Tuesday's Markets Update (November 7, 2023)

07 Nov 2023 by rate3

On Tuesday, Nasdaq rose for the seventh consecutive day, its longest winning streak in two years. Amazon, Apple, Meta, and Tesla all rose. Microsoft reached its all-time high. Energy stocks were the biggest underperformers, falling on lower oil prices. Meanwhile, BTC traders attempted to overcome the 36K barrier, which resulted in a 1K price increase on the hourly graph. Technical formations remained bullish, but major resistance zones ahead and low volumes undermined rising momentum.

Details

The logistics industry is exhibiting signs of resurgence, as evidenced by the Logistics Managers Index (LMI) climbing to 56.5, up from 45 in July. This upward trajectory, according to analysts, suggests a gradual yet consistent expansion of the economy over the past three months. The logistics sector is reportedly capitalizing on an ongoing supply boom, which has resulted in lower supply costs and stimulated job creation. However, this LMI surge is primarily attributed to increased inventories, which could be a consequence of seasonal fluctuations and should not be construed as an unequivocal indicator of a broader shift towards robust economic growth.

World Markets

The Helsinki Stock Market Index (HEX) is a major stock market index that tracks the performance of the Finnish stock market. The index is a market value-weighted index, and it consists of all the stocks listed on the Helsinki Stock Exchange. The index began with a base of 100 on December 31, 1985. The major components of the index include companies from various sectors such as oil and gas refining and marketing, industrial machinery, electric utilities, diversified banks, and communications equipment.

The drop in the Finnish market index (HEX, Helsinki) by more than 11% in 2023 can be attributed to a combination of factors, both domestic and international. This analysis provides insights into the key drivers behind this decline:

Energy Crisis: One of the significant factors contributing to the market index drop is the global energy crisis. Energy prices, especially fossil fuels, have surged in 2023, affecting various industries that rely heavily on energy, such as manufacturing and transportation. This has led to increased operational costs, reduced profit margins, and general economic uncertainty.

Sudden Break of Relations with Russia: The abrupt deterioration of relations with Russia has had adverse effects on the Finnish economy. Russia has historically been a significant trading partner for Finland, and any disruptions in this relationship can impact various sectors of the Finnish economy. Trade restrictions, economic sanctions, or geopolitical tensions can hinder business operations and trade, leading to decreased market performance.

Aggressive Policy of the Finnish Central Bank: The aggressive policy of the Finnish Central Bank, characterized by a substantial increase in interest rates to more than 9%, can have a severe impact on the financial markets. Higher interest rates can lead to reduced borrowing, increased borrowing costs for businesses, and decreased consumer spending, ultimately affecting economic growth and corporate profitability.

Sector-Specific Factors:

Air Transportation (Finnair Oyj): The aviation industry is highly sensitive to energy prices, and it has also been affected by reduced demand due to global uncertainties and travel restrictions.
Pharma (Oriola Oyj): The pharmaceutical sector may have been impacted by increased production costs and supply chain disruptions, which can affect revenue and profitability.
Real Estate (Yit Oyj): Yit Oyj, with significant activity in Russia, may have faced challenges due to geopolitical tensions, affecting its business operations and profitability.
Tech/Media (Sanoma Oyj): Tech and media companies may have been influenced by changes in advertising budgets, consumer behavior, and economic uncertainties.
Best Performers (Uponor Oyj): Companies providing energy efficiency solutions, like Uponor Oyj, have likely benefited from the energy crisis as organizations and consumers seek ways to reduce energy consumption and costs.
Expectations for the Future: we expect a reversal in the index's performance in the near future for several reasons:

As the global energy situation improves and energy prices stabilize, it could alleviate some of the pressure on industries heavily reliant on energy.
Lower inflation can lead to a reduction in Central Bank interest rates, potentially stimulating economic growth and investment.
Businesses are likely to adapt to the new geopolitical landscape and seek new markets to offset losses due to the strained relationship with Russia.
In conclusion, the Finnish market index's decline in 2023 can be attributed to a combination of domestic and international factors, including the energy crisis, geopolitical tensions with Russia, and aggressive monetary policy. The performance of specific industries and companies within the index was also affected. The expectation for the future is that the index may start to reverse as these factors evolve, offering potential opportunities for recovery and growth in the coming months. However, economic and geopolitical uncertainties may continue to influence the market's performance.

Commodities

Orange juice prices have increased by 89.44% since the beginning of 2023, and there are several reasons for this surge.

Regionally, two of the most important producers of orange juice are Brazil and the United States, which constitute some 85% of the market. In the U.S., the states of California, Florida, and Texas produce the bulk of the country’s oranges. The current crisis in Florida’s orange growing areas has been a key factor in the recent orange juice rally.

Brazilian growers have also been facing some weather-related headwinds. As a result, the 2023/2024 growing season may not be as bountiful as the 2022/2023 growing season, which is likely why orange juice prices continue to rally.

The US orange crop has been ravaged by infestations and extreme weather intensified by global heating, which has led to a decrease in production and a rise in prices. Last year, Florida, which produces more than 90% of the US's orange juice supply, was hit by Hurricane Ian, Hurricane Nicole, and freezing conditions in quick succession, devastating orange producers in the Sunshine State. Producers also battled an incurable citrus greening infestation that is spread by an invasive insect, rendering fruit unusable.

With supplies hurt by storm and insects, the United States is increasingly importing from international markets like Brazil. The US will increasingly have to depend on imports from Brazil, which accounts for around one-third of global output, as well as neighboring Mexico. Indeed, with the US importing more orange juice than it has been producing domestically in recent years, many believe South America’s biggest economy could hold the key to the direction of orange-juice prices in 2023.