The week kicked off with a sell-off across world markets but the plunge was short-lived. Dovish guidance from the European Central Bank, a strong set of US earnings figures ( helped by more fiscal stimulus and the perceived safety net of extraordinary Fed stimulus that has been in place over the past 13 months) helped markets look through the COVID gloom. The bounce back endured even as economic data were mixed and fears over increasing inflation cannot be tamed despite what central bankers say. “Inflation is not going to be transitory. I have a whole list of companies that have announced price increases, that have told us they expect further price increases, and that they expect them to stick” leading economicst Mohamed A. El-Erian told Bloomberg on Friday.
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U.S. stocks ended a wild week higher, a week which started with a 700-point drop in the Dow and “market sell-off” headlines. A rebound took hold on Tuesday with one of the best daily rises in 4 months. Corporate earnings reports also appeared to play a role in the rebound as second quarter earnings season continues in high gear. Of the 118 S&P 500 companies that have reported so far, roughly 81% have topped revenue forecasts, and around 86% have beaten expectations according to Bloomberg.
Weekly jobless claims for the week ended July 17 hit their highest level (419,000) in two months.
Existing home sales for June came in modestly below forecasts while housing starts were stronger than expected but building permits unexpectedly fell.
More positively, the IHS Markit US Manufacturing PMI hit another record high of 63.1 in July, easily beating market forecasts of 62, preliminary estimates showed. However, services sector growth decelerated more than expected:The IHS Markit US Services PMI dropped to 59.8 in July from 64.6 in the previous month and well below market expectations of 64.8.
In Mexico equities as measured by the IPC benchmark Index, grew 0.24%. Annual inflation rose higher than market expectations during the first half of July, National statistics agency INEGI reported. Year-over-year inflation, measured at a rate of 5.75%, was also slightly greater than expected. “There is a high possibility that the central bank will again raise its benchmark rate by 25 basis points at its August meeting,” CI Banco analysts said in a research note later on Thursday.
In Brazil, the Bovespa returned -1% this week. The official inflation forecast slowed down in July but still had the highest increase for the month since 2004, according to data released Friday by the Brazilian Institute of Geography and Statistics (IBGE). In commodity news, the country’s mining sector increased sales by 98% to US$29 billion in the first half of 2021, data by the Brazilian Mining Institute (Ibram) showed. The increase was driven by the acceleration of the dollar and the evolution of iron ore prices, the main Brazilian mineral product.
In Japan, the benchmark Nikkei 225 returned -1.63% in holiday shortened week, ahead of the start of the Tokyo Olympics on July 23. Most games will be held without a live audience, which is bad news for a country with a public debt estimated to be approximately US$13.11 trillion US Dollars (1.4 quadrillian yen), or 266% of GDP, the highest of any developed nation. The mega-event will cost about $28 billion, according to an estimate by two financial newspapers, the Nikkei and Asahi. No spectators will lead to at least $800 million in ticket-sale losses, Liam Fox, an analyst at analytics company GlobalData, told Marketwatch.
In other economic news, the country’s consumer prices rose by 0.2% from a year earlier in June, after a 0.1% drop in the previous month. This was the first consumer price inflation since August 2020. Exports soared 48.6% year over year in June, the fourth straight month of growth in sales, an encouraging sign for Japan’s export-led economy.
In China, markets had a mixed week when many provinces were affected by deadly floods. The death toll from the record rainfall rose to 33 while the state-run Xinhua news agency reported direct economic losses of 1.22 billion yuan ($189 million) until Thursday (July 22).
The People’s Bank of China (PBoC) left its benchmark interest rates for corporate and household loans steady for the 15th straight month, confirming monetary policy stability, despite a recent surprise move to add liquidity to the financial system. Nationwide home sales in the first half of 2021 jumped 38%, compared to the same period in 2020 despite tighter credit conditions, according to research from private survey firm CRR. In listing news, according to a Bloomberg report, Beijing plans to exempt Chinese companies listing in Hong Kong from having to first seek approval from the Cyberspace Administration of China (CAC), in a move that would effectively encourage companies to have their initial public offerings in Hong Kong over the U.S.
In commodities, to mitigate commodity price inflation, Beijing is set to sell another 30,000 tonnes of copper, 90,000 tonnes of aluminium and 50,000 tonnes of zinc from its state reserves on July 29, the National Food and Strategic Reserves Administration said on Wednesday.
In other news, Chinese authorities pledged to reduce the cost of childbirth, parenting and education and shore up labor protections for women over the next five years.
In Australia, the S&P/ASX 200 moved up 0.6% for the week despite heavy losses on Monday and Tuesday. Investors seemed very optimistic in both their attitudes and positioning despite fresh lockdowns, new border closures and the announcement that New Zealand is suspending all quarantine-free travel from Australia for eight weeks. In economic news, Australia’s preliminary July manufacturing growth slowed but remained comfortably in expansion territory, but the services sector fell hard into contraction territory in July, the latest survey from Markit Economics revealed on Friday with a 14-month low services PMI score of 44.2.
European markets quickly rebounded from a noticeable selloff on Monday. Upbeat data, excellent quarterly figures and the European Central Bank’s (ECB) reaffirmation of its dovish monetary policies boosted sentiment. Markit Eurozone Composite PMI—a gauge of manufacturing and services sector activity—improved to 60.6 in July from June’s 59.5 level, with a reading north of 50 depicting expansion. Meanwhile, Eurozone’s private sector expanded at the fastest pace in 21 years in July, as countries eased COVID-19 restrictions, flash survey results from IHS Markit showed on Friday. Germany’s private sector logged a record growth in July driven by an ongoing rapid recovery in services activity. In Spain, where the IBEX35 returned 2.48% this week, the country’s top court ruled that last year’s lockdown was unconstitutional.
The European Central Bank left its key interest rates unchanged on Thursday, but revised its forward guidance on the same saying it “expects interest rates to remain at their present or lower levels until it sees inflation reaching 2 percent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2 percent over the medium term.”
ECB President Christine Lagarde said that the current rise in eurozone’s inflation is likely to be temporary and underlying price pressures are expected to pick up gradually.
While the ECB promises an even longer period of stimulus to back commitment to boost inflation, strong price pressures in central Europe have already prompted central banks in the region raise interest rates, like Hungary and the Czech Republic. Russia’s central bank decided to increase the key rate to 6.50 percent from 5.50 percent, on Friday, to bring the inflation to the target. The outcome of the meeting came in line with economists’ expectations. Annual inflation is forecast to reach 5.7-6.2 percent this year in Russia. In Romania, the BET index returned -1.03%.
In Nigeria, the equities market ended the brief trading week on a positive note with the All Share Index gaining 1.90%. Markets were closed on Tuesday and Wednesday in commemoration of the Eid el-Kabir celebrations. However, the year-to-date performance of the benchmark is -3.98%. In Tanzania, the banking sector assets grew by 4.1% last year compared to 9.6% in 2019, Tanzania Banking Sector Review 2020 by EY Tanzania showed. Fitch upgraded cote d’Ivoire to ‘BB-‘, outlook stable. The rating agency also revised Rwanda’s outlook to negative; Affirms at ‘B+’.
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