Formally, inflation figures and lower-than-forecast expectations helped the market to find ground for a rebound. However, the declines of the previous days may have broken the backbone of the bull market. A couple of technical signals indicate this.

Primarily, there is a series of 11 sessions of declines in the Dow Jones. This is one of the most sustained selloffs in the history of the index. The decline has not been particularly intense most of the time, except on 18 December when markets were pressured by a change in expectations from the Fed. This acceleration in the decline coincided with the index falling below its 50-day moving average, from which the index had been bouncing since August. On this indication, we can talk about the breaking of the medium-term uptrend, opening the way to the 200-day. It passes through 40800 and aims upwards to 41000 by the end of the year.

The S&P500 is fighting for the 50-day moving average, remaining below the 6000 level. In this case, the upward trend is not broken yet, as the market reaction to the relatively positive news on Friday brought the index back to its trend curve.

A similar technical picture is even stronger in the Nasdaq100, which was approaching the 50-day MA at its lowest point but bounced back impressively on Friday.

The outlook is most concerning for the Russell2000. This index of small stock market companies has erased all gains since the Republican election victory, losing over 10.5% from a peak in early December to a bottom last Friday. As in the Dow Jones, a break below the 50-day moving average accelerated the sell-off. This index is approaching its 200-day average (now at 2175). It has been trading above this curve since last December, making it an important support level: buying intensified as it approached it.

On a positive note, the Fear and Greed Index fell into the extreme fear area late last week. This is deep enough to provide a reset for the markets, but it is important to understand whether this is the start of a bear market.

So far, the stock markets have been unimpressive, and we cannot say whether the bull or bear camp is dominant. But by the end of the year, the picture will become clearer.

(Dec 24): Catastrophe-bond issuance rose to a record this year, increasing the overall market to almost US$50 billion (RM224.49 billion), as insurers transferred more risk from costly climate disasters to private investors.

Sales of bonds earmarked for supplemental coverage of large windstorms, earthquakes and other events totalled US$17.7 billion, up 7% from the previous record set a year ago, according to Artemis, which tracks the market for insurance-linked securities. The figures include cyber risk and private transactions.

“The cat-bond market had another year of strong growth,” said Tanja Wrosch, head of cat-bond portfolio management at Zurich-based Twelve Capital AG. “Larger, more diverse and deeper markets are key to the success and sustainability of cat-bond solutions and investment strategies.”

Cat bonds reward buyers for taking on insurance-market risk linked to natural calamities. If a predefined event occurs, bondholders can suffer hefty losses. If it doesn’t, they can earn double-digit returns.

Insurers and other issuers have become more eager to issue cat bonds, partly because of higher inflation, which has made it more expensive to rebuild properties destroyed in storms and other catastrophes. At the same time, insured losses have been rising as climate change stokes more extreme weather events.

This month, Allstate Corp finalised the second-largest cat-bond deal in its history, obtaining US$650 million of reinsurance protection against storms, wildfires and other natural perils. The deal was about 86% larger than the initial target, according to Artemis.

Cat bonds continue to pay out more than many fixed-income assets. This year, investors are on track to earn returns of 16%, compared with a record 20% in 2023.

The yield on a catastrophe bond consists of a risk spread, plus the existing money-market fund rate. Investors have benefited from both attractive risk spreads and higher money-market yields of 4.5% to 5%, up from 0.25% or less during the pandemic.

There were sharp swings in the risk spread during 2024, partly because of sudden changes in the availability or scarcity of capital. It’s a market dynamic that’s growing in importance relative to underlying risk fundamentals, Wrosch said.

Twelve Capital expects the risk spread to be in the 5%-to-7% range next year. It was as high as 8.4% in 2024, according to data from Artemis.

Wrosch said cat-bond investors “can expect high single-digit to low double-digit gross returns” in 2025. Analysts at Plenum Investments AG, another Zurich-based cat-bond investor, are forecasting similar gains.

Cat bonds are designed to be shock absorbers for so-called tail events, which are rare but highly damaging weather-related disasters. Now, insurers increasingly want to use the securities to backstop rising losses from lesser but more-frequent hazards such as wildfires and thunderstorms. These events may have a modest impact individually, but they can cause large insured losses in aggregate.

While the scientific models underpinning so-called secondary perils have improved, they aren’t nearly as reliable as earthquake or hurricane models. That makes it harder to calculate risks. It remains to be seen whether cat-bond investors will be willing to bet on bonds that include aggregate losses, rather than bonds for single-occurrence events such as a Florida hurricane.

“We still see investors showing a stronger preference for occurrence structures,” Wrosch said. “This is certainly true for us.”

Even so, the surge in aggregate losses is a dilemma the insurance industry needs to tackle. In a recent report, Twelve Capital pointed out that most insured losses from natural catastrophes won’t be from hurricanes this year but from wildfires, tornadoes, floods and other non-peak disasters — and they’ll exceed US$50 billion.

“Secondary perils remain very active with another year of heavy tornado and hail losses, in what may be a ‘new normal’ for this peril,” according to Twelve Capital.

Source: Theedgemarkets

KUALA LUMPUR (Dec 24): Malaysia’s producer price index (PPI) declined by 0.4% in November 2024, a slower decrease compared to the 2.4% drop in October 2024, mainly due to the continued contraction in the mining sector, according to the Department of Statistics Malaysia (DOSM).

Chief statistician Datuk Seri Dr Mohd Uzir Mahidin said the mining sector fell by 8.3% in November 2024, compared to a sharper decline of 17.3% in October 2024, driven by a 14.8% decrease in the extraction of crude petroleum index.

“The manufacturing sector recorded a smaller decline, a drop of 1.8% compared to a 2.6% decrease in October 2024.

“This was largely due to lower prices in the index of manufacture of coke and refined petroleum products (-16.8%); manufacture of chemicals and chemical products (-5.1%),” he said in a statement on Tuesday.

Conversely, Mohd Uzir noted that the agriculture, forestry, and fishing sector surged by 21.8%, up from 13.8% in October, led by a 37.7% increase in the growing of perennial crops index.

Month-on-month, the chief statistician said the PPI rose by 1.4%, supported by an 8.5% gain in agriculture and a 5.7% rebound in mining, with notable increases in the extraction of natural gas (14.2%) and crude petroleum (2.7%).

Elaborating further on the PPI local production by stage of processing, Mohd Uzir said the finished goods index rose by 0.4% in November 2024, driven by a 1.3% increase in the capital equipment index.

Meanwhile, the crude materials for further processing index declined by 2.0%, primarily due to a 2.4% drop in non-food materials, and the intermediate materials, supplies and components index fell slightly by 0.2% due to the 4.2% decrease in processed fuel and lubricants.

Looking at selected countries, Mohd Uzir said the PPI of the US rose by 3.0%, driven by the final demand index, while Japan’s 3.7% increase was attributed to higher costs in agriculture, forestry, and fishery products.

He added that the UK recorded a 0.6% decline due to lower chemical costs, while China continued its deflationary trend with a 2.5% contraction, marking its 26th consecutive month of deflation as Beijing implemented measures to stabilise the economy ahead of the year-end.

Regarding Malaysia’s current selected commodity prices, Mohd Uzir noted that global crude oil prices experienced fluctuations due to factors such as supply decisions by major oil producers and concerns over global demand, as reported in the International Energy Agency’s November 2024 Oil Market Report.

“Overall, Brent crude oil prices ranged between US$71 to US$75 per barrel during the month. While global crude oil prices declined due to oversupply and economic concerns, Malaysia’s prices increased, supported by currency strength and regional demand dynamics.

“Meanwhile, according to the Malaysian Palm Oil Council (MPOC), Malaysia’s crude palm oil prices are hovering around RM5,000 per tonne this month, supported by uncertainties in export supply and a decline in production,” he added.

Source: Theedgemarkets

(Dec 24): Chinese authorities have agreed to issue three trillion yuan (US$411 billion or RM1.85 trillion) worth of special treasury bonds next year, two sources said, which would be the highest on record, as Beijing ramps up fiscal stimulus to revive a faltering economy.

The plan for 2025 sovereign debt issuance would be a sharp increase from this year's one trillion yuan and comes as Beijing prepares to soften the blow from an expected increase in US tariffs on Chinese imports when Donald Trump returns to the White House in January.

The proceeds will be targeted at boosting consumption via subsidy programmes, equipment upgrades by businesses and funding investments in innovation-driven advanced sectors, among other initiatives, said the sources.

The sources, who have knowledge of the discussions, declined to be named due to sensitivity of the matter.

The State Council Information Office, which handles media queries on behalf of the government, the finance ministry and the National Development and Reform Commission (NDRC), did not immediately respond to a Reuters request for comment.

China's 10-year and 30-year treasury yields rose one basis point and two basis points, respectively, after the news.

The planned special treasury bond issuance next year would be the largest on record and underscores Beijing's willingness to go even deeper into debt to counter deflationary forces in the world's second-largest economy.

China does not generally include ultra-long special bonds in its annual budget plans, as it sees the instrument as an extraordinary measure to raise proceeds for specific projects or policy goals as needed.

As part of next year's plan, about 1.3 trillion yuan to be raised through long-term special treasury bonds would fund "two major" and "two new" programmes, said the sources with knowledge of the matter.

The "new" initiatives consist of a subsidy programme for durable goods, where consumers can trade in old cars or appliances and buy new ones at a discount, and a separate one that subsidises large-scale equipment upgrades for businesses.

The "major" programmes refer to projects that implement national strategies such as construction of railways, airports and farmland and build security capacity in key areas, according to official documents.

The state planner NDRC said on Dec 13 Beijing had fully allocated all proceeds from this year's one trillion yuan in ultra-long special treasury bonds, with about 70% of proceeds financing the "two major" projects and the remainder going towards the "two new" schemes.

Tariffs threat

Another big portion of the planned proceeds for next year would be for investments in "new productive forces", Beijing's shorthand for advanced manufacturing, such as electric vehicles, robotics, semiconductors and green energy, the sources said.

One of the sources said the amount earmarked for that initiative would be more than one trillion yuan.

The remaining proceeds would be used to recapitalise large state banks, said the sources, as top lenders struggle with shrinking margins, faltering profits and rising bad loans.

The issuance of new special treasury debt next year would equate to 2.4% of the country's 2023 gross domestic product (GDP). Beijing had raised 1.55 trillion yuan via such bonds in 2007, or 5.7% of the country's economic output at that time.

President Xi Jinping and other top officials met at the annual Central Economic Work Conference (CEWC) on Dec 11-12 to chart the economic course for 2025.

A state media summary of that meeting said it was "necessary to maintain steady economic growth", raise the fiscal deficit ratio and issue more government debt next year, but did not mention specific numbers.

Reuters reported last week, citing sources, that China plans to raise the budget deficit to a record 4% of GDP next year and maintain an economic growth target of around 5%.

At the CEWC, Beijing sets targets for economic growth, the budget deficit, debt issuance and other goals for the year ahead. These targets, usually agreed upon by top officials at the meeting, will not be officially announced until an annual parliament meeting in March and could still change before then.

China's economy has struggled this year due to a severe property crisis, high local government debt and weak consumer demand. Exports, one of the few bright spots, could soon face US tariffs in excess of 60% if Trump delivers on his campaign pledges.

While the risks to exports mean China will need to rely on domestic sources of growth, consumers are feeling less wealthy due to falling property prices and minimal social welfare. Weak household demand also poses a key risk.

Last week, Chinese officials said that Beijing plans to expand the consumer goods and industrial equipment trade-in programmes to include more products and sectors.

Source: Theedgemarkets