World markets were weaker this week as cautious risk sentiment dominated putting downward pressure on equities. Significant global economic uncertainty followed investors as well as worries about a looming reduction in central bank stimulus. Global growth and inflation concerns are also mounting.
The European Central Bank met and decided to trim its emergency bond purchases over the coming quarter, in a shift ECB’s President Lagarde said isn’t taper.
News of a call between Chinese leader Xi Jinping and U.S. President Joe Biden and bets that the worst of Beijing’s regulatory crackdown has passed offered some relief. However, United States and China lead the economic slowdown according to PMI index by IHS Markit. Both manufacturing and services sectors in China enter into negative field while sharp decline in US Service PMIs dragged the Composite Index to end of 2020 levels.
Meanwhile, a coup in Guinea rattled iron ore and bauxite markets as the African country has the world’s largest reserves of bauxite from which aluminium is made. The nervousness in world markets revived investors’ interest in ‘so-called’ safe havens like gold and the US dollar.
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The S&P/TSX Composite dropped 0.90% this week. Bank of Canada Governor Tiff Macklem used a speech on Thursday to say the Canadian economy is moving closer to the point where the central bank will no longer need to continue adding stimulus through its quantitative easing (QE) programme. The Bank of Canada deployed QE to fight the COVID-19 crisis and has so far acquired more than $330 billion of Government of Canada debt since the end of March 2020. The unemployment rate in Canada fell for the third straight month to 7.1% in August from 7.5% in July, slightly below market forecasts of 7.3%, Statistics Canada data showed. That was the lowest jobless rate since the onset of the Covid-19 in February of 2020. The country added 90,200 jobs in August, the third consecutive monthly increase, but missing market estimates of 100,000.
Equities finished lower on the week that was shortened by the Labor Day holiday on Monday (Sept. 13) as economic uncertainty loomed. The Federal Reserve’s economic report, the “Beige Book” reported only moderate growth and highlighted labour market tensions and supply constraints. The Labor Department said its producer price index for final demand climbed by 0.7% in August a slowdown from July’s 1.0% gain. Economists had expected producer prices to increase by 0.6%.
US President Joe Biden went on the offensive against anyone who isn’t vaccinated on Thursday. He announced that all large employers must require workers to either be vaccinated or submit to testing on a weekly basis, while vaccination would be mandatory for federal workers and contractors.
According to the Job Openings and Labor Turnover Survey (JOLTS) data, U.S. employers had a record 10.93 million job openings, exceeding economists’ expectations. Weekly jobless claims also dropped more than forecast to 310,000. That’s down from the previous week’s 345,000 figure and the lowest since March 2020.
In Mexico, the IPC returned 0.60%. A 7.1 magnitude earthquake shook central Mexico on Tuesday (Sep. 7), leaving at least one person dead and and shaking buildings in the capital several hundred kilometers away.
Brazil’s Bovespa fell 2% amid political tensions —specifically between Brazilian President Jair Bolsonaro’s administration and the Supreme Court —and related street protests and demonstrations. Truckers are halting traffic on several Brazilian highways in support of Bolsonaro, despite his pleading them to stop. The President on Thursday (Sept. 9) called for pacification in the country. Bank of America raised Brazil’s consumer price projection for 2021 from 7.75% to 8%, after the inflation hit 0.87% in August, the highest for the month since 2000. Meanwhile the Brazilian Institute of Geography and Statistics (IBGE) reduced estimate for Brazilian grain harvest in 2021 to 251.7 million tons.
In labour market news, the reactivation of the economies of Latin America and the Caribbean is insufficient to recover the 43 million jobs lost since Covid-19 struck, warned the International Labor Organization (ILO) on Wednesday(8) in Lima, Peru.
Japanese stocks extended their gains over the week as political uncertainty subsided and buoyed by hopes for further stimulus after PM Yoshihide Suga said he was resigning. Bank of Japan Governor said, in an interview with the Nikkei newspaper, highly accommodating monetary policy would be maintained even after the end of the Covid crisis, diverging from strategy of Western counterparts, and for as long as inflation remained below the 2% target.
“We will continue with our current monetary easing to support corporate funding, and stand ready to take additional easing measures without hesitation as needed,” the central bank’s chief said. On the macro front, the Japanese economy expanded 1.9% year-on-year, in the second quarter, compared with a preliminary reading of 1.3% and market forecasts of 1.6%, thanks to an upward revision to government consumption. Separate data showed that household spending in Japan grew by 0.7% year-on-year in July, missing market estimates of a 2.9% growth and after a 5.1% drop in the prior month.
Chinese equities rose for the third straight week. Chinese President Xi Jinping and his American counterpart Joe Biden held their first call in seven months. The two leaders “discussed the responsibility of both nations to ensure competition does not veer into conflict”.
The Biden-Xi phone call boosted sentiment. Strong trade data also had a positive effect.
China’s exports in August recorded a growth of 25.6% on an annual basis totalling $294.32 billion,
far above market estimates of 17.1% and accelerating from a 19.3% rise in July.
It this was the 14th straight month of growth in outbound shipments. Exports to the US increased by 15.52% year-on-year to $51.72 billion, accelerating from July’s 13.4% growth. Meanwhile, exports to the ASEAN countries rose by 16.59% from a year earlier. Imports climbed 33.1% to $236 billion,
beating an expected 26.8% gain in the Reuters poll. China’s monthly trade surplus rose to $58.34 billion last month, up from July’s $56.58 billion, according to data released by the Chinese Customs Agency.
However, behind the robust figures, businesses are struggling on the ground. The Asian giant’s Vice Premier Liu He at the opening ceremony of the 2021 China International Digital Economy Expo made a strong pledge to keep supporting the private sector as it can play a great role in stabilizing employment, adjusting economic structure and promoting innovation.
REST OF ASIA
In Taiwan, the Taiwan Weighted Index, returned -0.24%. Taiwanese exports surged 26.9% year-on-year to a fresh record of $39.55 billion last month, above market forecasts of a 23.5% increase, thanks to electronic components.
In South Korea, the KOSPI rose 0.36% this week as politicians and regulators are joining forces to strengthen monitoring of big IT companies that are growing in influence in various fields. The Financial Services Commission and Financial Supervisory Service on Tuesday said selling financial products on internet platforms without an intermediary license goes against the Financial Consumer Protection Act.
In India, the NIFTY 50 returned 0.26% while the SENSEX 30 advanced 0.26% in a holiday-shortened week. Indian stock markets were closed on Friday. Services PMI jumped from 45.4 in July to an 18-month high of 56.7 in August.
The S&P/ASX200 had a lacklustre week despite the easing of coronavirus-related restrictions.
The benchmark index rose 37.10 points or 0.5% to close at 7,406.60 on Friday, around 3% below its 52-week high of 7,632.80. Across the week its losses were 1.55%. Falls in iron ore prices on Monday and Wednesday weighed on big Australian miners BHP and Rio Tinto with the first losing3.15% over the five days of trading $41.16, while the later finished lower 4.7% to $106.22. Both companies rebounded slightly on Friday but it wasn’t enough to reverse the week’s losses. Energy stocks rallied on Friday after Santos and Oil Search entered into a definitive agreement to merge the two companies, creating a regional champion of size and scale. The A$21 billion merger is just the start of a wave of deals as oil and gas groups try to navigate the energy transition.
European equities weakened amid rising uncertainty about the economic outlook and central bank policy. The European Central Bank held its benchmark interest rate unchanged but decided to trim monthly asset purchasing via its pandemic emergency purchase program (PEPP) in a move that ECB President Christine Lagarde insists is not tapering but “a recalibration of the PEPP for the next three months,” amid a surge in inflation. Net asset purchases under the PEPP will continue with a total envelope of EUR 1,850 billion until at least the end of March 2022 and, in any case, until policymakers judge that the coronavirus crisis phase is over, the ECB said. Growth also remains hampered. Lagarde remained cautious on the economic outlook, saying, “We are not out of the woods.”
In Romania, the BET closed up 0.72% in a week marked by political turmoil. Fitch rating agency in a note warned the collapse of Romania’s coalition government could disrupt fiscal consolidation efforts which are key to resolving the Negative Outlook on Romania’s ‘BBB-’ rating. The Romanian leu dropped to a fresh all-time low against the euro on Tuesday (Sept. 7), as the BNR average reference rate stood at 4.9488 lei to the European currency. On the macro front, Romania’s economy grew 1.8% in real terms in the second quarter of 2021 compared with the first quarter of 2021.
REST OF EUROPE
In the UK, the FTSE100 returned -1.53%. GDP growth slowed more than expected in July, with the economy growing just 0.1% —compared with 1.0% in June- as the post-Covid recovery continued to slow. Industrial/manufacturing production for July came in mixed.
UK Prime Minister Boris Johnson secured parliamentary approval for GBP 12 billion in tax increases to fund changes to social care and the National Health Service. The Institute for Fiscal Studies warned the government’s decision to launch a tax assault will not raise enough funds for the NHS in the long run.
(Note: Trading days from Sunday 05/09/2021 to Thursday 09/09/2021)
In Israel, the TA35 closed up 0.33% on Sunday (Sept. 5) and advanced 1.56% on Thursday (Sept 9). The Tel Aviv Stock Exchange was closed from Monday (Sept. 6) till Wednesday (Sept. 8) in observance of Rosh Hashanah (Jewish New Year). Israel last week officially inaugurated a new port terminal in Haifa Bay. The $1.7b terminal built by two Israeli companies
and operated by China’s state-owned Shanghai International Port Group (SIPG) will handle large vessels of some 18,000 containers, the Transportation Ministry said in a statement and will provide unloading and loading services, shortening their times.
In Egypt, the EGX30 slumped 2.17% this week. A Panamanian-flagged vessel, which was bound for Port Sudan, was briefly stranded in the southern part of the Suez Canal on Thursday before being freed.
The ship MV Coral Crystal was freed after about 15 minutes and navigation at the canal wasn’t affected by the incident, Suez Canal Authority said in a statement.
In Saudi Arabia, the benchmark TASI index rose 0.87% for the week. The oil-rich kingdom bans ministers from sitting on company boards. “Any minister is not allowed to chair the board of any company or serve as a member,” the government said on Friday. “This does not include those whose chairmanship or membership is by order from the prime minister.”
In Nigeria, the NSE All Share Index returned -0.86%. The central bank said on Friday it is investigating the foreign-exchange transactions of lenders operating in the country. Following “recent occurrences in the market”, the regulator “would like to remind banks to desist from all and any forms of FX malpractices”, the Central Bank of Nigeria said. Meanwhile, on Friday, Nigerian Exchange Group (NGX Group) Plc said its CEO Oscar Onyema has been elected a board member of the World Federation of Exchanges (WFE). Onyema is expected to serve on the board of WFE for a 3-year term representing the Europe-Middle East-Africa (EMEA) region.
In South Africa, the JSE Top40 plunged 3.21%. South Africa needs a point target of inflation of around 3% or 4%, and not the current target range of 3% to 6%, SA Reserve Bank (SARB) Governor Lesetja Kganyago said on Wednesday when he delivered a keynote address on 21 years of inflation targeting. Meanwhile, the country’s current account balance widened to its largest surplus ever at R343 billion for the second quarter, according to data released by the SA Reserve Bank (Sarb) on Thursday. A quarterly South African business confidence index compiled by Rand Merchant Bank unit and Stellenbosch University’s Bureau for Economic Research slumped in the third quarter. Sentiment was affected by the reintroduction of strict coronavirus restrictions, deadly riots, looting and arson disrupting supply chains.
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