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Wednesday, 19 January 2022

Coming Fed tightening triggers equities rotation, rising yields

US markets overall took a sharp dip on Tuesday as yields rose: The S&P 500 fell 1.8%, the Dow Jones dropped 1.5%, and the tech-heavy Nasdaq declined 2.6% to its lowest level in three months. Treasury yields, meanwhile, posted gains, with the 2-year yield breaking above 1% for the first time since the outset of the pandemic as Fed tightening looms, CNBC reports

Tech stocks have fallen from grace and inflows to bank stocks are on the rise, as the surge in bond yields shifts market dynamics, Bloomberg reports. Net allocations to the tech sector nosedived 20% month-over-month to just 1% after spending more than a decade as the darling of investors, Bank of America’s Global Fund Manager Survey showed. Meanwhile, allocations to bank stocks rose to 41%. Anticipated monetary tightening from global central banks is the “#1 risk to markets in 2022,” according to the survey — leading investors to turn away from expensive, growth-dependent tech equities. .

But it’s shaping up to be a rocky earnings season for Bulge Bracket banks: Goldman Sachs’ shares fell as much as 8% during Tuesday’s trading on the back of missed Q4 earnings targets in its 2021 earnings release (pdf), despite posting record net income of nearly USD 22 bn for 2021. Weaker trading toward the end of the year and rising expenses in the sector saw Goldman join Citigroup and JPMorgan in posting disappointing annual results, leading some to question whether banks can repeat 2021’s bumper year. Bank of America and Morgan Stanley report today.

Also worth noting this morning:

  • HSBC expects a rush of bond sales in the Middle East in the first few months of the year as governments and companies race to refinance ahead of Fed tightening. The bank was the Middle East’s top arranger for bond sales for the first time in more than five years in 2021, with a 14% market share. (Bloomberg)
  • France wants the EU to expedite adoption of the 15% global minimum corporate tax agreed between some 140 countries (including Egypt) last October — but some European nations are dragging their feet on the 2023 implementation target. French Finance Minister Bruno Le Maire sat down with us in June to outline how Egypt stands to benefit from the OECD agreement. (Bloomberg)

Up

EGX30

11,876

+0.2% (YTD: -0.6%)

None

USD (CBE)

Buy 15.66

Sell 15.76

None

USD at CIB

Buy 15.66

Sell 15.76

None

Interest rates CBE

8.25% deposit

9.25% lending

Up

Tadawul

12,194

+0.2% (YTD: +8.1%)

Up

ADX

8,479

+0.8% (YTD: -0.1%)

Down

DFM

3,178

-0.1% (YTD: -0.6%)

Down

S&P 500

4,577

-1.8% (YTD: -3.4%)

Down

FTSE 100

7,563

-0.6% (YTD: +2.4%)

Up

Brent crude

USD 87.51

+1.2%

Up

Natural gas (Nymex)

USD 4.35

+1.5%

Up

Gold

USD 1,813

+0.1%

Up

BTC

USD 42,376

+1.7% (as of midnight)

THE CLOSING BELL-

The EGX30 rose 0.2% yesterday on turnover of EGP 633 mn (45.9% below the 90-day average). Local investors were net buyers. The index is down 0.6% YTD.

In the green: Egyptian Resorts Company (+6.1%), CIRA (+5.3%) and GB Auto (+5.0%).

In the red: Fawry (-1.8%), Rameda (-1.2%) and Palm Hills Development (-1.1%).

Asian markets are following US stocks into the red this morning: The Nikkei was leading the way at dispatch time, down 1.9%, while shares in China and South Korea were marginally in the red. Europe is in course to follow suit, with futures pointing to early losses when markets open in a few hours. Dip-buyers look to be surfacing in the US though, with all three benchmark indexes currently poised to see early gains.

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