Must read: FTSE 100, IMF, gold, China, Japanese yen, Cineworld, Wizz Air, Tesla

On a busy day for global financial markets following the new year celebrations, our head of investment rounds up the action across the asset classes.

GLOBAL MARKETS 

After a mixed session in Asia, European markets have opened higher, with the FTSE 100 outperforming, playing catch up after Monday’s bank holiday. Oil giants Shell (LSE:SHEL) and BP (LSE:BP.) are trading near the top of the UK index alongside housebuilders Persimmon (LSE:PSN), Taylor Wimpey (LSE:TW.), and Barratt Developments (LSE:BDEV).

Rolls-Royce Holdings (LSE:RR.) is also staging impressive gains after Jefferies raised the stock from a 'hold' to a 'buy' and lifted its price target from 90p to 125p a share. 

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The IMF’s managing director Kristalina Georgieva warned that a third of the global economy will face a recession this year with a ‘tougher’ year ahead versus 2022. She said the US economy is the most resilient but the outlook for emerging markets is even more dire because of debt levels and a strong US dollar. 

Focus this week is on Federal Reserve’s meeting minutes due on Wednesday as well as key inflation figures across the eurozone this week. 

Gold is trading higher by more than 1% to hit a six-month high and silver is up by more than 2%. Precious metals are catching a bid on the back of low volumes, technical factors as well as fears of a global economic slowdown.

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CHINA 

China’s December Caixin manufacturing PMI slumped to 49 versus 49.4 month-on-month, hitting the lowest level in three months and marking the fifth straight monthly decline in factory activity. Over the weekend its larger official PMI survey slumped to a three-year low of 47, firmly below the 50 boom-bust divide. It comes as China simultaneously battles a surge in coronavirus infections while attempting to dismantle its longstanding zero-tolerance to Covid approach. It is also grappling with low vaccination rates particularly among the elderly and a lack of official data available on the seriousness of the Covid outbreaks.

China’s foreign ministry said the Covid restrictions on Chinese travellers by many countries are ‘simply unreasonable’ and ‘lack scientific basis’, adding that it plans to take corresponding measures accordingly. 

Meanwhile, the IMF’s managing director Kristalina Georgieva warned China’s Covid cases are bad news for the global economy in the near term, and forecasts that China’s GDP growth is likely to be at or below global growth in the near-term.

Despite the raft of bad news, Chinese markets have staged gains, with the Hang Seng and the Hang Seng Tech Index reversing earlier losses, swinging into the green amid hopes of an economic recovery in China as it finally begins the process of reopening its economy to the world.

JAPANESE YEN 

The Japanese yen hit the highest level in seven months driven by speculation that the Bank of Japan (BoJ) could start to shift away from its ultra-accommodative monetary policy stance. Over the weekend the Nikkei reported that the central bank is contemplating raising its inflation forecasts, fuelling expectations for a monetary shift from the BoJ, pushing the yen higher. 

Last month, the Japanese yen jumped to a four-month high after the BoJ surprised markets with a change to its policy, widening the band to let long-term yields move by 50 basis points around its 0% target up from the previous 25 basis points. However, it said this was to improve the functioning of the market, rather than being an interest rate hike. Japan has been an outlier in terms of the global shift towards monetary tightening, given its long-standing history with deflation that means the BoJ unlike other central banks, has been welcoming the prospect of some inflation. However, the policy tweak could arguably signal the start of an exit from its current strategy.

CINEWORLD

Cineworld Group (LSE:CINE) has denied media speculation that the cinema chain has been holding discussions over the sale of some of its assets to AMC Entertainment (NYSE:AMC). It confirmed it has no plans to sell off any assets individually. Meanwhile, Cineworld said it is holding talks with key stakeholders to develop a Chapter 11 bankruptcy plan. 

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The company had a very tough ride during the pandemic when cinemas were forced to shut, Hollywood stopped churning out hits and at-home streaming surged in popularity. Plus, Cineworld faced problems of its own with a £700 million damages bill for abandoning its takeover of Cineplex in Canada. Shares are down over 90% over the last year with a double-digit slide in today’s trade.”

WIZZ AIR 

Shares in Wizz Air Holdings (LSE:WIZZ) are trading higher after it reported a 58.4% jump year-on-year in passenger numbers to 4.2 million in December. A jump in air travel during the festive season and school holidays helped to drive Wizz Air’s numbers sharply higher after a very challenging year for the airline sector. 

2022 was meant to be the post-pandemic comeback year for international travel but strikes, baggage handling problems, cancellations and the cost-of-living crisis weighed on the airlines. Despite December’s passenger rebound, Wizz Air’s shares still have a long way to go with the stock down nearly 60% over a one-year period.

TESLA 

Tesla Inc (NASDAQ:TSLA) reported 405,278 electric vehicles in the fourth quarter, reaching a record high but missing analysts’ estimates for 431,117 vehicles. This is a sharp increase year-on-year from 308,600. Last week, Tesla shares suffered its worst day in eight month to hit a two-year low following a report that it was considering reducing its January production at its Shanghai plant. 

Shares in Tesla have slumped around 70% over a one-year period, caught up in the sell-off in technology stocks driven by rising inflation and interest rates. It has also been grappling with stiff competition in China from rivals like NIO Inc ADR (NYSE:NIO), concerns about a broader global demand slowdown and worries Elon Musk has taken his eye off the ball amid the Twitter distraction. The fact that he has sold billions of dollars of Tesla shares hasn’t helped investor confidence either.