World markets had a rough week with emerging countries proving the most volatile. Investors are becoming increasingly concerned with inflation pressures which keep rising, the narrative of slowing growth and fears of Chinese property giant Evergrande’s default that could trigger a domino effect beyond China. They are also analyzing how the latest geopolitical developments will affect trading.
Tensions escalated on the Korean peninsula, with both North and South Korea saying they tested missiles. Australia is scrapping a $90 billion submarine deal with France, with the latter recalling ambassadors to US & Australia.
China and Europe are furious with Australia, the U.S. and the U.K. over their new trilateral deal, will see Australia acquire nuclear-powered submarines. Taiwan urged the European Union to start trading talks with it, as reports emerged that it plans to boost its military spending.
Weak retail sales figures from China suggested a slowdown in the global economic recovery. And in the world’s largest economy, August Headline and Core inflation both arrived weaker than expected, which tempered expectations of imminent tapering of asset purchases by the Federal Reserve.
Meanwhile a recent Deutsche Bank survey found that 58% of the 550 global market professionals surveyed expect a 5-10% correction in stock markets by year-end. Some of the volatility that comes during September-a weak month for equities-also weigh on sentiment.
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The Canadian stock market ended lower this week with the S&P/TSX Composite returning 0.69%.
The mood was cautious with investors looking ahead to the outcome of a federal election. Opinion polls show Canadian Prime Minister Justin Trudeau’s Liberals neck and neck with the opposition Conservatives led by Erin O’Toole ahead of Monday’s vote, according to Reuters.
On the economic front, the annual inflation rate in Canada accelerated to 4.1% in August of 2021 from 3.7% in July and compared to market forecasts of 3.9%. It was the highest inflation rate since March of 2003, a political headache for Trudeau only five days before an election.
The Consumer Price Index in Canada increased 0.2% in August of 2021 over the previous month, data from Statistics Canada showed. The hot inflation print was driven by high gasoline prices (32.5% vs 30.9%), rising housing costs and a surge in the prices of goods like furniture, appliances and vehicles.
Stocks ended lower with the S&P500 notching its second straight week of losses. The Dow Jones had its third straight week of declines.The weakness on Wall Street came as economic data were mixed
and as traders looked ahead to the Federal Reserve’s highly anticipated monetary policy meeting next week which is expected to give further clues as to when the central bank may start to slow its $120 billion in monthly bond purchases.
The latest CPI report showed that inflation came in at a six-month low of 0.3% in August from July. Still, economists cautioned it was too early to celebrate. On the other hand, retail sales unexpectedly rose 0.7% m-o-m in August beating market forecasts of a 0.8% drop. Excluding autos, retail sales jumped 1.8%. And a report from the University of Michigan showed U.S. consumer sentiment rebounded less than expected in September.
Brazil’s BOVESPA plunged 2% this week. The benchmark index was down 2.07% on Friday hitting its
lowest since March. The market was under pressure after the federal government decreed the increase in the IOF tax rate to finance both the increase of “Auxílio Brasil” (Brazil Aid) and the redesign of the “Bolsa Família” (Family Grant) program, which has not yet come into force. The tax
change, which should generate an additional collection of R$12.14 billion will be in effect until the end of the year.
Meanwhile,Credit Suisse raised its estimate for the IPCA-Brazil’s main inflationary index-this year from 8.1% to 8.5% and now expects inflation to end 2022 at 5.2%, due to the effect of high inflationary inertia on wages and services. The Swiss investment bank also reduces projection for 2022 GDP from 1.5% to 1.1%. The IPCA was 9.68% in the 12-month accumulated until August.
In Chile, the IPSA ticked up 0.03% this week. The central bank published the minutes to its August 31 monetary policy meeting, at which the board unanimously voted to raise policy rates by 75 basis points
The move follows the policymakers’ decision to raise policy rates by 25bp in July, the first since Covid-19 struck. The officials saw that it was “necessary to implement a rapid adjustment of the monetary impulse that would bring the policy rate close to its neutral value by the middle of the first half of 2022.”
Elsewhere, Panama’s economy grew 10% in the first half of 2021, four mining projects will enter into production in Ecuador by 2025, Paraguay leads the way in cattle raising in Latin America and
Bolivia exports from January to June 2021 80% more coffee than in 2020, the vice-minister of Foreign Trade, Benjamín Blanco, informed.
Japanese equity markets rose over the week on hopes for post-election fiscal stimulus as the race for the new leader of Japan’s Liberal Democratic Party (LDP) began. Confidence among Japanese larger companies turned positive in the third quarter, survey data from the Ministry of Finance showed, with the Business Survey Index climbing to +3.3 in the September quarter from -4.7 in the previous quarter.
The government downgraded its economic assessment.
“The Japanese economy remains in picking up, although the pace has weakened in a severe situation due to the Novel Coronavirus,” the Cabinet Office said in its September report. The country posted a merchandise trade deficit of 635.4 billion yen in August. Exports were up 26.% y-o-y, missing expectations for an increase of 34.0% while imports surged an annual 44.7% versus expectations for a gain of 40%, the Ministry of Finance said. Industrial production fell a seasonally adjusted 1.5% monthly in July, as estimated.
Chinese stocks fell sharply for the week. Weak economic data, the growing debt crisis at China Evergrande Group -the world’s most indebted property developer- and the fear of tighter regulations in Macau-the world’s largest gambling hub- dampened investor sentiment.
August retail sales expanded 2.5% y-o-y, well below the 7% expected by economists, dragged down by a further contraction in automobile sales. Industrial production increased 5.3% y-o-y , below market forecasts of a 5.8% rise, and after a 6.4% gain in July. Construction investment contracted 3.2% through August.
Embattled China Evergrande which said that it could not service September interest payments on its debt, is quickly becoming the country’s biggest financial worry. The property giant whose debt load exceeds USD 300 billion is facing mounting protests by homebuyers, retail investors and even its own employees
In Macau, the government kicked off a public consultation on Wednesday to revise the Gaming Law towards tightening oversight in areas such as licensing-known locally as “concessions”, profit distribution, daily supervision, and local shareholdings. Beijing has also intensified a war on cross-border flows of funds for gambling. The Bloomberg Intelligence index of the six big casino operators fell a record 19% in trading Wednesday before slightly paring losses.
REST OF ASIA
In India, the SENSEX advanced 1.22% while the NIFTY returned 1.24%. India’s wholesale price index jumped 11.39% y-o-y following an 11.16% increase in July, preliminary data from the Ministry of Commerce & Industry showed. INTERNAL LINK In South Korea, the KOSPI gained 0.47% this week as export prices were up 18.6% y-o-y in August, Indonesia’s IDX Composite returned 0.63% as the country’s trade surplus increased to $4.744 billion in August from $2.312 million a year ago. Economists had expected a surplus of $2.36 billion.
The ASX200 suffered losses for second week as the market was still digesting the impacts of lockdowns on the labour market. While the unemployment rate dipped to its lowest level in almost 13 years, the Australian economy parted ways with 146,300 jobs last month. That was well off from forecasts for the loss of 90,000 jobs following the addition of 2,200 jobs in July, according to the Australian Bureau of Statistics. Stocks were also weighed down by predictions that the price of iron ore will continued to collapse on concerns over weaker demand. The price fall in prices was primarily linked to China’s steel output cuts. China is looking to cap China’s crude steel output in 2021 at 2020 levels to reduce emissions
On the monetary policy front, Reserve Bank of Australia Governor Philip Lowe in a speech to the Anika Foundation in Sydney on Tuesday said the conditions required to lift the key cash rate would not be met before 2024 and market expectations for an early rate hike is out of place.
Meanwhile, business conditions index rose 4 points to +14 in August after declining sharply over the previous two months, a survey from the National Australia Bank showed. At the same time, the business confidence also saw a small improvement in the month, up two points to -5, but it remained well into negative territory.
European equities weakened in a mixed week. The main focus was on consumer price pressures as
Eurostat data revealed that eurozone’s inflation rate rose to 3.0% year-over-year last month. The figure was the highest since November 2011 and well above the European Central Bank’s (ECB’s)
target of 2%. Energy cost accounted for much of the increase, rising by 15.4%in August after a 14.3% advance in July. ECB’s Vice President Luis de Guindos said in an interview with Het Financieele Dagblad on Friday that if supply issues remain, this year’s inflation could be higher than estimated before falling back in 2022.
“We expect inflation to continue accelerating until November this year and then fall to 1.7% in 2022 and 1.5% the year after. […] That has consequences not just for the prices of microchips and semiconductors, but also for energy and transport prices, for instance,” he commented.
Germany’s DAX returned -0.77%. The stock index will be expanded by 10 companies on Monday (Sept. 20), bringing the total number of constituents to 40.
Poland’s WIG20 was off 1.17%. Average gross wages and salaries grew 9.5 percent year-on-year in August in the country amounting to 5843.75 PLN.
In Romania, the BET index returned 1.11%. Romania’s public debt reached 49.3% of GDP in July 2021, Ministry of Finance data showed. the Romanian Constitutional Court has scheduled for Sept. 28 its first key decision, on the no-confidence motion against the Government international rating agency S&P said that it does not expect imminent risks to Romania’s near-term fiscal consolidation following the resignation of USR-PLUS ministers on September 7.
In Cyprus, the benchmark index weakened 0.87%. More positively, the Investment Funds sector continues to grow in the island, as the value of Total Assets Under Management stood at €10.7bn in the second quarter of 2021, according to Cyprus Securities and Exchange Commission (CySEC) data.
REST OF EUROPE
In London, the FTSE 100 lost 0.77% this week. Inflation in the UK jumped to 3.2% in August, its highest level in more than nine years and above market forecasts of 2.9%, the Office for National Statistics said. The monthly rate increased to 0.7% the highest in 3 years. U.K. retail sales declined for the fourth straight month in August, dropping unexpectedly by 0.9% month-on-month. Economists had forecast growth of 0.5% .The fourth consecutive monthly decline marks the longest negative streak since records began. UK company payrolls rose by a record 241,000 in August, while the unemployment rate dropped to 4.6% in the three months ended July 31.
Switzerland’s Swiss Market Index returned -1.04%. The Swiss economic recovery is expected to lose momentum temporarily this year, the State Secretariat for Economic Affairs, or SECO, said in its Autumn forecast, released Thursday. Gross domestic product is forecast to grow 3.4%this year, down from the previous outlook of 3.8%. The projection for 2022 was upgraded to 3.6%from 3.5%.
(Note: Trading days from 12-16/09/2021)
In Israel, the TA35 index gained 0.64% in a holiday-shortened week. The Tel Aviv stock exchange was closed on Wednesday (Sept. 15) and Thursday (Sept. 16) in observance of Yom Kippur-the Day of Atonement.
Egypt’s EGX30 returned -0.54%. The country is obliging its large taxpayers to sign up for a programme to submit their invoices electronically. Wednesday was the sign up deadline for the remaining in a final phase for the large business-to-business taxpayers. Business to consumer registration will start next year. The new system will force a bigger part of the economy to pay taxes, analysts say.
In Saudi Arabia, the TASI bluechip index ticked up 0.04%. The kingdom’s crude oil exports climbed to a six-month high in July, the Joint Organisation Data Initiative (JODI) said on Thursday.
The de-facto leader of OPEC exported 6.3 million b/d in July, up from 5.97 million b/d in June.
In Nigeria, the NSE All Share Index closed up 0.06% for the week. At the close of market on Friday, the stock exchange market value stood at N20.29 trillion from N20.27 trillion in the previous trading day. The market’s year-to-date (YtD) return stood at -3.29%. The Central Bank of Nigeria (CBN) on Friday retained for the sixth straight time its benchmark interest rate at 11.5%, as inflationary pressures remain despite a recent slowdown. The Bank cut its growth projections to 2.86% in 2021, down from a forecast of 3.15% in July.
In South Africa, the JSE Top 40 plunged 2.70%. However, during the Allan Gray investment summit this week, local asset managers said they are finding investment opportunities in SA stocks, despite the country’s problems including recent unrest and record-high unemployment numbers. July retail sales data recorded a contraction of 0.8%, y-o-y. On a monthly basis they shrunk by 11.2%. According to Stats SA, this is the biggest monthly fall in sales since April 2020. The Economist Intelligence Unit’s latest forecasts show that South Africa is the only G20 country which will not recover to pre-Covid-19 levels by 2022.
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