fair value'
12. Capital Economics: The Eurozone Economic Sentiment Index shows that the economy stagnated in the second quarter;
The euro zone's economic sentiment index in May was basically unchanged from April, well below the level before the Russian-Ukrainian conflict, in line with the stagnation of economic activity in the second quarter. Andrew Kenningham, chief European economist at Capital Economics, said: "While economic activity in April and May was a bit better than we feared, the outlook for this year remains bleak." Kenningham said the post-pandemic leisure and hospitality industry A rebound in China and a backlog of orders in the manufacturing sector underpinned economic activity, both of which could soon disappear. Euro zone GDP growth is expected to fall below consensus or ECB expectations this year
Rabobank: U.S. dollar may remain strong for longer;
Despite signs that the Fed may have had some success in slowing U.S. demand, safe-haven demand is expected to continue to support the dollar in the coming months. Even if the factor that triggers the deterioration in sentiment is deteriorating U.S. fundamentals, any sense of crisis is likely to boost demand for the dollar, reflecting the fragile nature of sentiment. We expect high volatility in the FX market in the coming months and the sell-off in USD will be short-lived, with a risk of another move towards 1.03 in EUR/USD in 1 to 3 months
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