World markets had a lot to digest this week. Volatility made a comeback, a plethora of central banks announced policy and heavily indebted Chinese property developer Evergrande added another brick to the wall of worry. Investors around the world and across asset classes worried about the potential collapse of the firm, leading to possible contagion around the world. While many financial observers said it’s not China’s Lehman Brothers moment, some aren’t so sure. Ratings agency Fitch on Thursday cut its growth forecast for China’s economy this year, citing a slowdown in the country’s colossal property sector.
But all eyes were firmly fixed on central banks. The Federal Reserve moved closer to unwinding its huge emergency stimulus and Norges Bank raised its key interest rate becoming the first major Western central bank to do so since Covid-19 struck. Growth slowdown concerns and inflation pressures remain and many analysts don’t see these pressures subsiding for at least a few quarters. As the fourth quarter approaches, with the new quarter may come a new market environment.
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The S&P/TSX Composite Index shed 0.43% in the week. The Canadian stock market’s benchmark index lost on Friday after three straight days of gains. Prime Minister Justin Trudeau’s return to power with big spending plans could fuel Canada’s hot inflation, Reuters wrote on Friday as Trudeau’s Liberals have pledged C$78 billion ($61.6 billion) in new spending over five years. Last month, the country’s annual inflation rate accelerated to its highest level in 18 years at 4.1%.
Stocks witnessed a tumble on Monday when the S&P 500 Index recorded it biggest daily drop since May and the Dow shedding more than 600 points. The major benchmarks also had a two-day rally to recoup losses and managed to end the week flat to modestly higher. Evergrande events triggered fears of financial contagion and rekindled worries over China’s growth slowing. The Chinese group later in the week promised to pay overdue bond coupons sparking a relief rally.
On Wednesday, the U.S. Federal Reserve decided that the target range for the fed funds rate remains at 0% – 0.25% and signaled that interest rate increases may follow in 2022, earlier than previously anticipated. The central bank also confirmed that it would gradually reduce its $120 billion in monthly asset purchases “soon” if the economy continued to progress broadly as expected. At the much-anticipated post-Federal Open Market Committee’s (FOMC’s) press conference, Jerome Powell said that the tapering process could be wrapped up by mid-2022. The Fed will begin tapering at its November meeting unless a really bad jobs figure comes in this month. The September jobs report will be released in a little over a week. A report released by the Labor Department on Thursday showed initial jobless claims rose to 351,000, an increase of 16,000 from the previous week’s revised level of 335,000.
In Brazil, the BOVESPA returned 2%. Brazil’s Central Bank Monetary Comittee raised the Selic rate to 6.25% as it battles to contain inflation. Brazil’s Broad National Consumer Price Index (IPCA-15) hit 10% in 12 months. Separately, the Central Bank announced imports of liquefied natural gas (LNG) are expected to hit a record high in September and August Foreign investment in the country dropped 26% to US$4.5 billion.
In Argentina, the MERVAL sank 5.52%. The Government plans to borrow another $727 million for air traffic control, flood protection and commuter rail upgrades, according to Latin Finance.
In other news, the “Survey of exporting firms in Latin America and the Caribbean. Seeking to understand a new exporting DNA” by the Inter-American Development Bank (IDB), revealed that the
export sector in Latin America and the Caribbean improved “considerably” its short and medium-term expectations after the covid-19 hit the economy.
Japanese equities were weak in a volatile, holiday-shortened trading week as stock markets were closed on Monday and on Thursday. Struggling developer Evergrande’s financial troubles especially dragged down the companies with revenues in China. On the monetary policy front, the Bank of Japan left its key short-term interest rate unchanged at -0.1% and confirmed its stance on maintaining asset purchases at current levels. Central bankers offered a bleaker view on exports and production, amid supply-chain disruptions mainly for chips and parts from Southeast Asia.
The Organization for Economic Cooperation and Development (OECD) said in the September Interim Report released on Tuesday that the global economy is to grow by 5.7% this year, 0.1% point down from its May forecast. Japan’s economy is expected to grow by 2.5% in 2021 and 2.1% in 2022, the slowest growth rate among all major developed economies.
Mainland Chinese stock markets finished a holiday-shortened week broadly flat. Markets were closed Monday and Tuesday for the Mid-Autumn Festival. Shares of China Evergrande Group in Hong Kong fell 11.61% on Friday. The world’s most indebted real estate developer spooked world markets as it missed payments to at least two banks on Monday with analysts fearing it could even turn into China’s Lehman Brothers moment. Some of the Chinese company’s offshore bondholders did not received interest payment by a Thursday deadline U.S. time, Reuters reported on Friday citing two people familiar with the matter.
Now Evergrande has a 30-day grace period, after which it will be considered in default if that period passes without payment. A series of large cash injections by China’s central bank during the week helped avoiding an immediate liquidity squeeze and eased worries about a disorderly debt resolution for the indebted developer which is also part of the Global 500 — meaning that it’s also one of the world’s biggest businesses by revenue. Meanwhile, China’s central bank on Friday declared all crypto transactions ‘illegal’, as it moves to roll out its own virtual currency.
REST OF ASIA
In India, the benchmark 30-share BSE Sensex returned 1.75% while the National Stock Exchange’s Nifty index was higher by 1.52% this week. On Friday, the Sensex hit the 60,000 mark for the first ever time and moved well past the figure to a high of 60,333.00. In South Korea, the Korean Stock Exchange’s Kospi Index fell 0.49% this week. Producer Prices in the Asian country rose 0.4% on a month-on-month basis and 7.3% on a year-on-year basis. In Taiwan, the Taiwan Weighted Index returned 0.10%. The island’s central bank raised its 2021 estimate for gross domestic product (GDP) growth to 5.75% from the 5.08% forecast in June, as strong exports bolstered the trade-reliant economy.
Australia’s S&P/ASX200 Index closed 0.83% lower this week as Evergrande and the future of the iron ore price worried investors. The benchmark index is currently 3.8% below its 52-week high of 7,632.80
Morgan Stanley analysts warned that while lower iron ore prices have not impacted Australian GDP yet, further falls could have a bigger impact. “Any further declines are likely to have a greater impact on the economy, and certainly bear close watching,” Morgan Stanley Australia chief economist Chris Read and his team wrote in a note this week
The NZX50 Index of the New Zealand Stock Exchange returned 0.19%. New Zealand’s August trade deficit widened to a record high of NZD 2,144 million from NZD 299 million in the corresponding month of the previous year. Imports jumped 38.4% while exports dropped 0.9%.
European stocks finished higher this week despite lingering worries about the gradual withdrawal of central bank support. Traders are gearing up for German general elections on Sunday (Sept. 25) and markets could struggle to work out the implications for stocks. Negotiations for the formation of a new coalition may drag on for weeks or months, according to Bloomberg.
Private sector growth in the eurozone slowed noticeably in September from July’s 15-year high, flash survey results from IHS Markit showed. “September’s flash PMI highlights an unwelcome combination of sharply slower economic growth and steeply rising prices,” Chris Williamson, chief business economist at IHS Markit said.
In Hungary, the BUX closed up 0.93% for the week. The National Bank of Hungary raised its benchmark base rate by 15 basis points to 1.65%, a level not seen since May of 2015 and below the 20-30bp hike expected by analysts. It was the fourth rate hike in a row due to high inflation. The consumer prices index rose 4.9% in August. “The elections are coming, many people are indebted and big rate rises would probably not be good news for them,”a currency dealer in Budapest told Reuters.
In Romania, the BET returned 0.65%. The Romanian leu plunged to a new all-time low against the euro on Wednesday (Sept. 22), as the National Bank of Romania (BNR) average reference rate stood at 4.9495 lei to the European currency.
REST OF EUROPE
The Bank of England, Norges Bank, and Swiss National Bank all announced policy with Norway
becoming the first in the G10 world tightening its monetary policy. Norges Bank raised its key short-term lending rate by a quarter point to 0.25% from 0.00% and signaled a further hike in December.
The Bank of England (BoE) kept its key rate unchanged at 0.10% and again pledged to exhaust the full £875bln gilt purchase envelope. Markets are pricing a rate hike next year after BoE warned that sees inflation above 4% this winter. The Swiss National Bank also left its expansionary monetary policy unchanged and reiterated that it is willing to intervene in the foreign exchange market as necessary, in order to counter upward pressure on the Swiss franc
(Note: Trading days Sunday 19/09/2021-Thursday 23/09/2021)
In Israel, the Tel Aviv Stock Exchange was closed on Monday and Tuesday in observance of the Feast of Tabernacles (Sukkoth).
In Egypt, the EGX30 shrunk by 3.23% over the week. e-Finance, the state-owned fintech platform announced its intention to go ahead with a public share sale in the fourth quarter of 2021 and will offer up to 14.5% of its shares on the Egyptian exchange (EGX). The firm, established in 2005 to build, operate and manage the Egyptian Government’s financial payments hub, determined its price range between EGP 29.6 billion and EGP 36 billion, Al Borsa News reported.
Saudi Arabia’s TASI returned -1.33%. The oil-rich kingdom’s Ministry of Industry and Mineral Resources has received 4,073 applications through its online portal since it was launched earlier this year, it said in a statement on Saturday. The mining sector is witnessing a rapid transformation and attracting investors from around the globe since the launch of a new mining law earlier this year.
Meanwhile, most stock markets in the Gulf gained on Thursday as oil prices increased on growing fuel demand and a bigger-than-expected draw in U.S. crude inventories.
In Kenya, the NSE20 index was off 0.74% this week. The Nairobi Securities Exchange (NSE) suffered its biggest daily loss since May on Wednesday with investors losing about Sh54 billion in paper wealth,
amid a slump in the share price of market driver telco Safaricom. Nigeria’s NSE ASI returned 0.05%. Fitch Ratings has signed Nigeria’s proposed US dollar bond, to be issued under its Global Medium Term Note Programme, a ‘B’ rating. The rating is in line with Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR). South Africa’s JSE Top40 advanced 1.83%. SA Reserve Bank kept the repo rate unchanged at 3.5%, in line with economists’ expectations and forecasts growth of 5.3% for the year despite the rate of job losses. PwC Chief economist Lullu Krugel says two-thirds of job creation is related to the country’s GDP performance.
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