Research Unit.

Morning Call: The dollar at a nine-month low reinforces appetite for risk.

26 Janeiro, 2023

Positive results from Tesla and STMicroeletronics support the stock market.

European stock markets are resuming their upward trend on Thursday, supported by a battery of positive corporate results, a rebound in the Hong Kong Stock Exchange, and a depreciation of the dollar, which is boosting investors' appetite for risk assets. Asian stocks marked a new seven-month high today, benefiting from the strong rise in the Hong Kong stock market after a three-day break for the Lunar New Year celebration. Positive signs of the reopening of the Chinese economy continue to support the "outlook" for Asian markets, which are having a very strong start to the year. The Hang Seng is up more than 11% in January as investors take advantage of the attractive level of many regional stocks after the 2022 sell off.

The positive trend in emerging markets and stock markets in general is largely being supported by the dollar's decline, with the US currency being penalized by the prospects of a pause in the Fed's interest rate hike cycle. The meeting next week is beginning to focus attention and investors are betting that the central bank will signal that the tightening of monetary policy is nearing an end. The market is assigning a nearly 100% probability of a 25 basis point increase and reinforcing the bet that the pause may come in March or the following month. This narrative gained strength after the Bank of Canada announced a pause in interest rate hikes due to the downward trajectory of inflation.

The dollar index hit a new nine-month low and has already accumulated a decline of more than 10% from September highs. If the Fed sends a softer message, the US currency has room for a more pronounced correction. Attention is focused today on the release of Q4 GDP, which will not be consistent with the threat of an imminent recession. The world's largest economy will have grown at an annual rate of 2.6%, slowing down from the figure recorded in the third quarter (3.2%). In Europe, the message continues to be aggressive, with the governors of the central banks of Ireland and Slovenia signaling 50 basis point increases in February and March. The statements are supporting the euro's rise, which is trading above 1.09 dollars.

On the results front, the news is more encouraging, with Tesla's better-than-expected results making us forget about the concerns about Microsoft's disappointing revenue estimates. After the close of Wall Street, Levi and Chevron reported positive results, while IBM shares reacted negatively to the announcement of cutting 3,000 jobs. The numbers released this morning in Europe were also mostly positive. Highlight for STMicroeletronics, which jumps more than 8% after announcing revenues and profits above expectations. Nokia jumps more than 5%, also in response to results that were better than expected.


SAP cuts 3,000 jobs despite better than expected results.

Job cuts in technology companies have hit Europe hard, with German company SAP announcing that it will eliminate 3,000 jobs, representing about 2.5% of its workforce. Like American technology companies, the German software company is looking to cut costs, despite reporting better than expected operational profits. SAP saw revenues increase 30% in the fourth quarter, while operating profits rose 17% to 1.71 billion euros.

Germany expected to avoid recession in 2023.

The report by the Ifo institute published yesterday and the new forecasts of the German government support the idea that the largest economy in Europe may avoid the recession that was considered certain a few months ago. The index measuring the confidence of entrepreneurs increased in January for the fourth month, to a level higher than expected by economists, leading Ifo's director, Clemens Fuest, to say that "Germany will probably avoid a recession." The German government points in the same direction, with updated estimates indicating a 0.2% increase in GDP this year (previously estimating a contraction of 0.4%). The economy minister even admits that the economy may contract in one or two quarters, but it will always be a slight contraction, allowing for positive growth for the year.

Bank of Canada is the first to signal pause in interest rate hike.

The Bank of Canada raised the interest rate by 25 basis points to 4.5%, the highest level in 15 years. After an accumulated increase of 450 basis points in 10 months, the monetary authority signaled a pause in the worsening of interest rates, becoming the first among the most relevant worldwide to adopt this strategy. The Bank of Canada justifies this stance with the belief that "we are turning the corner of inflation," said Governor Tiff Macklem, noting that inflation is still far from the target, so a cut in interest rates is not on the horizon.

Sonae MC increases sales to nearly 6 billion euros.

Sonae MC closed 2022 with sales of 5.978 billion euros, an increase of 11.5% compared to 2021, and on a comparable basis, revenue grew 9.6%. In hypermarkets, revenue growth was 8.3%, while in supermarkets, sales rose 11.2%. The owner of Continente opened 65 new own stores last year and remodeled 33. Sonae MC notes that the increase in revenue was due to the increase in food prices (13%), noting that inflation will continue at high levels, so operational challenges are not yet over.

EDP Renovaveis increases production by 10%.

EDP Renovaveis produced 33.4 terawatt-hours (TWh) of electricity in 2022, an increase of 10% compared to 2021, with Europe and America representing 35% and 55% respectively. Production in Europe increased 4% compared to the previous year, due to "capacity additions and stable renewable resources." Production in North America grew 8%, reflecting the greater installed capacity and the "better renewable resource" found in this region. EDP Renovaveis added 2.1 GW of renewable capacity, driven by the integration of 0.7 GW of solar assets in APAC and 0.6 GW in South America. Additionally, 0.4 GW in North America and another 0.4 GW in Europe.